Grocery business dodges bullets

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NEWS ANALYSIS: Norwegian grocery stores have the highest prices in Europe and the worst selection of goods, according to consumer advocates, and, reportedly, a government commission charged with finding out why. Food producers, retailers and wholesalers all blame each other, while Norwegian consumers appear surprisingly passive themselves.

Norwegian grocery stores are under a lot of pressure these days, but it remains unclear whether consumers will finally see lower prices and better selection. PHOTO: Views and News

It’s time for them to wake up, claims the head of the Norwegian Consumer Council (Forbrukerrådet), Randi Flesland. She wants to see lower prices and a much broader selection of products on the shelves. Soon.

“The reality is that we have four major chains that control the entire Norwegian market,” Flesland told Norwegian Broadcasting (NRK). “We know that there are high bonuses and margins, and poor selection and high prices.”

The bonuses she’s referring to are the result of negotiations between the retail chains (Norges Gruppen which owns the Kiwi, Meny, Spar and Ultra chains; Coop; REMA 1000 and ICA) and the wholesalers and suppliers. If volume is high enough and the suppliers are keen to get into the stores, the retailers will secure a bonus from them, which they tend to keep for themselves instead of passing it on to the consumer.

The retail chains, however, feel like they’re emerging as the scapegoat in the complex system of district politics, high taxes, high costs, regulation and lack of economies of scale that characterizes Norway. Most do agree that prices are high for products in Norwegian stores, anywhere from four times that of the same product in an American grocery store to double that in neighbouring Sweden. A thin pack of bacon, for example, with only around 10 slices, costs more than NOK 30 (USD 5.30) in Norway. In Sweden, it’s one-third that price. A liter (quart) of milk now costs more than NOK 14 (USD 2.50) while a dozen eggs are at least NOK 39 (USD 7), often more. A loaf of bread averages NOK 30 but can be as high as NOK 40 (USD 7.10).

It’s almost surprising there hasn’t been a consumer revolt, but things were far worse just 10 years ago when selection was even poorer than now and prices still high. And with Norwegians earning well and accustomed to paying high prices and taxes in general, they rarely complain in the grocery aisles. Farmers are quick to point out, in trying to justify their own subsidies and protectionist tariffs on imports, that Norwegians spend a smaller percentage of their income on food than most others in Europe and other countries.

The nagging question of late, though, has centered on why prices are so high and selection poor compared to other countries. Why, for example, do most Norwegian stores only offer around three or four brands of bar soap? Or two brands of milk? Until a decade ago, there was only one brand of milk available in Norway, produced by dairy conglomerate Tine, until Tine finally got some competition from Q-milk and other Q dairy products.

A commission set up by the state agriculture ministry, and led by veteran politician Einar Steensnæs from the Christian Democrats, was charged last year with coming up with some answers, not least where all the money spent in Norwegian grocery stores actually goes. The commission is due to deliver its report next week, although portions have already been leaked in Norwegian media and commission members are said to be split and their findings disputed.

Among the issues contributing to Norway’s high prices and poor selection:

Farmers’ protectionism
Norway’s farmers enjoy protectionist policies that place high tariffs on imports of cheaper (and often better) products, from fruit and vegetables to cheese and meats. Some products are only imported during the off-season in Norway. When Norwegian farmers start delivering their own tomatoes or celery, for example, imports of more tasty tomatoes or celery from Spain or Holland are cut off because of the high tariffs placed on them. Prices shoot up to what the Norwegian farmers demand, when only Norwegian goods are available in the stores. The farmers’ lobby is powerful, and many Norwegians go along with the protectionist policies, to preserve the country’s farming industry. Some retailers, meanwhile, are lashing out at Norway’s traditional agricultural suppliers – the cooperatives that they claim have near monopolies on, for example, poultry and meat.

Powerful suppliers
Other large wholesalers and suppliers, like Orkla for example, are also powerful and play a major role in what gets onto the shelves of the retail chains. Newspaper Dagens Næringsliv (DN) has written extensively about payment for product placement in stores, for example, and it’s not uncommon that some products simply disappear. Onion salt, for example, seemed to vanish from Norwegian grocery stores earlier this year, just like mild green chiles did years earlier, apparently because someone decided they weren’t profitable enough. Consumers, meanwhile, lost another choice.

Small stores, and lots of them
A recent study of Norwegian grocery store composition, reported in newspaper Aftenposten last month, noted that Norway has the highest number of small grocery stores per capita in Europe. The proliferation of small, neighborhood stores instead of the large grocery stores found in other countries pushes up prices because the costs of running many small stores is higher than running fewer large stores. Antonio Soares, who heads ICA in Norway but originally comes from Portugal, said the vast numbers of small neighbourhood stores “contribute to why prices are higher in Norway.” Small stores also limit the shelf space needed for more products, reducing selection.

Few ‘economy-sized’ products
It’s also hard to find the large “economy sized” products, whether it be laundry detergent or breakfast cereal, so common in the US. Nor is there much choice between brands. OMO detergent, for example, tends to dominate in Norway and there aren’t many rival brands available.

Shop more often
Norwegians shop more often than most of their European counterparts, instead of doing one major shopping trip and planning a week’s worth of menus. That leads to more impulse shopping. “We don’t plan our meals,” Cecilie Kløvstad of The Nielsen Company, which conducted the grocery store study, told Aftenposten. “It almost comes as a surprise that we need to make dinner today, too. So then we look for easier options, which also can be more expensive.”

Huge grocery chain profits
The four large dominant grocery chains earn enormous profits, although they claim their margins are small. Given the volume, though, they can earn a lot on small margins. The biggest chain is NorgesGruppen, with 40.6 percent of the market and an operating margin of 5.7 percent, according to recent figures. Aftenposten reported last month that Norway has the highest concentration of grocery store ownership in Europe, suggesting the grocers can ultimately decide what’s available for consumers. Coop has 23.7 percent of the market, REMA 1000 20.9 percent and ICA 14.8 percent. Last week NorgesGruppen, controlled by the media-shy Johanson family, reported more record-high pre-tax profits of NOK 1.86 billion, up from NOK 1.58 billion in 2009. Aftenposten reported the owners of NorgesGruppen have taken out NOK 2.1 billion in dividends in the past nine years. Retailers have long featured highly on the lists of Norway’s wealthiest persons.

Fear and secrecy
Meanwhile, the state commission trying to explain Norway’s high grocery prices has faced challenges getting information out of the branch, reported Aftenposten late last month. Some suppliers refused to answer questions, fearing reprisal from the chains and fear of being identified as revealing industry secrets. Even consulting firm KPMG, hired in by the commission when the commission itself couldn’t get important players to talk, met a wall of silence in several areas.

It’s widely expected that the commission, despite internal dissension, will recommend a new law on trade practices to apply to the grocery stores. It could, for example, require the retailers to warn suppliers before they drop their products. It could also regulate payment for shelf space and some common marketing used by the chains. The goal is to offset the concentration of power held by the “Big Four” in Norwegian grocery retailing, which some political parties want to break up.

The retail chains are expected to fervently oppose any such regulation. They’re not about to accept all the blame for Norway’s high prices, and want the state to instead ease agricultural subsidies and protectionist import tariffs.

While Norwegians themselves have little choice but to pay Norway’s high prices, many still try to beat the system by flocking over the border to stock up on cheaper and often better goods in Sweden. The Swedish trade minister Ewa Björling was recently in Norway, demanding that Norway ease its import policies, its high tariffs and how they’re practiced by customs officials. She called Norway’s agricultural policies, for example, “extremely protectionist” and harmful to Swedish exporters. She can, though, seek solace in the Norwegians who drive for hours to shop in her country instead of their own.

Views and News from Norway/Nina Berglund
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