Nordic Food Markets - a taste for competition November 2005 2 CONTENTS: Preface ...................................................................................................5 Executive Summary and Conclusions ......................................................7 Recommendations ................................................................................ 19 1. Introduction ................................................................................... 21 2. Prices and choice ............................................................................23 2.1 Nordic Food Prices ................................................................................................ 23 2.2 VAT and taxes ....................................................................................................... 27 2.3 Promotion activity ................................................................................................29 2.4 Net prices .............................................................................................................34 2.5 Food supply ..........................................................................................................35 2.6 Conclusions ..........................................................................................................41 3. The Consumer .................................................................................43 3.1 Introduction .........................................................................................................43 3.2 Population conditions ..........................................................................................43 3.3 Consumer’s habits, traditions and preferences ..................................................... 48 3.4 Common trends ....................................................................................................51 3.5 Conclusions ..........................................................................................................50 4. Competition in retailing .................................................................. 57 4.1. Introduction ......................................................................................................... 57 4.2 Structure and structural changes .......................................................................... 58 4.3. The role of non-food and shop-in-shop ................................................................. 71 4.4. Supermarkets’ expenses and margins .................................................................. 73 4.5. Public regulation .................................................................................................. 76 4.6. Conclusions ..........................................................................................................80 5. Competition for the store shelves ...................................................83 5.1 Introduction .........................................................................................................83 5.2 Shelf space entry ..................................................................................................84 5.3 Procurement and distribution ............................................................................... 86 5.4 Private labels ........................................................................................................87 5.5 Category Management and Effi cient Consumer Response...................................... 90 5.6 Rebates and loyalty systems .................................................................................91 5.7 Conclusions ..........................................................................................................92 3 6. Competition in the food industry ....................................................95 6.1 Introduction .........................................................................................................95 6.2 Structure and structural changes .......................................................................... 95 6.3 Market players in processing .............................................................................. 103 6.4. Market size .........................................................................................................108 6.5 Public regulation ................................................................................................110 6.6 Conclusions ........................................................................................................119 Apendix 1 ............................................................................................121 Apendix 2 ........................................................................................... 123 Apendix 3 ............................................................................................127 References ...........................................................................................131 4 Preface Food prices tend to be higher in the Nordic countries compared to other European coun- tries. At the same time the supply of food articles in the Nordic supermarkets appear to exhibit a narrower range of products than in other European countries. Against this back- ground, it was decided at the Nordic meeting of Competition Authorities in September 2004 to look closer at the conditions on the Nordic food markets. A Working Group was formed to identify, analyse and propose solutions to the competition problems in the Nordic food markets. This report presents the results and provides recom- mendations on how to promote and ensure a competitive Nordic food market. Agricultural, fi shery and regional policy considerations have not been included in the investigations. The Danish Competition Authority has been the executive committee, and has written the report with contributions from the other Nordic Competition Authorities. The following persons have participated in the Working Group: Hans Kierkegaard (chairman), Danish Competition Authority, Lærke Flader, Danish Competition Authority Joan Frederiksen, Danish Competition Authority Louise Kastfelt, Danish Competition Authority Vagn Rasmussen, Danish Competition Authority Heri Joensen, Faroese Competition Authority Antti Ihamäki, Finnish Competition Authority Troels Linderoth Lolck, Greenlandic Competition Authority Guðmundur Sigurðsson, Icelandic Competition Authority Steingrimur Ægisson, Icelandic Competition Authority Astrid Kjellin, Norwegian Competition Authority Magnus Gabrielsen, Norwegian Competition Authority Marianne Dahl, Norwegian Competition Authority Karl Lundvall, Swedish Competition Authority The conclusions and the recommendations in the report are based on interviews with the market players, data from national statistics authorities, special studies conducted by AC- Nielsen, Eurostat and Hornstrup and Hornstrup. The project gratefully acknowledges fi nan- cial support from the Nordic Council of Ministers. The Working Group wishes to use this opportunity to thank the Nordic Council of Ministers for their help and support. 5 6 Executive Summary and Conclusions The Working Group has examined the food markets in the Nordic region. The background is that for some years Nordic food prices have been higher than the European average (EU15, i.e. EU minus the new Eastern European member states). Moreover, the assortment of food in Nordic supermarkets appear to be smaller than in other European countries. High prices in a country means that consumers pay more for goods and services compared to other countries. This can be due to lower productivity or because the costs, such as wage level or profi ts are higher than elsewhere. A more restricted number of food products compared to other countries imply that consumers have less choice, that the producers’ products are less likely to reach supermarket shelves, and that markets tend to be less dy- namic. On that account, there have been good reasons for a closer look at how competition works in the Nordic food industry and the retail sector and at the state of market integra- tion in the Nordic region. Nordic food prices According to Eurostat fi gures for 2004, the average prices paid by consumers for food and beverages (soft drinks and beer) bought in supermarkets in the Nordic region were be- tween 12 per cent and 46 per cent higher than the European average, cf. fi g. 1. Figure 1. Gross food and beverages prices, 2004 160 146 142 143 138 140 130 126 128 124 128 120 116 116 120 112 112 112 100 80 EU15=100 60 40 20 0 Denmark Finland Sweden Iceland Norway Food and non-alcoholic beverages Food and all beverages* Total private consumption Source: Eurostat and the Working Group’s own calculations Note *: Beverages, i.e. soft drinks and beer 7 For food and beverages exclusive alcoholic beverages the price gap is smaller, between 12 per cent and 42 per cent. In Finland, Iceland, Norway and Sweden the sales of alcoholic beverages in the supermarkets only contains beer up to 2.25 per cent alc. (Iceland), 3.5 per cent alc. (Sweden), 4.5 per cent alc. (Norway) and 4.7 per cent alc. (Finland). In these countries, the sales of alcoholic beverages are restricted, and prices on alcoholic bever- ages are therefore not the result of the competitive process in the food sector. One reason for the price gap between the Nordic countries and the European average is differences in the level of taxes on the production and sale of food. VAT and excise duties on food products (for example beverages) are higher in the Nordic countries, especially