Following the recent price dispute between Belgian retailer Colruyt and Mondelez, operational director Jo Willemyns warns manufacturers against raising prices too steeply. He also sees a worrying drop in quality among private-label products, and its remarkable cause.
“Price gap is widening”
“We are big in Belgium, but small in the world. Our competitors are up to ten times bigger than us, and we are also much smaller than our suppliers. That puts our recent conflict with Mondelez in perspective”, Colruyt’s COO Retail Operations said at Wednesday’s press briefing on the annual results and the CEO change at the company.
“We felt we had to bring this up, because Mondelez and other brand suppliers raise their prices so fast that they step over the limit of price elasticity. That is not good for anyone, it causes downtrading: since December, we have seen customers buying significantly more private brands. In the discount country that is Belgium, the price gap between A-brands and private label is widening.”
“Less and less Belgian products”
Moreover, Colruyt sees that the quality of private-label products in Belgium is dropping, due to influences from the Netherlands and France. “New, foreign players are importing lower-quality white label products. And that while Colruyt, Aldi and Lidl did continue to invest in quality until now.” Willemyns also questions the fact that Dutch competitors supply their stores and e-commerce from the Netherlands. “Where is the value creation?”
Future CEO Stefan Goethaert concurs: “In the fruit and vegetable department in Belgian supermarkets, for example, there are fewer and fewer Belgian products on the shelves. Are we going to hand over our Belgian food chain? We work with 2,700 Belgian food suppliers and with 6,000 farmers, with 600 of whom very directly.”
Increased traffic to France
Increasing cross-border shopping is also a concern for Colruyt. “Shopping in France is becoming cheaper and cheaper. Economy minister Bruno Le Maire recently agreed further price reductions with manufacturers there. 53 % of the Belgian population lives less than a 30-minute drive from abroad. We see increased traffic of consumers to France.”
In these difficult conditions, Colruyt does remain the market leader, with a slightly rising market share. “We have guaranteed the lowest price for fifty years and we have seen many competitors come and go”, Willemyns adds. In September, the chain is celebrating 50 years of lowest prices with a new campaign, with slightly more emotional content.
And whether there are not too many supermarkets in Belgium? According to Willemyns, no: due to the country’s specific spatial planning, Belgian families travel greater distances to the supermarket than in neighbouring countries, according to an analysis by RetailSonar. So there is still room, he concludes, but the focus should be on profitability per square metre.