LFMI remarks concerning Retail market monitoring report “Towards more efficient and fairer retail services in the internal market for 2020”

LFMI has reviewed the report and produced these remarks. The report is excellent at identifying issues in the retail sector. In the same time it does not distinguish between issues created by the market forces and the problems created by government intervention. In our opinion this report clearly shows that most of the problems are created by too overwhelming, contradictive and counterproductive regulation. If the Commission wants to improve the retail sector it should rather focus its efforts to deal with problems of regulation instead of trying to interfere with market forces.

Detriments to competition come from government regulation

Zoning laws which prevent or restrict the establishment of new shops are very detrimental to competition in the retail sector. Such laws favor the incumbent retailers and do not allow for new competitors to emerge and grow. Even though such laws are presented as a matter of public interest they actually harm public interest and serve not the public but the interest groups. It should be noted that restrictions to opening new shops come not only from zoning laws or planning procedures, but also from a whole range of municipal and national legislation. If competition in retail is to be improved this legislation has to be rolled back.

Regulation that restricts normal operational activities of retailers is also detrimental to the sector. Restriction of operating hours, sales (regulation against selling at a loss) and other measures are unjustifiable and are not in the interest of the public.

Government should not interfere with relations among retailers, suppliers and producers

The relations among the retailers, suppliers and producers of agricultural products should be left to the participating businesses parties. The notion that retailers have disproportional power over suppliers or producers is unfounded. Bargaining power depends on size, product, markets and many other factors which are unique in each case. It is wrong to assume that retailers are hurting suppliers or producers just because retailers appear to be using market power to drive down the prices. Suppliers and producers also use bargaining power in their business operations to drive down the prices of inputs as well. It is all this bargaining that leads to efficiency and lower prices for the consumers. Government intervention not needed. In fact government intervention would restrict bargaining, produce inefficiencies and ultimately result in higher prices for the consumers. The existing national regulation and the EU regulation on unfair contractual practices is more than enough. In fact a regular law of contracts would suffice.

There is no way of determining the “right” or “fair” share of the final price, which should go to retailer, supplier or producer. The heated rhetoric over the allegedly large share going to the retailer show the lack of understanding of complexity and value added that the retailers create.

Additional regulation of labor in the retail sector is not necessary

The report makes an excellent point concerning the importance of the jobs created by the retail sector. Moreover the report acknowledges that traditionally the most vulnerable groups benefit from possibilities offered by employment in retail sector. Therefore it is surprising that the report sees pressure on wages or working hours as a problem. Any regulation aimed at the retail sector to deal with these perceived problems would result in job destruction and reduction of demand for labor. Therefore the measures taken supposedly to protect the employees would end up hurting them. Given the already stringent EU labor laws any additional sector-specific regulatory measures would be counterproductive.

Given the special focus on SME’s, it should be understood that SME face a relatively higher administrative burden than their corporative counterparts. It is completely normal that in SME’s where degree of labor specialization is small and the same employee is faced with multiple responsibilities SME’s find it hard to comply with a stringent labor code. The initiative to cut the red tape is a good one, especially when it comes to hiring, firing, working hours and compensation. The most effective measure would be to cut the red tape across the whole retail sector.

Large retailers are environmentally sustainable

Contrary to public opinion large retailers are more efficient at using energy, resources and recycling. Due to the scale even small savings translate into substantial cash savings large retailers are among the first to implement measures to save energy, fuel and other inputs. Also large retailers are able to recycle and process waste (i.e. packaging waste) in economical and sustainable manner.

Providing information to consumers should be left to the market

Information to the consumers on price differences, social responsibility of retailers etc. is provided by the market. While it may seem that the level of information is “too low” we should understand that this information is part of market operations. The demand for certain service (i.e. price comparison) arises and is fulfilled by the market. There are numerous enterprises which specialize in product reviews, price comparisons and advice to the consumers. Moreover most of these services are provided free to the consumers (businesses live of advertising). Attempts by government agencies (i.e. Agency for Consumer Protection) to replicate these services are ineffective, unpopular and costly. Government institution should be discouraged from engaging in such activities and advised to concentrate on their primary responsibilities.

Given the current state of public opinion it is unclear how the report came up with conclusion that there is a lack of information concerning social responsibility of companies, including the ones in retail. Numerous NGO’s concentrate on evaluating social, environmental responsibility and assigning “grades” or “marks” to different companies. One could conclude that there is not a shortage but abundance of information. Attempts to assign this task to government agencies would result in failures similar to the ones described above. Given the ambiguous the still-changing definitions of social responsibility wasting public money on such endeavors would be irresponsible.

It should also be recognized that initiatives by NGO’s tend to be less politically motivated than assessments made by government agencies. Therefore there is an additional benefit in not involving government agencies into these types of assessments.