International brand manufacturers are not playing the European single market game: territorial supply constraints cost consumers as much as fourteen billion euros a year, the retail industry claims. Manufacturers point to national differences in legislation.
Why are identical products sometimes (much) more expensive in one country than in another? Manufacturers are preventing the European single market from working as intended, retailers argue. In a campaign with the hashtag #singlemarket4all, retail federation EuroCommerce is launching a frontal attack on territorial supply constraints. In short, the accusation comes down to this: manufacturers take advantage of the single market by concentrating their European production in one or a few sites and by sourcing ingredients where they want. However, they require retailers and wholesalers to buy only from their national subsidiary at a price they set separately for each market.
A tactic of fragmentation with a clear consequence: consumers pay more in some countries than in others, even though production costs are largely the same for each market. A European Commission study estimates that these restrictions cost European consumers 14 billion a year, in categories such as cosmetics, detergent, confectionery and beverages.
Fine for AB InBev
In 2019, AB InBev was fined 200 million euros because the brewer did not allow Belgian retailers to import Jupiler and Leffe beers cheaper from the Netherlands and France: the volumes available were restricted, the design and format of packaging was changed, product information was monolingual. Distortion of competition and abuse of dominance, the European Commission concluded.
But has much changed on the merits since then? “A case like this sends a strong message, but it does not make the problem go away”, says Leena Whittaker, responsible for competition matters at EuroCommerce. “Above all, it makes multinationals more vigilant about how they maintain those restrictions.” The AB InBev case is not unique: an investigation into similar practices at confectionery manufacturer Mondelez has been ongoing since November 2019. A ruling would reportedly follow soon.
Purchasing power crisis
“For more than a decade, we have been raising this with the Commission. Now it is time to make that single market a reality”, EuroCommerce echoes. Retailers themselves do not easily file complaints: they find it too difficult, there is a fear of retaliation. “In Germany, we have recently seen major manufacturers stop deliveries following discussions about price increases. Moreover, retailers are also victims of their consumers: if they don’t stock those well-known ‘must-have’ branded products, shoppers simply cross the street to the next store.”
The timing of the campaign is not coincidental. Next year marks the 30th anniversary of the European single market. But above all: more than ever, consumers need lower prices to support their purchasing power. “Retailers see energy costs rising in their own operations, and they can also compare price increases of private label products with those of branded products. But they see that the larger manufacturers in particular are using their position and strength to push it a bit further.”
Not entirely surprisingly, manufacturers do not agree to these accusations. European brand association AIM sees many explanations for price differences between European member states, citing a study by economic consultancy NERA. Local taste preferences and eating habits play a role, as do the many differences in local legislation on ingredients, labelling, packaging and recycling.
National competition authorities do not so far appear to find hard evidence of territorial supply restrictions. The 14 billion euros figure is completely imaginary and unrealistic, according to the brand association. What is striking, moreover, is that prices and packaging for retailers’ private label products vary as much as those for national brands, simply because they face exactly the same regulatory thresholds and varying market expectations. The argument of territorial restrictions is therefore misleading and only serves as a smokescreen for the anti-competitive behaviour of some retailers that aggregate their bargaining power within gatekeeper retail alliances, says AIM director Michelle Gibbons.