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Retail Chains – Abuse of Buyer Power The Irish Experience

Retail Chains – Abuse of Buyer Power The Irish Experience. William Prasifka Chairperson, The Competition Authority 11 November 2009. Grocery Reports. The Grocery Monitor Project Report 1: The Structure and Operation of Grocery Retailing Report 2: Price Trends

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Retail Chains – Abuse of Buyer Power The Irish Experience

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  1. Retail Chains – Abuse of Buyer PowerThe Irish Experience William Prasifka Chairperson, The Competition Authority 11 November 2009

  2. Grocery Reports The Grocery Monitor Project • Report 1: The Structure and Operation of Grocery Retailing • Report 2: Price Trends • Report 3: Retail Planning System Retail-related Import and Distribution Study

  3. The Problem • Buyer Power • Retailers are moving supply to the UK • Unfair demands are squeezing suppliers • Allegations of millions in hello money & slotting allowances • Fear of consequences • Delisting • Job Losses “The forced payment of up to €160m in ‘Hello Money’ to large supermarket chains by Irish suppliers is jeopardising thousands of Irish agri-business jobs” Member, Irish Parliament

  4. The Solution Proposal to introduce: • Code of Practice in Ireland • Grocery Ombudsman • Based on the UK Model Key Objective : Protect Suppliers from • Unfair Practices • Hello Money & Slotting Allowances

  5. Current Legislation The Competition (Amendment) Act 2006 prohibits • Imposing resale price maintenance • Apply dissimilar conditions to equivalent transactions • Slotting allowances • Hello Money These prohibitions are subject to a competition test

  6. Our Experience Competition (Amendment) Act 2006 never been used • Few complaints • Anecdotal fear of coming forward • No private actions Will an Ombudsman change this?

  7. UK Experience Different competitive dynamics • EDLP v’s High/Low pricing • Shoppers travelling to Northern Ireland – not vice versa Has the UK Supermarket Code been effective? • Fear among suppliers • Failure to use the code to resolve disputes • Few cases mediated

  8. Ombudsman v’s Act • No Competition Test • No new incentive to come forward • Costly • Has little power The Code will “do a lot of harm by trying to do a little good” ESRI

  9. Buyer Power If this is the problem, what is the solution? Changing the rules - Regulation? Ombudsman? Will Result in: Those with buyer power changing behaviour • Find alternative methods of “squeezing” • Encourage trading with non-Irish suppliers

  10. Buyer Power Only effective remedy is new entry But… Irish planning laws restrict entry • Maximum retail floorspace caps • Grocery Store: 3,000/3,500 m2 • Discounters (ALDI/Lidl): 1,000/1,500 m2 • Trade Diversion Test • Process used strategically to frustrate competition

  11. The IKEA Effect Attempts to enter Irish market • Planning issues - Restricted due to floorspace caps • 2005 Caps lifted for non-food stores in certain areas • 2006 IKEA Planning application • 2007 Planning permission granted Finally opened 27 July 2009 And Then What Happened ?????????

  12. The IKEA Effect

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