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Saturday, May 18, 2024

State challenges powerful grocers

Debate has swirled for years over why grocery store prices are so much higher in Norway than most anywhere else. After lots of studies and investigations, the Norwegian Competition Authority mounted an offensive strike this week against the country’s three major grocery store chains, but with massive fines for allegedly illegal pricing cooperation that surprised and puzzled even vocal critics of the grocers, who are already fighting back.

Norwegian government officials have tried over the years to respond to concerns about high grocery prices in Norway, like here when former Trade Minister Torbjørn Røe Isaksen visited a KIWI store in Oslo. No one has been able to significantly bring prices down. PHOTO: NFD/Trond Viken

It can look like there’s lots of competition in the grocery business in Norway, given the large numbers and concentration of stores with different names and “concepts” that are found all over the country. In reality the vast majority are controlled by just three large retailing groups that also are active on the wholesale side of the business. They’re also all highly profitable.

Politicians and consumer groups have regularly complained over the power held by the grocery giants, and how difficult it can be for other operators to enter the market. The grocers themselves usually blame Norway’s high food prices on its highly regulated and protected agricultural industry that keeps cheaper imports out of the country or jacks up their tariffs and, thus, prices. They don’t want tomatoes from Spain or Italy to be cheaper than those grown in Norway when they’re in season.

The grocers also cite higher wages, retail leasing rates, taxes  and other costs in Norway. The country’s high grocery prices reflect a combination of factors, they argue, while consumer advocates retort that still can’t explain why prices in Norway can be as much as 40 percent higher than in neighbouring Sweden (also a relatively high-tax and high-cost country), also on items that aren’t subject to tariff protection.

Cornering ‘price hunters’
The Norwegian Competition Authority (Konkurransetilsynet) now seems to be blaming the grocery giants’ long-time and generally accepted practice of using so-called “price hunters” who roam the stores and gather price information that’s then shared. Grocery chains REMA 1000, Coop and the dominant Norges Gruppen (which owns chains including Meny, KIWI and Joker and also operates as a major wholesaler) claim the practice results in lower prices for consumers. The authorities now counter that it results in higher prices.

Lars Sørgard, competition director at the Norwegian Competition Authority, has led the effort to crack down on the grocery retailers’ “price-hunting” practice. That has surprised the retailers and legal experts alike. PHOTO: Konkurransetilsynet/Marit Hommedal

“We view this type of coordination very seriously,” competition director Lars Sørgard stated this week after the Competiton Authority had warned issuance of a whopping NOK 21 billion (USD 2.4 billion) in fines against all three grocery companies.

“The chains have indicated that they use the (price) information in order to compete hard,” Sørgard said. “The authority’s evaluation, meanwhile, is that the grocery chains have used the price information to limit competition. They have used the information in a series of cases to raise prices.”

The allegation is based on information gathered by the authorities when they raided offices of NorgesGruppen, Coop and REMA 1000 in 2019, and seized internal documents at all of them. The goal was to “chart the chains’ pricing and flow of information” obtained by those collecting shelf prices in various stores. The subsequent raids were based on suspicions that the chains behaved in violation of bans on cooperation that hinders competition “by giving each other access to strategic market information.”

In short, claimed divisional director Magnus Gabrielsen at the competition authority, the competition “can have led to Norwegian grocery store customers having to pay higher prices in the chains’ stores.” The authority then warned that it thus intends to issue fines of NOK 8.8 billion against NorgesGruppen, NOK 4.8 billion agains Coop Norge NOK 7.4 billion against REMA 1000.

The companies have until April 15 to challenge the fines, which they’ve already blasted as “absurd” and intend to defend themselves against. “We have gone through the warning and just can’t understand this,” Bjørn Takle-Friis, communications director for Coop, told newspaper Dagens Næringsliv (DN) on Friday. He claims there hasn’t been any contact among the companies that would violate competition rules.

DN reported that each of the chains has hired in its own attorneys and won’t be mounting a united defense against the competion authority. “There won’t be any cooperation there, either,” said Takle-Friis.

NorgesGruppen’s Stein Rømmerud is already warning lawsuits if the fines are actually issued. “We hope the Competition Authority will listen and engage in a dialogue,” Rommerud told DN, adding that the company and its lawyers will go through material presented against them “to see what may have been taken out of context or misinterpreted.”

The grocery retailers don’t see anything wrong with sending people into the stores and checking prices on various items. “If KIWI aims to be the cheapest, it must have an overview of prices,” Rømmerud said. “That’s the same in all branches, whether it’s electronics, hotels or airline tickets where prices are available online. In the absence of online grocery stores, it’s the price hunters who do the job.”

Burden of evidence on the authorities
Professor Øystein Foros at the Norwegian business school NHH said he was surprised that the authorities are warning of such high fines without clarifying which competition laws have been violated. He referred to “vague” indications that the chains try to gets rivals to agree on raising prices. He also noted that Sørgard has not used the term “price-fixing.”

The size of the threatened fines alone has raised eyebrows, since they’re the highest ever in Norway and among the highest ever in Europe. Law professor Erling Hjelmeng at the University of Oslo told DN that the authorities will have to present evidence of illegal contact among the three grocery giants. Without that, he warned, the authorities’ case can collapse.

Others question why the authorities haven’t acted earlier, since the chains have used price hunters for nearly 10 years. Meanwhile, there’s no doubt that groceries in Norway cost much more than they do just over the border, and the gap has been increasing. It’s hard to understand why a carton of cranberry juice produced abroad that’s not subject to tariffs costs around NOK 50 at KIWI and REMA and as much as NOK 75 at a Coop Mega in Norway, and just SEK 20 at the Nordby shopping center in Sweden.

Pricing what the market will bear
That’s where the wholesalers can come in, through large mark-ups that also can have enrich themselves at the cost of Norwegian consumers. It’s also why products such as shampoo and hand soap sold in grocery stores recently have come down in Norway, because of competition from new non-food retail chains with their own purchasing access.

Ivar Pettersen of the Norwegian institute for bio-economics (Nibio) notes how the wholesale part of the chain contributes to increasing price “disadvantages” for Norwegian consumers. Regarding food, there’s tariff protection for Norwegian producers and double-digit VAT. Norway in general also pays relatively higher import prices than its EU neighbours, perhaps simply because of a cynicism that Norwegian consumers have generally high incomes and are accustomed to paying high prices. Norwegian farmers, when defending their own high prices, are fond of noting that Norwegians “only” pay around 11 percent of their household income for food, lower than in many other countries where prices are lower.

Efforts continue to determine why Norwegian grocery prices remain high, and the competition authority is now at the forefront. The grocery chains, meanwhile, remain more profitable than ever, not least after months of Corona restrictions that have closed the borders to Sweden and forced Norwegians to patronize their local grocery stores more than ever before.

More record profits expected
DN has earlier reported that NorgesGruppen, REMA and Coop, along with Norwegian food producer Orkla and dairy cooperative Tine, already could claim NOK 11 billion of Norway’s collective grocery operating profits of NOK 16 billion last year. The Norwegian families running grocery chains have long ranked among the wealthiest in Norway and the Corona crisis looks likely to make the rich richer, even at a time with other businesses are struggling.

NorgesGruppen, widely viewed as the most powerful of all those in the grocery business, was also recently confirmed to have negotiated and received lower purchasing prices from food producers because of the huge volumes they control. That spurred complaints from rivals REMA and Coop: “It just shows what an enormous advantage NorgesGruppen has,” Coop’s spokeman told news service E24 in October. Some fear that market advantage can result in Norway ending up with just two major grocery retailers instead of three.

The government has promised more surveillance of purchasing agreements by the retail chains. Meanwhile, their collective profits this year are expected to be much greater than last year’s. News about year-end results, which allowed NorgesGruppen’s owners to receive record large dividends in 2019, is expected this spring, not long before their deadline for filing complaints about pending fines. Berglund



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