Norway’s largest and most powerful grocery store owner, NorgesGruppen, has been able to pay suppliers as much as 15 percent less than its rivals for the same products. Officials at competing grocery chains REMA 1000 and Coop claim they’re “shocked,” and that grocery customers have been “cheated for years.”
Competition authorities raided major supplier Orkla on Tuesday and Norway’s dominant grocery retailer NorgesGruppen, which controls the Meny, Spar, Kiwi, Joker and Jacobs chains. They also revealed that they also made an unannounced visit Tuesday on Mondelez, (formerly Kraft Foods and Freia). The goal, they said, was “to secure evidence.”
On Wednesday, the director of the Norwegian Competition Authority (Konkurransetilsynet) held a press conference. Their probe of how Norway’s grocery market functions is continuing, but they revealed that they suspect that the practice of wholesalers giving deep discounts to some retailers and not others has led to higher prices for consumers.
“In some cases, the grocery chains pay 15 percent less than other chains for exactly the same product,” said Competition Director Lars Sørgard, who leads the authority. “We are surprised there are such large differences and variation (in wholesale prices) among the suppliers.” In many cases, the retail price for the product in one of NorgesGruppen’s Meny stores is comparable to or even the same as the price at a rival Coop, though, suggesting that NorgesGruppen does not pass on its wholesale discount to the consumer, or that Coop earns less than Meny.
The authority has collected pricing information from a total of 16 suppliers including Orkla (a major supplier of grocery store items from frozen Grandiosa pizzas to Omo laundry detergent) and Mondelez (a leading Norwegian producer of chocolate and other sweets and snacks). Wholesale prices for around 2,900 products have been charted.
“We have collected information on differences that in our evaluation can damage competition in both the short- and long term,” Sørgard said. He said the authority was “especially concerned” that some of the grocery chains pay much higher prices for goods than NorgesGruppen, which controls more than 40 percent of the market in Norway and operates as a wholesaler itself. Members of the Johannson family owning NorgesGruppen have also long ranked as among Norway’s wealthiest individuals.
The authorities have so far uncovered not only how suppliers charge different prices for the same items to the various retail chains, but also that NorgesGruppen consistently pays the lowest prices for the products it then sells in its various grocery stores.
Pricing differences are not illegal, Sørgard stressed, but if such differences have left consumers paying higher prices, it can be considered a violation of competition law. Sørgard said the authority was “especially concerned” that some grocery chains had to pay higher prices and then either pass the higher price on to its customers or see its own profits reduced. If some chains thus have a consistently higher cost of doing business, it can also be difficult to stay in business or for new players to establish themselves in the market. That’s what happened when the Swedish ICA chain withdrew from the Norwegian market after having taken over the former low-price Rimi chain. The low-price German grocery store chain Lidl also tried to enter the Norwegian market several years ago, but ultimately felt forced to withdraw.
‘Shocked’ and ‘cheated for billions’
The competition authority’s findings so far have confirmed the fears of NorgesGruppen’s rivals, Coop and REMA1000, that purchasing terms have varied among the chains. They were not aware the differences were as large as Konkurransetilsynet has disclosed.
“On behalf of the customers who own us, we are shocked over how large the differences actually are,” Bjørn Takle Friis of Coop told state broadcaster NRK after the press conference. “We’ve had our suspicions (that NorgesGruppen enjoyed special purchasing advantages because of its market dominance) but we clenched out teeth and have worked hard. We have understood that it’s been a difficult competative situation, but we weren’t aware it was so bad.”
Trond Bentestuen, chief of REMA1000, was also stunned. “These are much bigger wholesale pricing differences than we thought,” he told NRK, claiming that 15 percent in a branch with small margins is “enormous.” He further claimed that “if we’d had the same terms as NorgesGruppen, our customers would have had lower prices. They’ve been cheated for billions.”
NorgesGruppen on the defensive
Per Roskifte, communications director for NorgesGruppen, disagreed. “We have viewed the (authority’s) survey with great interest and it shows large variations,” Roskifte told NRK. “This shows that it’s extremely important to negotiate with strong suppliers. Then you’ll get clear price differences.”
NorgesGruppen claims that its “tough” negotiations with suppliers from a position of strength itself has helped keep grocery prices down. The company also pointed out that it’s common for retailers with the biggest volume to get the best purchasing terms. “NorgesGruppen works every day to keep food prices down,” Roskifte stated in a press release.
He also said it was important for NorgesGruppen that the competition authority has not found reason to conclude that illegalities have occurred. The investigation is continuing, however, and no conclusions have yet been made.
Sørgard stated that the raids on Orkla’s Lilleborg unit (which produces cleaning and personal hygiene products) and on Mondelez and NorgesGruppen were made “to secure evidence.” He said his staff has now “started an investigation to either rule out or confirm whether competition rules have been violated.” Purchasing terms are considered to be “the most important reason for hindrances to the establishment of new businesses in this sector.”
newsinenglish.no/Nina Berglund
