New grocery deal hikes price fears

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Consumer advocates are sounding the alarms over a deal announced Monday between the long-troubled ICA grocery store chain in Norway and Norway’s most powerful grocery retailer, NorgesGruppen. ICA plans to turn over portions of its purchasing and distribution operations to NorgesGruppen, giving the latter even more power to control grocery store products and prices than it already has.

ICA, an otherwise successful Swedish grocery retailer, has lost millions in the Norwegian market and seen its market share slip dramatically at both its ICA and Rimi chains. It desperately needs to slash costs, and thus intends to cut back its own purchasing and distribution divisions.

‘Threatens competition’
Newspaper Aftenposten reported Monday that ICA ended up turning to arch rival NorgesGruppen, which runs the Meny, Ultra, Spar, Kiwi and Joker chains as well as several speciality stores like Jacob’s at Nordstrand in Oslo and Centra in Høvik just east of the capital. NorgesGruppen, with annual revenues of around NOK 59 billion (around USD 10 billion) will, though its Asko wholesale division, take over much of the purchasing and distribution for ICA, unless state officials find a way to block the deal.

That might happen, after Christine Meyer, who heads Norway’s competition authority Konkurransetilsynet, declared that the deal threatens to leave NorgesGruppen with far too much market power. “With such market power, there’s a danger this cooperation (between ICA and NorgesGruppen) can weaken competition,” Meyer said. “That can hurt consumers in the form of higher prices and poorer selection. Therefore we’re worried, and will examine the deal to see whether it violates competition laws.”

Dominating the market
All told NorgesGruppen controls nearly 40 percent of the grocery market in Norway and now it will control a lot of purchasing and distribution for ICA’s 593 stores as well. The sheer thought makes consumer advocates shudder and already is sparking calls for laws to block the deal, to avoid market concentration.

Randi Flesland, head of the consumer protection council Forbrukerrådet, is also worried, as is the state agricultural minister, who fears NorgesGruppen will be able to drive much too hard deals with farmers, who are generally blamed for Norway’s high prices along with the grocery retailers. Even if NorgesGruppen succeeds in cutting better deals for anything from meat to eggs and dairy products, there is no guarantee it will pass any savings on to consumers, warns Flesland. The family behind NorgesGruppe is known as among the wealthiest in Norway.

Rema rival furious
Ole Robert Reitan, heir to another wealthy family fortune based on grocery retailing, the Rema 1000 chain, is also objecting loudly to the deal because of the competitive threat it represents. “We will do everything we can to halt this agreement,” Reitan told website E24. “It will give NorgesGruppen more than 50 percent of the market and destroy competition completely. And that will really hurt suppliers and consumers.”

Reitan admitted Rema 1000 tried to take over ICA’s purchasing and distribution itself, but claims it wouldn’t have had the same effect because of market shares involved.

ICA’s defense
An ICA official told Norwegian Broadcasting (NRK) that he thinks the pending deal with NorgesGruppen can lower prices, because NorgesGruppen may be able to negotiate better prices from suppliers. As Flesland noted, though, that would hinge on whether NorgesGruppen would pass on that savings or keep the profits itself.

ICA stressed that it will retain distribution in Oslo, Akershus and Østfold along with parts of Buskerud, Vestfold, Hedmark and Oppland counties. ICA will also retain warehouse operations in Oslo but others will be gradually phased out. ICA also will retain purchasing operations for its own house brands, fresh bread and bakery goods, plus its fresh fish and seafood products.

A press statement from ICA Norge said the deal was aimed at securing long-term profitability for ICA in Norway, suggesting that an alternative would be ICA’s withdrawal from the Norwegian market. It states the deal will “affect” around 350 jobs, meaning ICA employees who drive ICA’s trucks, for example, and engage in distribution and purchasing are likely to lose their jobs. Its so-called “cooperation” with NorgesGruppen is due to begin April 1.

Views and News from Norway/Nina Berglund

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