FACTS ARE STUBBORN Vladimir I Lenin Horacio Gonzlez

“FACTS ARE STUBBORN” Vladimir I. Lenin Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation 1

A highly fragmented food industry fights for the shelves in all EU Countries, where big retail chains cope with the lion´s share of the food market Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

FOOD RETAIL MARKET SHARE OF TOP 3 IN SELECTED COUNTRIES Number 1 Number 2 Number 3 Sweden ICA AXFOOD KF 91% Denmark COOP SUPERGROS 86% Norway NORGESGRUPPEN DANSK SUPERMARKT COOP HAKON 83% Finland KESKO SOK TRADEKA 80% Switzerland MIGROS COOP DENNER 77% Austria BML-REWE SPAR HOFER-ALDI 68% Belgium CARREFOUR DELHAIZE COLRUYT 68% France CARREFOUR LECLERC/SYSTU INTERMARCHE 64% Netherlands AHOLD LAURUS TSM 59% UK TESCO SAINSBURY ASDA 58% Ireland TESCO DUNNES SUPERVALUE 58% Germany EDEKA REWE ALDI 55% Spain CARREFOUR MERCADONA EROSKI GROUP 54% Portugal SONAE JMR INTERMARCHE 47% Greece CARREFOUR ALFABETA SLÑAVOMOTOS 38% Italy COOP CONAD CARREFOUR 27% SOURCE: Nielsen, 2004 Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

TOP PLAYERS VERSUS RETAIL FOOD INDUSTRY NR in global Ranking Country of origin Name Sales USD/M 2 France Carrefour 92, 7 1 Switzerland Nestle 54, 4 4 UK Tasco 79, 2 3 UK/NL Unileve r 45, 8 5 Germany Metro 31, 8 10 France Danone 12, 8 10 30, 3 13 NL Heinek en 10, 7 SOURCE: Rabobank Ubifrance Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

. . . BUT THE REALITY IS DIFFERENT: number of food & drink industries in EU 309. 679 EU-27 Source: CIAA. Data and Trends, 2006 EUROSTAT . . . A HIGHLY FRAGMENTED INDUSTRY! Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

AVERAGE TERMS OF PAYMENT IN EU. SELECTED COUNTRIES SOURCE: ALTARIS, 2007 Av. Payment Period Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation Late Payments

• In those circumstances, the power in the food chain concentrates at the retail level, dictating the conditions for commercial relations (and almost of the market) Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• In the last 15 years retailers have imposed their own “way of doing business” with tougher and tougher conditions, pressed by the competition between them and the different categories. • This leads to a mounting pressure on food producers, and forcing commercial practices up to the limits Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

But. . . What are we talking about? - Some examples of distortive practices - • long payment periods: ranking from 35 to 125 days (source: CIAA NF survey 2006) • late payments: from 9 to 23 days (source: ALTARES, 2007) Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• compulsory payment of services which are ultimately not rendered i. e. promotional activities • imposition of specific/stricter product specifications Each retailer has is own specifications i. e. composition of the product, limits on pesticides, food security. . . – beyond legal obligations, and controlled by specific companies linked to the chain Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• sales at a loss It is forbidden in some EU countries, it is a normal practice in some others • “invitations” to contribute to operational cost of mergers i. e. : to finance the new e-management data systems Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• “price checking” Following a merger, the new retail company compares price lists of both individual companies. If the gap is large and the food industry wants to operate with the new merged company, a compensation has to be paid. Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• Refusal of merchandise (and bill) due to minor defects. . . Even after months of its reception • blind electronic bids Invitations to participate in an e-bid for private label products do not comply with minimum guarantees: visibility to sellers on process, parties involved and outcome of the tenders. Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• The growth of Private Labels From 16% in Italy to 43% in the UK, and growing. . . They are source of business but also of price pressure on SME, discrimination, . . . Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• A STRONG ECONOMIC DEPENDENCE, AND THE FEAR OF BEEING DELISTED FROM A CHAIN IN FAVOUR OF A COMPETITOR, ARE THE REASONS BEHIND THIS SITUATION. Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

What are the consequences? • Distribution growth is financed at the expense of supplier. Suppliers act as surrogate bankers. • Abusive and unfair practices limit the normal evolution of food companies and distort trade (conditions differ from one EU country to another) • Private label discourages R&D and innovation, and discriminates against trademarks Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

Briefly, • WHEN IT COMES TO FOOD RETAIL, INTERNAL MARKET IS NOT A REALITY YET • FOOD INDUSTRY COMPETITIVENESS IS STRONGLY PUT AT RISK Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• WHAT SHOULD BE DONE? A FIRST (AND VERY IMPORTANT) STEP HAS BEEN TAKEN WITH DIRECTIVE 2000/35 COMBATING LATE PAYMENTS. . . . BUT IT SHOULD BE STRONGLY IMPROVED! Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

• FOOD INDUSTRY NEEDS A BALANCED, EUWIDE COMMON FRAMEWORK FOR ITS RELATIONS WITH RETAIL TRADE. • THIS NEW FRAMEWORK IMPLIES – EU maximum payment period for commercial contracts of 30 days – A fixed, automatic and compulsory contractual late payment fee as a real deterrent against this practices – Addressing “grossly unfair practices” as mentioned before Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

– full legitimacy for representative Organisations to complain on behalf of individual companies seeking to declare abusive practices inoperative or void. This provision should be matched with a special procedure to preserve the companies confidentiality. – Director´s responsability based on civil liability – Full retention of title clause – Transparent, compulsory reporting on late payments by Member States – Public information, making compulsory open access to general conditions for commercial relations (i. e. corporate web) for companies. Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation

The Commission will get all our support in the next revision of Directive 2000/35, a key element to reinforce the competitiveness of the EU food & drink industry. Thank you Horacio González Alemán Deputy Secretary General Spanish Food & Drink Federation