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 op on al alliance iances, s, Bruss ssels, s, 4 & 5 Nov 2019 19
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 onale 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 2
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 onal 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 other 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 onal and EU compet petit ition ion rules. 3
EUROPEA OPEAN N RETAI AIL L ALLIAN ANCES CES Italia Schweiz Agecor core Coopernic pernic AMS Sourci cing ng 6 members 4 members 11 members 9 EU countries 20 EU countries 18 countries in Europe Carref efour our-Tes esco co EURELEC ELEC EMD Ho Hori rizon on Int. t. 2 members 2 members 4 members 11 members 4 EU countries 10 EU countries 16 countries in Europe 16 EU countries Source: Company annual reports, company websites, alliance website 4
ACTI TIVITIES VITIES OF EU F EUROPE OPEAN AN RETAI AIL ALLIAN ANCES* CES* SELLIN LLING G SERVICE VICES SOUR URCIN ING G PRODU DUCTS TS • Examples: • Private label sourcing: Promotional programmes; Specifying product qualities and requirements; Support for internationalisation; Allowing members to place orders, not Support for product launches/innovation; buying directly via alliance; Support for category development and growth; Only processed foods & packaged products; Data sharing with a high degree of detail on Building on expertise from participating sales performance; retailers. Joint business plans and growth initiatives; • Products not-for-resale (e.g. store furniture & equipment) sourcing; Mediation. • A- brands sourcing (very few cases); • They sell services against a fee which represents a • Access to a single platform for sourcing. 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. * These are a range of activities illustrating the various types of ERAs’ activities; ERAs do not provide all these activities 5
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. 6
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 onal al and and Eu Europea pean legisl egislati ation on, 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 of conduct con uct, to avoid any leakage of commercially sensitive information. ERA ERAs use use com compl plian ance ce of office 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 ontract acts def defin ine the the parties’ goa oals and and commi commitme tment nts and and se set qua quant ntit itat ativ ive key perfor orma mance nce indicat cators to monitor progress. 7
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 on rea eal cou counter- performa mance nce (“scorecard”) . 8
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 onale 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 9
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 oria 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 other er sector ors s of the econom nomy including farmers, food manufacturers and others (e.g. automotive, pharma, airlines, banks). 10
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. 11
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 12
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 Exam ample: le: Alib ibab aba a ecosyst osystem em proximity, convenience, discounters, e- commerce, organic or home-delivery • Own stores as well as marketplaces; Digi gital tal has inc ncrea reased sed compe petit titiv ive e pressu ssure re • • 197 billion transactions on more transparency (prices, choice), Alipay in 2018; convenience • Market capitalisation of USD 460 bn, more than 4 times new business models competiting for the combined market consumers’ attention – e.g. Meal capitalisation of the top 10 delivery platforms, etc. listed European food retailers. very strong players outside the EU manufacturers selling direct to consumers 13
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