Study on price effects for customers from participation in national buying cooperation

1.1 Retailers and wholesalers sit in the middle of the grocery product value chain. Upstream, they negotiate with suppliers and fix the purchasing conditions for products that are eventually sold on to their customers. Downstream, they compete with other retailers and wholesalers to attract customers to their stores and websites.

1.2 Purchasing conditions are an essential input for the value that retailers and wholesalers can offer their customers. They govern how products are marketed, when and where discounts can or have to be applied and, above all, the price that a reseller (i.e. a retailer or wholesaler) can sustainably charge to its customers.

1.3 Downstream markets are characterised by intense competition between rival retailers (or between rival wholesalers) with their customers constantly seeking the “best deal” of product choice and value for money. As a result, any improvements in purchasing conditions are typically shared with customers as retailers and wholesalers use improved terms to gain a competitive advantage over their rivals.

1.4 Buying groups affect this supply chain by concentrating the power of retailers and wholesalers in the procurement market: strengthening their negotiating power versus suppliers. Below we summarise why:

a. economic theory predicts that this should lead to lower prices for customers and, ultimately, end consumers in all but exceptional circumstances (circumstances which are already proscribed by EU competition law); and

b. the new empirical evidence put forward in this report supports this prediction, showing that Metro’s participation in a buying group in France has lowered prices for customers by around 5%-7%. This is in line with another recent empirical study of buying groups in France (Molina 2019), which also finds a price reduction of 5%-7%.

1.5 The first order effect of a buying group is to lower end prices for customers. This is because:

a. buying groups only concentrate reseller power in procurement – this doesn’t reduce competitive tension in the negotiation (in fact, it increases the pressure on suppliers to offer the best terms) and it doesn’t reduce competition tension between resellers, who continue to compete against each other downstream;

b. retailers’ and wholesalers’ incentives to use their buyer power in procurement are fundamentally aligned with the interests of customers and end consumers – who also want retailers and wholesalers to obtain the lowest input prices; and

c. because buying groups do not concentrate competition in the downstream retail and wholesale markets, retailers and wholesalers who gain a stronger bargaining position continue to have strong incentives to share terms improvements with their customers.

1.6 It is therefore fundamentally misleading to characterise buying groups as similar in their effects to other forms of horizontal concentration – the economic effects are fundamentally different. They are pro-customer and pro-consumer by default.

1.7 There are, in theory, circumstances where buying groups can be harmful to competition in the upstream or downstream markets. This arises when the concentration of buyer power is so great as to give buying group members the power to exclude competition – either by foreclosing other market participants, or by facilitating coordination.

1.8 However, such exceptional circumstances already sit fully within the ambit of existing EU competition law provisions – designed to prohibit exactly these types of horizontal concentration. There can be no credible suggestion of an enforcement gap in EU competition law, precisely because buying groups remain pro customer and pro-consumer at levels of horizontal concentration significantly above the threshold at which EU competition law would already intervene in other circumstances.