The Czech Cabinet has moved to clamp down on retailers’ abuse of their power against suppliers with the competition office being offered a more meaningful and workable set of laws. But the real test of whether the right toolbox can be found will have to wait another year or two.
In a not a much noticed move the Czech Cabinet agreed last week agreed to overhaul a law that to all effects and purposes had failed to deal with the problem of retailers abusing their power against food suppliers.
The 2009 law had been aimed at correcting supermarkets’ abuse of their power. The abuses are many; for example, by charging food suppliers to display prominently on their shelves, accept late payments for goods already delivered, take back goods that weren’t selling long before the sell by date was reached, pay the full costs of special promotions, and even make retroactive payments if sales of their goods did not reach the profit margins set for them by the retail chains.
The law itself, which took effect from February 2010, stemmed from the fact that it was difficult to bring to bear fundamental European Union competition rules, such as abuse of dominant market position and rules outlawing abusive agreements on the retail sector. EU rules usually say that a dominant position is 40% of more of a given market, but retailers with a low a market share as 8% were found to be in a position to wring damaging concessions from their suppliers. And the list of illegal practices did not come near to covering the abuses that the retailers could resort to.
The basic fact is that retailers usually have many options about where to source their supplies, food producers or agricultural producers rarely have the same luxury. Being taken off the list of suppliers be fatal for food producers, dropping a supplier will rarely have the same impact on a retailer.
While full of good intentions, the 2009 law was drawn up without much expert input. Many of the clauses were vague, including even basic definitions of food suppliers, and the punishments and remedies offered to the Czech competition office to tackle the problem unclear. In short, the competition office was left with a blunt and near useless tool for a problem that showed no signs of receding.
The competition office reported that in some respects retailers did improve their behavior by respecting the 30 day limits to pay for goods and not sending back goods before the sell by date was reached, but most of the abuses continued. In some ways, the suppliers came under even greater pressure as more and more retailers resorted to promoting their own in store brands. Some Czech media reported that only one penalty resulted from the 2009 law, a fine on Kaufland for failing to respect payment deadlines.
The 2009 law was conceived when eight or nine supermarket chains dominated the Czech market. Since then, a modest shake-out has happened and the power of the big retailers has concentrated even further. Ahold has swallowed up the Spar chain and there are rumours that Tesco could be quitting the Czech Republic. Many other European countries have just three or four major retailers grabbing around 80% of the food sales market. The Czech Republic has seven or eight, overwhelmingly foreign based, with a market share of around 64%.
The proposed new law is a short of stop gap measure. It is intended to provide the competition office with some usable set of rules and procedures ahead of a totally new law tackling abuse of dominant market positions which should be ready by the end of 2017 at the latest. That is likely to provide the real test whether the toolbox to tackle market abuse will be found.
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