The Competition Authority has decided to launch an investigation into the commercial terms of several suppliers to food retailers. The investigation will examine whether significant price differences in the dealings of individual suppliers with different retailers hinder competition and contravene competition law. The authority's report on price development and competition in the grocery market, published last January, demonstrated very significant price differences among individual suppliers depending on the stores or retail chains involved. The report concluded that this significant price difference hindered competition in the grocery market.
Explanations for this discrepancy have been sought from suppliers, and it is clear that to date they have failed to demonstrate that the price difference is based on a sound analysis of cost advantages that would justify more favourable terms. On the contrary, guidance from the Competition Authority on these matters has been called for. For these reasons, the Competition Authority considers it unavoidable to launch the aforementioned investigation and assess whether the commercial terms of certain suppliers contravene the provisions of the Competition Act.
On 26 January, the Competition Authority published a report No. 1/2012, Price development and competition in the grocery market. The report concluded, among other things, that there were considerable barriers to entry in the Icelandic grocery market. It was considered that these barriers were largely due to the different terms and conditions that grocery retailers enjoyed with suppliers. Three retail chains, Hagar, Kaupás and Samkaup, were considered to hold around 90% of the market share. Other smaller stores that are not part of these chains paid, on average, 15% more than Hagar, which is the largest retail chain. These smaller shops would therefore have very little left from their sales if they were to match the prices offered by the large chains' discount stores, such as Bónus and Krónan, on many common everyday goods.
The Competition Authority sent the report for consultation to grocery retailers, suppliers, and various business interest groups, and the Authority has received numerous responses and comments. Among the information requested from companies were matters that could justify lower prices or better commercial terms for stores that purchased large quantities, such as in the case of distribution to warehouses they operate.
The Competition Authority has recently reviewed the comments received from stakeholders and has prepared and decided on the next steps in the Authority's actions on the grocery market. It is clear that the explanations and comments received from the companies do not include a detailed analysis of the cost savings that distribution to warehouses entails, or of other factors that would justify better trading terms for those shops that buy in large quantities. However, as previously stated, significant differences in trading terms make it more difficult for smaller shops to compete on price with the larger retail chains, particularly the discount supermarkets of the big chains, which have significantly increased their market share in recent years.
The Competition Authority has therefore decided to launch an investigation into the commercial terms of several suppliers to grocery retailers. This includes suppliers with a strong position in the resale of groceries in the areas in which they operate. The investigation will focus on whether these parties' commercial terms with resellers may contravene the provisions of the Competition Act that prohibit agreements having an anti-competitive effect and the abuse of a dominant position. Also under consideration is the application of a new provision in the Competition Act, which allows the Competition Authority to take action against situations and conduct that prevent, restrict or have a detrimental effect on competition, to the detriment of the public.
The Competition Authority points out that an updated report No. 1/2012 The report on price development and competition in the grocery market is now available on the regulator's website, having taken into account several comments from consultees.
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