Government mulls grocery probe
September 1, 2009
Norway’s cabinet minister in charge of agriculture and food, Lars Peder Brekk, is calling for an investigation into the profitable operations of Norwegian grocery store chains. He thinks the retailers are making too much money, at the expense of consumers and food producers.
Many of Norway’s wealthiest individuals are so-called kjøpmenn , people who made their fortunes in the grocery store business. Among them are Stein Erik Hagen, founder of the Rimi grocery store chain, and members of the Reitan (Rema 1000) and Johannson (NorgesGruppen) families.
On Monday, NorgesGruppen reported second-quarter pre-tax profits of NOK 776 million while recent reports also have indicated that bosses of Rema grocery stores earn an average NOK 1.6 million a year. NorgesGruppen operates such grocery chains as Kiwi, Ultra, Meny, Spar and Joker along with other retail ventures like the Deli de Luca kiosk chain.
Norway has among the highest grocery prices in the world, with many items costing double what they do in neighboring Sweden and three to four times what they cost in the US. Farmers often get the blame, because of Norway’s protectionist agricultural policies, but Brekk suspects other factors are at work.
“The gap between what the producers get and what the customers pay is too large,” Brekk told newspaper Dagens Næringsliv on Tuesday. “We (the state agricultural ministry) think that between six and eight billion kroner disappear on the way from the producer to the customer.”
Brekk claimed the profits reported by firms like NorgesGruppen and Rema (which earned NOK 532 million in the second quarter) add to his suspicions, that the retailers are subsidizing lower prices on their own house-brands and raising prices on competing producers’ brands.
“The chains are competing with the own suppliers without being open about it,” Brekk told Dagens Næringsliv . The amount of house-brands has risen 15 percent in the past year, and consumers are buying, for example, cheaper meats packaged under Kiwi’s house brand instead of meat sold under the Gilde or Prior brands, which are owned by farmers.
Brekk suspects the retailers are trying to squeeze out other producers and control the value chain themselves. Not true, responds the head of NorgesGruppen, Sverre Leiro.
“There is no cross subsidizing going on,” Leiro said, adding that he’s surprised by the minister’s claims. Leiro also thinks there’s plenty of competition in the grocery store industry in Norway and that margins have fallen.
He attributed NorgesGruppen’s profits to high revenues (up 9.4 percent in the second quarter, to NOK 25.4 billion) and says he’d welcome an investigation. “Whether he (Brekk) believes it or not, we will gladly contribute to more competition in the market,” he said.