Two of Norway’s grocery store chains announced on Friday that they were teaming up through a new joint purchasing agreement, in an effort to protect themselves from a similar and highly contested deal hatched by two of their competitors. The Rema 1000 and Coop chains deny, though, that they’re engaging in extortion.
The Rema 1000 chain has been among the loudest critics of the deal hatched by NorgesGruppen, Norway’s dominant grocery retailer and wholesaler that owns such chains as Meny, Ultra, Centra, Kiwi and Joker, and ICA Norge. NorgesGruppen already controls the vast majority of the grocer market in Norway, while ICA Norge has been struggling. ICA, which also owns the Rimi grocery chain in Norway, has claimed that without teaming up with NorgesGruppen on some of its purchasing and distribution, it will likely go out of business in Norway.
State competition authorities, which must approve or reject the proposed tie-up between NorgesGruppen and ICA, are left to decide what will be worse: NorgesGruppen becoming even more powerful by controlling some of ICA’s market, or ICA pulling out of Norway and leaving more of the market to NorgesGruppen anyway.
Rema 1000 and Coop, meanwhile, decided to form a pact of their own. “I’ve seen this (as an alternative) since the day ICA and NorgesGruppen said they were negotiating a cooperation,” said Ole Robert Reitan, son of the founder of Rema 1000. “It seemed instintive, as the only logical solution, because their purchasing advantages will be so great that we wouldn’t be able to compete.”
Reitan and Coop boss Svein Fanebust denied they’re simply trying to pressure the competition authorities (Konkurransetilsynet) into forbidding their competitors’ deal. “This isn’t extortion, it’s reality,” Reitan said at a press conference Friday. “We don’t have any other weapons in the drawer to secure our own stores.”
Their deal already took effect on Monday and is based on a new company called Core, which will handle purchasing for both Coop and Rema 1000. Fanebust said it would be annulled, however, if the competition authorities reject the NorgesGruppen/ICA deal.
If both deals are approved, it would leave Norway’s grocery store customers, who already face some of the highest food and sundry prices in the world, in the hands of just two large players. Norwegian suppliers like dairy conglomerate Tine and meat producer Nortura, however, might also face tougher demands for lower prices for their products, which could be passed on to consumers. The grocery chains, however, have a long history of being highly profitable, and there’s no guarantee consumers would benefit from either of the two purchasing deals.
Several top politicians in both the government parties and the opposition in parliament immediately attacked the purchasing deals, claiming they would give far too much power to fewer players, and lead to even higher prices and poorer selection at Norwegian grocery stores. They demanded the government ban the deals if the competition authorities don’t. The authorities’ decision is due in mid-January.