What will 2020 bring for the retail sector? Growing tensions between retailers and their suppliers, fears EuroCommerce director-general Christian Verschueren. He hopes that the new European Commission will put a strong stop to increasing protectionism.
Stagnating consumption
Now that the new European Commission has taken office and a challenging year is lying ahead of us, RetailDetail takes the time to catch up with Christian Verschueren, director-general of EuroCommerce, the voice of the European retail and wholesale sector. In the first place, he pleads for more unity: Europe is still the largest consumer market in the world, but is trapped between two large blocks, China and the US, but is still very fragmented.
What does our interlocutor think are the most important points of interest? The recent conflict between Coca-Cola and Intermarché could be the harbinger of more, he suspects. The tensions between retailers and their suppliers may not diminish in the coming year. Several factors play a role here: “Consumption is stagnating and some retail formats – such as hypermarkets – are struggling. The discounters are doing well, but the margins of most other players are shrinking. That increases the pressure. Moreover, even though this remains limited in food for the time being, there is the enormous impact of online platforms. Manufacturers are also under pressure: they are growing mainly in Asia and barely in the EU. As a result, there is less money for innovation in Europe. And their activist investors are demanding ever-higher margins, even though manufacturers’ margins are already many times higher than those of retailers.”
Dam against inflation
In order to achieve their financial targets, multinationals such as Kraft Heinz, Unilever or Nestlé are systematically raising prices, and that’s where the shoe pinches, says Verschueren. “Retailers are the last dam against higher inflation, they guard the consumer’s purchasing power. The success of the discounters indicates that a significant proportion of the population is currently short of cash. In the light of growing poverty and inequality, the retail sector has an important social role to play.”
EuroCommerce is not in favour of EU directives regulating relations between retailers and manufacturers. “Retailers have no interest in killing smaller suppliers. And there really is no need to protect multinationals. Those manufacturers are much larger than most retailers, who only operate in one or a few countries. A little counter-pressure against these big guys is healthy, because they hold back a real single sourcing market: just look at AB InBev, which sells its beer more expensive in Belgium than in neighbouring countries, and prevented retailers from sourcing elsewhere.”
It is therefore only natural for retailers to organise themselves into alliances and purchasing groups, according to Verschueren. “Such alliances actually have a pro-competitive effect. They give smaller suppliers the opportunity to grow internationally, and they provide a sourcing structure for diverse national players, matching those of major international retailers like Aldi, Lidl or Amazon.”
Green Deal offers opportunities
More and more manufacturers are trying to approach consumers directly, which poses another challenge. Brands are starting to sell online and open their own stores, competing with their own distributors. In the coming years, the Commission will review the regulation of distribution agreements. “The whole idea of local exclusivity, for example, is no longer tenable in an online world. We see that manufacturers – and especially luxury brands – want as much control as possible over the distribution of their products. The old model where the manufacturer goes to the retailer via wholesale to reach the consumer is giving way to vertical integration.”
Not that EuroCommerce is against platforms: “For some of our members, Amazon is a competitor, for others it is a trading partner. Amazon itself is a member of EuroCommerce. And some members also have a platform of their own, such as Ahold Delhaize with Bol.com. We strive for a free market, without restrictions. We understand the demand for a tax on large digital companies, there is a need for a level playing field, but we are against national legislation in that area. It would be best to regulate this, not even at a European level, but on a global level, through the OECD and the G20.”
Verschueren welcomes the fact that Commission president Ursula von der Leyen has ambition for Europe to close the digital gap with the US and China. For retailers, having a Europe that is fit for the digital age is crucial. We have high data protection and privacy standards in Europe. We must make sure that the rules that will govern AI, Blockchain, and cybersecurity will protect consumers while allowing retailer to remain competitive. The European ‘Green Deal’ also offers opportunities for innovative retailers as they profile themselves on local or organic food and short supply chains… “We see that many initiatives in this area come more from retailers than from manufacturers. For example, I am impressed by what Colruyt, Delhaize or Carrefour are doing in promoting more sustainable food production. The circular economy is a trend to which we have to respond further. We insist on the pioneering role retailers play in innovation whether it is in eco-design of products or in challenging existing business models. I was pleased to learn that Yvan Verougstraete of Medi-Market has been named Manager of the Year in Belgium, after having previously won the Comeos Mercury Prize a few years ago. You can see that this award from our Belgian member has become a forerunner, a bit like the Golden Globes can predict the Oscars,” Verschueren laughs.
Worrying protectionism
Von der Leyen also comes up with a strong social agenda. “The demand for a European minimum wage is difficult; wage negotiations must remain a prerogative of the member states and the social partners. Although I do admit that Europe must act on inequality, which is a breeding ground for populism”. And the Brexit? “It’s a huge headache for the British and Irish retailers. Fortunately, there’s a transition year, but I doubt that they can complete a trade agreement in eleven months.”
Of particular concern is the rise in protectionism within EU member states. “More and more countries are coming up with their own rules, or are mandating country of origin labels. This goes against the basic idea of the single market. Especially in a number of former Eastern Bloc countries, we see that the government specifically targets large, international companies with special taxes, strict controls and disproportionate fines. In this sense, it is not surprising that Tesco is now seriously downsizing its Polish business. We continue to challenge these abuses and we have hopes that the Commission, supported by Western member states, wants to tackle these head-on and more forcefully.”
