A word or two about European retailer purchasing alliances (ERAs)

If you like the classic narrative around good versus evil, the topic of European Retailer Purchasing Alliances (ERAs) has everything you would hope. Yes, this is a storyline worthy of Luke Skywalker versus Darth Vader, or Jean Valjean versus Inspector Jalbert. The trouble, of course, is that both sides think they are on the side of good.

The retailers who voluntarily enter purchasing alliances argue that multinational brands make too much profit and that a purchasing alliance helps level the playing field where retailers are able to accomplish two miracles: 1) They lower the retail selling price (RSP) for consumers in all European markets and 2) They redistribute the profits from multinational brands to the retailers themselves (in order to boost wages for low-skill workers). The main trade body lobbying Brussels (and Paris) on behalf of the retailers is EuroCommerce. EuroCommerce

Opposing the retailers are two groups. First are the multinational manufacturers themselves who say that the ‘tax’ imposed on brands to participate in buying alliances is not used to lower retail selling prices or boost wages, it creates delays and stifles innovation. Second, which is a surprising twist to the decades-long story, something that came out in 2023, is the French government, who has proclaimed that the retailers are using the buying alliances to avoid domestic agricultural laws and underpay farmers. The French government is lobbying Brussels for itself. The main trade body lobbying Brussels on behalf of multinational manufacturers is A.I.M. [The European Brands Association]. AIM - European Brands Association

The big question on everyone’s lips is complicated to predict: “What will happen in 2024?”

Looking Ahead – ERAs in 2024/2025

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It appears that the French government is prepared to go to war with Brussels on the topic. Two events have setup a looming showdown. Firstly, on 1 March 2024, France enacted the “Loi Descrozaille”, also known as ‘EGalim 3’. This law extends a previous law preventing retailers from deep discounting in food products to non-food products, specifically what is termed, ‘near food’ which includes cleaning, homecare, personal care, beauty care and similar.? Descrozaille is firmly an anti-ERA law. Secondly, on 19 February 2024, the European Commission, via the Brussels Court of Appeals, ruled that only Belgian law applies to contracts negotiated by EURELEC. EURELEC is historically a two-party purchasing alliance between France’s largest food retailing group, E. Leclerc, and Germany’s largest, Rewe.? Just to reinforce that Belgian law is the only law, EURELEC added the Benelux’s largest retailer to the alliance in 2023, Ahold Delhaize.

So, who will win this battle in 2024/2025?? On one side you have Brussels arguing that retailers in France can leave France, negotiate contracts, then return to France and thumb their noses at Paris. On the other side you have the French government, many farmers and multinational manufacturers saying that French laws matter (even if you don’t like them).

One thing is clear about 2024/2025: Expect the lawyers to be busy.

Planning for Disruption

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Whether one side beats the other or both sides compromise, Retail Cities recommends that retailers and suppliers should prepare for disruption. Nothing can be more disruptive than Covid-19 lockdowns or rapid food inflation triggered by geopolitics, so we already know the playbook.

Disruption will come in two forms, both requiring very good ‘agile’ skills in category management and negotiations.

The first form: Legal.

It's clear that legal changes to contract laws in Europe will change in 2024/2025. The best way to prepare for this is to get the lawyers and accountants ready for whatever the outcome. This goes beyond just the back office. If you are a manufacturer, the backoffice should be providing scenario planning advice to key account managers. If you are a retailer, the backoffice should be providing scenario planning advice to buyers.

The second form: Channel Conflict

One thing that nobody talks about in this discussion is the cause of this battle. For two decades, Europe’s most efficient distribution channel, the hypermarket, has been gradually losing market share to a combination of online business models, food and non-food discounters, and proximity grocery stores. All three of these channels will continue to attract investors. They will also challenge the ways that large-format grocery stores think about pack, price, promotion, and place. The result: Retailers who rely on back-margin investments may face more disruption in 2024/2025 than ever before. Beyond legal yo-yo tricks, the new age of Retail Media Networks (RMNs) and AI-driven promotions has arrived.

Keeping in Touch

Retail Cities is running a webinar on this topic on 21 March 2024, at Noon CET. Registration is free. The webinar is hosted by Ray Gaul with fellow presenters Boris Planer and Sebastian Rennack .

We will continue to provide regular updates on this topic for our member clients in 2024/2025. We hope you will consider membership.

Link to Zoom Webinar Registration: https://us06web.zoom.us/webinar/register/WN_NFUhVOdFSSy8DuW_hRFA7g