Minister worries of food retail centralization in Finland

Finland's Minister of Labour in charge of competition policy Lauri Ihalainen wants to start regulating food retailers that reach a market share of over 30%. Anti-competitive practices may be a worry in the country that has the most centralized food retail industry in Europe. According to Helsingin Sanomat Ihalainen, who is a former union leader, would welcome officials taking actions against issues deemed harmful for competition. He was also interviewed by Yle on the matter.

Finnish food & grocery retail market is a near duopoly with some fringe players as incumbents S Group retailing cooperative and K-food stores of Kesko (OMX: KESB) hold over 80% of the market and have been increasing their stake. Several years ago Kesko was the larger of the two but lately S-cooperative has pulled clearly ahead (market shares being around 45% and 35%) aided by favourable urban planning decisions and increasing political clout and a general environment supporting cooperative business format.

The incumbents have denied such concentration harms competition. They have even said that consumers are actually helped by the fact that there are strong retailers holding negotiating power vs. producers. This is not supported by studies looking into prices or economic theory. EU regulation already gives means to tackle anticompetitive behaviour and Ihalainen does not claim that the two groups should be stopped from growing further.

Examples of harmful behaviour that might be acted against include the producer taking all the risk by having to pay to get a new product onto the shelves in the first place. New entrepreneus often complain that it is nearly impossible to penetrate the chain of strong importer, strong wholesaler and strong retailer. For example there has been an increasing demand for local food among consumers. It is also often the most important issue for them in studies looking into purchasing decision. Although there are some exceptions particularly within the K Group, local foods’ wider adoption is slowed by the big chains demanding uniform product availability.

Imposing too strenuous conditions on manufacturers might be another area of concern. As both S-group and Kesko now get a significant portion of their shares from private label products, this given them even more leverage in negotiations toward suppliers.

Relations between primary producers and foodstuffs manufacturing also has some arrangements worth looking into. One example of such, not only when it comes to consumers but also shareholders, might be the meat processing firm Atria (OMXH: ATRAV), which is majority owned by meat raw material producers. Lately news have often said how the pork retail price needs to rise because the farmers are not getting proper return. It is not at all unusual in Finland to use relationships and the media to influence pricing decisions.

It would seem that public opinion has become more critical against the concentrated industry. This is particularly true for the political influence that they hold locally, often City Board members are even categorized as S and K people. As many high profile cases of large shop owners funding politicians have been made public, also the chains are looked at with a keener eye. Ihalainen said that a policy change regarding the location decisions of national alcohol retailing monopoly Alko’s shops might be done based on competitive reasons. Nowadays the majority of them sit next to S or K shops and it has been established that having an Alko next to a shop has a major positive effect on the food story sales.