THE HE EC ECONOMICS ONOMICS OF OF THE HE FOO OOD D SU SUPPLY - - PowerPoint PPT Presentation

EUR UROP OPEAN EAN RETAIL IL ALLIANCE IANCES S AND D THE HE EC ECONOMICS ONOMICS OF OF THE HE FOO OOD D SU SUPPLY Y CHA HAIN

Pierre rre Bouchut ut Work rksh shop

• p on al

alliance iances, s, Bruss ssels, s, 4 & 5 Nov 2019 19

2

CO CONTENT ENT

1.

• 1. Wha

hat t are ret etail ail allia iance ces? s? Wha hat t is thei eir r rang nge e of activi vitie ties s and nd who are thei eir r suppl pplier iers? s? 2.

• 2. Wha

hat t is the rationale

• nale for set

etting ting up allia liance ces? s? 3.

• 3. The

he Europe pean cons nsum umer perspect spective 4.

• 4. A supp

pplier lier perspe spectiv ctive: e: what are the e benefits efits of ne negotiating gotiating with h an n allia lianc nce? 5.

• 5. The

he agricul icultura tural l perspe spectiv ctive

3

EUROPEA OPEAN N RETAI AIL L ALLIAN ANCES CES – WHA HAT, HO HOW AND ND WITH H WHO HOM

• ERAs are diverse in terms of:
• geographical coverage (4 to 20 countries);
• number of members (2 to 11);
• Most alliances:

sell services to large national and international suppliers with significant market share – e.g. growth, data-sharing and international development; provide synergies in their members’ sourcing, including in private label; some do joint projects and exchange of best practice.

• European alliances are focused

cused on A-brands nds and interna nati tion

• nal

al private e label el supplie iers;

• Le

Leading ng ret retailer ilers s in EU count ntries ries continue to comp mpete e against nst each ot

• ther

er on national markets;

• ERAs have governa

nance nce and strong ng complian pliance ce rules s to ensure compl mplian ance ce with nationa

• nal and EU compet

petit ition ion rules.

4

EUROPEA OPEAN N RETAI AIL L ALLIAN ANCES CES

Source: Company annual reports, company websites, alliance website

Schweiz

Agecor core

6 members 9 EU countries

AMS Sourci cing ng

11 members 18 countries in Europe

EMD

11 members 16 countries in Europe

Ho Hori rizon

• n Int.

t.

4 members 16 EU countries

EURELEC ELEC

2 members 4 EU countries

Carref efour

• ur-Tes

esco co

2 members 10 EU countries

Coopernic pernic

4 members 20 EU countries

Italia

5

ACTI TIVITIES VITIES OF EU F EUROPE OPEAN AN RETAI AIL ALLIAN ANCES* CES*

• Examples:

Promotional programmes; Support for internationalisation; Support for product launches/innovation; Support for category development and growth; Data sharing with a high degree of detail on sales performance; Joint business plans and growth initiatives; Mediation.

• They sell services against a fee which represents a

percentage of the negotiated turnover of the

• suppliers. This aligns retailers’ and suppliers’

incentives on joint success in line with the principle of no payment without performance.

• Private label sourcing:

Specifying product qualities and requirements; Allowing members to place orders, not buying directly via alliance; Only processed foods & packaged products; Building on expertise from participating retailers.

• Products not-for-resale (e.g. store furniture &

equipment) sourcing;

• A- brands sourcing (very few cases);
• Access to a single platform for sourcing.

SELLIN LLING G SERVICE VICES SOUR URCIN ING G PRODU DUCTS TS

* These are a range of activities illustrating the various types of ERAs’ activities; ERAs do not provide all these activities

6

ERAs s NEGOTIA TIATE TE ON B BEHALF F OF OR WITH THE SUPPORT PPORT OF F THE HEIR R MEMBERS MBERS MAINL INLY Y WITH H LA LARGE E A- BRAN ANDS DS AND ND PRIVATE TE LABEL EL SUPP PPLIERS IERS

1. ERAs mainly deal with the largest FMCG suppliers (food and near foods) (e.g. Nestle, AB Inbev, Unilever, Procter & Gamble, Coca Cola, L’Oreal, etc.); 2. ERAs deal with international Private Label (PL) suppliers (food and near foods); 3. Smaller, local A-brands and PL suppliers: in very limited cases and at supplier request; ERAs support them to develop international sales; 4. Fresh product producers and farmers: ERAs only deal with processed packaged food producers; 5. Suppliers of goods that are “not-for-resale”: one of the recent activities of ERAs.

7

GOVERNA ERNANCE NCE AND ND COMP MPLIAN IANCE E MECHANI HANISMS SMS

• ERAs operate in

in com complian pliance ce with with na nati tion

• nal

al and and Eu Europea pean legisl egislati ation

• n, including

competition rules, and under the scrutiny of national and European competition authorities.

• The exchange of commercially sensitive information between members and the

alliance is st strict ictly go governed erned by by conf confid iden enti tialit ity ag agreeme eement nts and and in interna nal codes codes of

• f

con conduct uct, to avoid any leakage of commercially sensitive information. ERA ERAs use use com compl plian ance ce of

• ffice

cers as as wel ell as as ext xternal al lega egal coun counse sels to ensure compliance. They share aggregated figures only.

• ERAs negotiate on behalf of or with the support of their members.
• Int

nternat ation ional cont

• ntract

acts def defin ine the the parties’ goa

• als and

and commi commitme tment nts and and se set qua quant ntit itat ativ ive key perfor

• rma

mance nce indicat cators to monitor progress.

8

GOVERNA ERNANCE NCE AND ND COMP MPLIAN IANCE E MECHANI HANISMS SMS

• Where alliances buy products, the agreement between the European alliance

and suppliers replaces the national agreement of respective members and suppliers.

• Where alliances sell services, once international service contracts are negotiated

(“on top” of local contracts), they are: commun munica icated ed to the members and the national teams to ensure execution; reviewed ed regularly in joint business reviews between representatives of retailer and supplier; fees are usually paid at the end of the year and based based on

• n rea

eal cou counter- performa mance nce (“scorecard”).

9

CO CONTENT ENT

1.

• 1. Wha

hat t are ret etail ail allia iance ces? s? Wha hat t is thei eir r rang nge e of activi vitie ties s and nd who are thei eir r suppl pplier iers? s? 2.

• 2. Wha

hat t is the rationale

• nale for set

etting ting up allia liance ces? s? 3.

• 3. The

he Europe pean cons nsume umer r perspe specti ctive 4.

• 4. A supp

pplier lier perspe spectiv ctive: e: what are the e benefits efits of ne negotiating gotiating with h an n allia lianc nce? 5.

• 5. The

he agri ricul cultur tural al perspect spectiv ive

10

ER ERAs As ARE E VI VITAL AL TO THE E EU EUROPEAN ROPEAN VALUE UE CHAIN IN

• ERAs contribute to creating

ting a Europea ean single e market t for sourcin cing g of products cts.

• ERAs seek to offse

set t territor

• ria

ial supply constr strai aint nts s (TSCs) SCs) imposed by large FMCG suppliers, negotiate on a level playing field, help counter pressure from large FMCG suppliers to increase prices and benefit consumers through lower prices and better choice.

• ERAs support retailers’ profitability, which is under significant competitive pressure

and at historically low levels. The long-term survival of many retailers is in question.

• La

Larg rge internat rnatio ional FMCG CG player ers s have e immen ense se negoti tiati ting g power r through their significant market share and their unique brands. They command very large margins and exceptionally high returns on capital.

• Alliances and buying groups help SME ret

etailer ers s compe mpete e with larger ret etailer ers; thus playing a key role in the livelihood of rural areas, villages and small towns.

• Alliances or other forms of cooperation occu

cur in many ot

• ther

er sector

• rs

s of the econom nomy including farmers, food manufacturers and others (e.g. automotive, pharma, airlines, banks).

11

ERAs s SUPP PPORT ORT THE HE SING NGLE MARK RKET ET FOR SOURCING ING

• Most grocery retailers operate in one or a few EU member states.
• Large suppliers:

are global players; are strong in specific categories; fragment the single market when selling; use the single market for their own production and sourcing.

12

UND NDER R COMPETITI PETITIVE VE PRESSURE, SSURE, MANY NY EU FOOD D RETAI AILERS LERS HA HAVE BECOME OME VULNE LNERABLE RABLE AND ND ARE RESTRU TRUCTU CTURING RING

13

ER ERAs s ARE E A RE RESPONS PONSE E TO CHANG ANGING ING MARKET KET CONDITIONS NDITIONS AND IN INCRE CREASI ASING NG COMPETITION MPETITION

• Ret

etail ail compe petit tition ion is strong rong growing retail formats include proximity, convenience, discounters, e- commerce, organic or home-delivery

• Digi

gital tal has inc ncrea reased sed compe petit titiv ive e pressu ssure re more transparency (prices, choice), convenience new business models competiting for consumers’ attention –e.g. Meal delivery platforms, etc. very strong players outside the EU manufacturers selling direct to consumers

Exam ample: le: Alib ibab aba a ecosyst

• system

em

• Own stores as well as

marketplaces;

• 197 billion transactions on

Alipay in 2018;

• Market capitalisation of USD

460 bn, more than 4 times the combined market capitalisation of the top 10 listed European food retailers.

14

EU FOOD D RETAIL AILERS ERS HA HAVE E LOWER R AND ND DECLINI NING NG MARGI GINS NS

x+/-7

15

EU BIGGEST GEST FOOD RETAI AILERS LERS ARE E 10 10 TIMES MES SMAL ALLER ER THA HAN N THE HEIR R BIGGEST GEST SUPP PPLIERS IERS

Sources: Company reports, Bernstein, Bloomberg, EuroCommerce analysis

Market t Capit ital alisat isation,

• n, bn

n EUR, R, 2018 18

16

A FEW EW INTERNA ERNATIONAL TIONAL SUPPLI LIERS ERS CONTR NTROL OL MOST T BRA RAND NDS S THAT RE RETAILERS LERS NEE EED D TO HAVE VE IN THEIR EIR STORES ES

Source: HuffPost 2017

17

THE HE SHA HARE E OF T F THE HE LEADI DING NG SUPP PPLIER ER IN I N ITS CA CATEGOR EGORY Y OFT FTEN EN EXCEEDS EEDS 50 50%

* Excluding private label. Nielsen, February 2019 Source: Nielsen, 2018

61% 62% 70% 71% 79% 82% 82% 90% 90% 92% Cakes and desserts Ice-cream Condiments Infant formula Chocolate spreads Baby food Cola/Lemonades Sugar Margarine Chewing gum

Austr tria

Source: Nielsen, 2016

62% 62% 65% 65% 71% 71% 74% 74% 75% 75% 76% 76% 82% 82% 85% 85% 85% 85% 92% 92% 92% 92% Fru Fruit it compote compote Froz Frozen en proc process essed ed fish ish Froz Frozen en peas peas Diaper iapers Sliced iced mel melted ted ch cheese eese Cocoa

• coa and hazel

elnut spr sprea eads Ra Razor

• rs

Pr Prob

• biot

iotics cs Cok

• ke

Fres Fresh sn snack cks Chewin ewing g gum

Italy ly

62% 63% 63% 64% 64% 68% 68% 71% 72% 74% 75% 76% 81% 81% 84% Soda Blades and razors Savoury tarts Smoked salmon Paper towels Frozen potatoes Frozen meat Frozen fish Fruit juice concentrate Chocolate spreads Compote Melted cheese Diapers Toilet paper Anise flavoured aperitifs

France

18

RETAILERS’ MARK RKET ET SHA HARE E AT EU LEVEL EL IS S SMAL ALL

TOTAL L = 35%

Source: LZ Retailytics, This study includes all organised trade companies dealing predominantly with FMCGs. LZ Retailytics refers to "Europe" as the total 40 countries of geographical Europe, including Russia but excluding Armenia, Azerbaijan, Georgia and Turkey.

19

ALLIAN ANCES ES EXIST T IN N OTHE HER R SECTORS ORS INC NCLUDI DING NG FM FMCG

Source:Strategic alliances: a real alternative to M&A?, KPMG

In 2011, Deutsche Telekom and Orange founded BuyIn In to remain relevant in a com competitive mark rket with strong smartphone and broadband growth, declining marg rgins, high technical challenges and a very stron

• ng and con

consol

• lidated supplier
• base. By delivering strat

rategic pro rocu cure rement serv rvice ces to its members, BuyIn In increases the competitiveness in their direct spend. This competitiveness leads to sustainable econ conom

• mies of
• f scale and savings

gs based on analytics cs and benchmark rks across millions of price points from 40+ operators.

Source: https://www.buyin.pro

20

CO CONTENT ENT

1.

• 1. Wha

hat t are re re retail ail allia iances ces? Wha hat t is their eir ra rang nge e of activi vitie ties s and nd wh who are re thei eir r suppl pplier iers? s? 2.

• 2. Wha

hat t is the rationale

• nale for set

etting ting up allia liance ces? s? 3.

• 3. The

he Europe pean cons nsume umer r perspe specti ctive 4.

• 4. A supp

pplier lier perspe spectiv ctive: e: what are the e benefits efits of ne negotiating gotiating with h an n allia lianc nce? 5.

• 5. The

he agricul icultura tural l perspe spectiv ctive

21

ALLIAN ANCES ES BENE NEFIT FIT CONS NSUM UMERS ERS

• ERAs bring the single market to consumers
• ERAs provide:

Wider choice, lower prices, better promotions, good value and quality private labels products, etc. Consistent quality standards Quicker access to innovation

Price Choice Innovation Quality

22

THE HE EUROPEA OPEAN N SING NGLE MARK RKET ET FOR SOURCING ING STILL L DOES S NO NOT EXIST T FOR RETAIL AILERS ERS

Exam xample: : AB Inbev

• AB InBev is dominant on the

Belgian beer market;

• EU Commission fined AB InBev

€200 million for restricting cross- border sales of beer between the Netherlands and Belgium;

• The fine is reduced by 15%

because AB InBev had fully cooperated (…) and acknowledged wrongdoing.

Source: Press coverage, French Commission hearings, ECB 2015, European Commission PR Database, EuroCommerce survey

Consumer prices for branded food products often vary strongly between European countries, even taking into account VAT & excise duties or logistics costs.

• Pampers baby-dry price differences of up to 40%.

Snickers price differences of up to 25%;

• ECB analysis (2015) demonstrates significant cross-

border effect;

• ECB (2016) shows efficiency gains via alliances are

passed on to consumers. Retailers are faced with buying price differences of up to 60% for the same product without any reasonable justification. Retailers cannot source branded goods centrally for their stores in different Member States. Large international suppliers force most retailers to source locally in every Member State where they resell the products concerned. Parallel imports are often challenging and at times impossible.

23

CO CONTENT ENT

1.

• 1. Wha

hat t are ret etail ail allia iance ces? s? Wha hat t is thei eir r rang nge e of activi vitie ties s and nd who are thei eir r suppl pplier iers? s? 2.

• 2. Wha

hat t is the rationale

• nale for set

etting ting up allia liance ces? s? 3.

• 3. The

he Europe pean cons nsume umer r perspe specti ctive 4.

• 4. A supp

pplier lier perspe spectiv ctive: e: what are the e benefits efits of ne negotiating gotiating with h an n allia lianc nce? 5.

• 5. The

he agricul icultura tural l perspe spectiv ctive

24

ERAs s BENEFIT IT SUPP PPLIERS IERS

• Access to a large set of markets with a single entry point – e.g.:
• incre

crease ased d effici cienc ency y in managing commercial relationships;

• less

s comp mplexit xity, more effective way of doing business (less sales teams, less travel, administrative simplification);

• fast

ster r negotiati

• tiation

n cycle.

• Access to international services in addition to nationally provided services
• commerci

cial developme pment nt across ss severa eral countr tries;

• create synerg

ergies es across ss countrie ntries;

• access to multi

tiple ple mark rket ets for SME supplier ppliers;

• growth

th progra ramm mmes es.

• Econo

nomies es of scale by combining volumes and harmonizing product specifications, including supporting additional long-term investments and production planning;

• Suppor

port t to in innovat ation n and promotion campaigns;

• In

Increase eased d in innovat ation n capaci city ty based on inputs and projects in multiple countries.

25

ER ERAs BEN ENEFIT EFIT SM SMEs Es AND HE HELP THE HEM GRO ROW W INTERNA TERNATIONALL TIONALLY

A frozen food product from Scandinavia… … found its way to Belgium and the Netherlands A full range of 200 specialties from Italy … found its way to Germany and Switzerland

26

CO CONTENT ENT

1.

• 1. Wha

hat t are ret etail ail allia iance ces? s? Wha hat t is thei eir r rang nge e of activi vitie ties s and nd who are thei eir r suppl pplier iers? s? 2.

• 2. Wha

hat t is the rationale

• nale for set

etting ting up allia liance ces? s? 3.

• 3. The

he Europe pean cons nsume umer r perspe specti ctive 4.

• 4. The

he suppl pplie ier r persp spec ectiv tive: e: what are the e benefits efits of ne negotia tiating ting with h an n allia lianc nce? 5.

• 5. The

he agri ricul cultur tural al perspect spectiv ive

27

THE HE AGRI RICUL CULTU TURE RE PERSPECTIVE SPECTIVE

• ERAs do not interact with agricultural/fresh producers.
• Individual retailers only buy very little from farmers directly.
• Farmers sell to food processors, cooperatives, wholesalers and traders.
• Key facts:

most t agricu cultu ture e producti ction

• n goes

s to process ssin ing g (70%); exports; food service; catering and hospitality; farmers face strong ng and concent centrat ated ed first t buyer ers s and input suppliers; the price of agricultural products is driven en by glob

• bal

al dynami mics cs of supply and demand and, condi diti tions

• ns affecting

ecting producti ction, n, consumer sumer trends ds (e.g.

• g. highe

her demand d for r org rganic) ic) or p r policy cy conside siderati ration

• ns

s (e.g .g. sugar r re reducti ction

• n),

), and not

• t

by ret etailer er prices. es.

28

ERAs s NEGOTIA TIATE TE ON B BEHALF F OF OR WITH THE SUPPORT PPORT OF F THE HEIR R MEMBERS MBERS MAINL INLY Y WITH H LA LARGE E A- BRAN ANDS DS AND ND PRIVATE TE LABEL EL SUPP PPLIERS IERS

1. ERAs mainly deal with the largest FMCG suppliers (food and near foods) (e.g. Nestle, AB Inbev, Unilever, Procter & Gamble, Coca Cola, L’Oreal, etc.); 2. ERAs deal with international Private Label (PL) suppliers (food and near foods); 3. Smaller, local A-brands and PL suppliers: in very limited cases and at supplier request; ERAs support them to develop international sales; 4. Fresh product producers and farmers: ERAs only deal with processed packaged food producers; 5. Suppliers of goods that are “not-for-resale”: one of the recent activities of ERAs.

29

RETAI AILERS LERS ONL NLY REPRESENT RESENT A FR FRACTI CTION ON OF AGRI RICUL CULTURA TURAL L PRODUCT ODUCTS SA SALE LES S

The e Net ether erlands lands - product

• ducts

s endi ding up in super ermar arkets s vs. . elsew sewher here e (expor

• rts,

s, food

• d servic

ice, , other er chan annels els)

Source: CNIEL, 2017

35% 30% 19% 18% 9% 2% 65% 70% 81% 82% 91% 98% Apples and apple products Dairy products Eggs and egg products Pork and pork meat Tomatoes and tomoato products Onions and onion products

Supermarkets Elsewhere

Source: CBL

Fran ance - dair iry

30

CO CONCL CLUS USIO ION

• European Retail Alliances:

respond to the need to create a European Single Market for sourcing; are critical to the viability of retailers of all sizes, including SMEs; benefit consumers – price, choice, innovation, quality; support suppliers marketing their products across countries; negotiate, on behalf of or with the support of its members, on processed foods and packaged goods – branded and private labels; do not deal with farmers; the products they buy are so far from what farmers produce that their impact on agriculture market prices is negligible.

• In many other sectors of the economy, alliances have created significant

added value, in particular for consumers.

31

TH THANK Y ANK YOU OU

For further information: Christel Delberghe, delberghe@eurocommerce.eu