Tomorrow, there will be another fierce battle in the Dutch ‘war for discounts’.
This war between the large supermarket chains and their (often small and relatively powerless) suppliers, is turning into a nasty trench war.
The supermarkets want to squeeze the last cent of margin out of their suppliers. These suppliers, however, desperately try to defend their scarce profits, while at the same time trying to unite themselves in a legal fashion.
The latest move on the discount front was made by the Dutch supermarket chain Jumbo.
In September, this chain retroactively demanded an extra discount from its suppliers of 1.25% over the whole year 2012. Jumbo made this move very shortly after Albert Heijn tried the same. At the time, I already expected this would happen soon:
A nasty side-effect is that when Albert Heijn gets away with this, other large supermarket chains and central buying organizations will try to do the same trick (Jumbo, SuperUnie).
Tomorrow, December 4, 2012, a large number of angry pig farmers will organize a protest manifestation against Jumbo and its unilatterally demanded discount. The Dutch newspaper NRC writes on this story (www.nrc.nl).
Tomorrow-morning, pigfarmers will keep a protest manifestation at the headoffice of Jumbo supermarkets in Veghel (Brabant). They protest against the unilateral price-reduction that this supermarket chain imposed on them.
In September, 2012 – at about the same time as the largest supermarket chain Albert Heijn – Jumbo demanded an extra discount from its suppliers, in order to pay for the opening of its new branches.
The supermarket chain demands retroactively a discount of 1.25% from its suppliers over the full year 2012. The Dutch Pigfarmer Union (NVV) has stated in a conversation with Jumbo that ‘this demand is unacceptable, as pigfarmers already make very small profits’.
When the supermarket asked to come with an alternative, the NVV proposed to calculate combinedly, how much profit pigfarmers actually keep from their activities. According to the pigfarmers, Jumbo had only time for resuming consultations the day after X-Mas.
This date is unacceptable for the pigfarmers as the discount arrangements will be effectuated sooner. They consider themselves not to be taken seriously by Jumbo. The NVV wants to give a signal that the abuse of power by the supermarket chains will no longer be tolerated by the pigfarmers.
Member of the European Parliament Kartika Liotard already stated in September that the discount demands of Jumbo and Albert Heijn were possibly violating EU-regulations. These chains have a combined market share of 55% in The Netherlands. They would abuse their position of power by almost simultaneously demanding an extra discount.
Inquiring minds would say that the ‘modus operandi’ of Jumbo and Albert Heijn in this matter looks, smells and feels like a cartel and is nothing less than abuse of power. I will not argue with them.
Only 15 years ago, the Dutch supermarket landscape was clearly more divided: there was one clearly stronger party (Albert Heijn) and a number of trailing, almost equally strong chains.
Since then, the Konmar, Super de Boer and C1000 supermarket chains have slowly, but surely disappeared, due to mergers, near-bankruptcies and takeovers. Although there are nowadays still a substantial number of C1000 supermarkets, this chain has in fact been taken over by Jumbo last year. Therefore the brand C1000 will cease to exist in a few years.
Further, there are a number of discounter chains (Lidl, Aldi and Dirk van de Broek) with national coverage. On top of that you have the nationwide operating Plus full-service supermarket chain and a few ‘local heroes’ with a substantial market share in a few limited areas.
There is competition, but this competition doesn’t have enough firepower to stop the domination of Albert Heijn and Jumbo.
This domination is bad for the customer, who does often have a very limited choice for buying his groceries within a few miles from home. And it’s also bad for the suppliers of these chains, who are stuck between a rock and a hard place.
Abandoning 1.25% from their 2012 yields might cause these (often) small companies and farmers to default, as a consequence of too narrow margins.
On the other hand: losing Albert Heijn and Jumbo as customers is nothing less than a disaster. This might also cause these small suppliers to default.
Therefore I wholeheartedly applaude the actions of the pigfarmers tomorrow. Somebody must stop these chains that are seemingly playing outside the rules.