Inspectors from Norway’s competition authority (Konkurransetilsynet) raided major players in the country’s high-priced grocery business on Tuesday. The goal was to uncover possible violations of competition law that have left consumers paying more than they should for everyday items.
Authorities first raided the household cleaning products and hygiene firm Lilleborg, which is wholly owned by the large consumer goods producer Orkla. Then they showed up unannounced at Orkla itself. At issue are the purchasing terms between Lilleborg/Orkla and grocery store retailers, which have charged notoriously high prices to Norwegian consumers for years.
“The competition authority has examined the purchasing terms … and at Lilleborg they discovered things that were so serious that it was necessary to resort to a raid,” Beate Berrefjord, a divisional director at the authority, told state broadcaster NRK Tuesday afternoon.
The authorities also paid a visit to Norway’s largest grocery chain NorgesGruppen. It has long been suspected of exploiting its dominant share of the grocery market in Norway to purchase inventory from suppliers like Orkla at prices that are lower than those offered by Orkla to other grocery chains. NorgesGruppen owns large grocery chains including Meny, Spar, Joker and Kiwi.
Neither of Norway’s two other major grocery retailers, REMA 1000 and Coop, were raided by the competition authorities on Tuesday. NorgesGruppen confirmed to newspaper Dagens Næringsliv (DN), however, that the authorities “have been here today to get more information” and that they “naturally will get the information they’re asking for.” The company’s prepared statement went on to claim that “NorgesGruppen works continuously to obtain as good purchasing terms as possible, so that we can offer our customers low prices.”
The problem has been that even at NorgesGruppen’s so-called “low-price” Kiwi chain, prices for everything from toothpaste to shampoo and household cleaning items are much higher than what’s charged at grocery stores in, for example, neighbouring Sweden. At NorgesGruppen’s higher-end grocery chains like Meny and Jacobs, prices are consistently several kroner higher than they are at Kiwi, for exactly the same products.
DN reported how personal hygiene and household cleaning items like those produced by Orkla’s Lilleborg have been known for providing both the grocery chains and wholesalers like Orkla with solid profit margins. Some consumers have responded by driving over the border to shop, or flocking to new players in the market like fast-growing Normal chain that has challenged long-dominant Norwegian retailers. The vast majority, however, has little choice but to pay what the Norwegian chains charge.
A succession of Norwegian governments has tried for years to determine how and why prices are so much higher in Norway than elsewhere in Europe, often conceding that it’s a complex problem tied to such factors as higher costs in general and tariff protection on many food items that limit competition from imports. It’s also been linked to what the market will bear, however, and what Norwegian consumers have traditionally been willing to pay.
The competition authorities’ job is to ensure that consumers have a choice and that competition among market players in Norway is real. Divisional director Berrefjord wouldn’t go into details about what inspectors found at Lilleborg that was “so serious,” but it’s a major producer and supplier of such well-known household cleaning items as Zalo for washing dishes and Omo for washing clothes that are sold at stores all over the country.
Lilleborg’s production plant at Ski south of Oslo and Orkla’s new headquarters at Skøyen in Oslo were suddenly confronted with the unannounced visitors Tuesday morning. DN reported that the court order allowing the raid on Lilleborg/Orkla was sealed and withdrawn from public review. Orkla refused to reveal its contents but claimed it was cooperating with the authorities, who were still meeting with Orkla officials behind closed doors Tuesday afternoon.
“We don’t think we’ve done anything wrong,” Orkla’s longtime chief for communications and corporate affairs, Håkon Mageli, told DN. The company nonetheless felt compelled to report the raid to the Oslo Stock Exchange, writing that “according to the competition authorities,” Orkla is suspected of violating competition laws related to purchasing terms between suppliers and grocery chains in the Norwegian market. Orkla’s shares fell sharply on the news but recovered later in the day and closed just 0.5 percent down from Monday.
Mageli told NRK that the raid came “like lightning out of a clear sky.” Berrefjord noted that the competition authority has been following purchasing terms for quite a while: “We have charted how pricing occurs between suppliers and purchasing departments at the chains.” She would not comment on findings.
‘Enormous consequences’ for consumers
Karl Alveng Munthe-Kaas, who founded the Kolonial online grocery shopping service and has struggled against the dominant chains, called the raid on Lilleborg “very interesting” and told DN that it “can indicate that differences in purchasing prices (offered by Orkla to the grocery chains) have been big. This can be a sign that there has been price discrimination that’s been damaging.”
He also thinks that the long-sought action by competition authorities can have “enormous consequences” for consumers in Norway. The state consumer protection authority (Forbrukerrådet) was glad that the competition authority is closely following the grocery business.
“We have a challenging situation in the grocery sector, with strong concentration at both the supply and retail ends,” Gunstein Instefjord of Forbrukerrådet told DN. “It’s therefore both important and positive that the competition authority is following the market closely. It’s critical that a branch that means so much to consumers and to society does a good job, and is characterized by healthy competitive dynamics.”