© Springer-Verlag Berlin Heidelberg 2015Pierre Kobel, Pranvera Këllezi and Bruce Kilpatrick (eds.)Antitrust in the Groceries Sector & Liability Issues in Relation to Corporate Social ResponsibilityLIDC Contributions on Antitrust Law, Intellectual Property and Unfair Competition10.1007/978-3-662-45753-5_12
Rucellai & Raffaelli, Milano, Italy
This contribution contains a description of grocery retail market in Italy and the more significant cases handled by the Italian Competition Authority (the “ICA”)1 in this sector.
Firstly, it has to be underlined that the structure of the three levels of the agro-food supply chains varies considerably according to the stage considered, especially with respect to its specific structural characteristics and the main corresponding strategies used by the companies that operate within it.
With reference to the national market structure at the main vertical levels, the agro-food production sector still suffers from considerable market fragmentation with numerous operators often working in conditions of competitive unfairness while being financially dependent on parties operating at the lower levels of the supply chain. Products may even be of high quality, but since they do not have the essential elements to differentiate them from lower quality products in terms of image and service, the relationship with the downstream stages becomes difficult due to the high degree of substitution between the producers.
No generalisation can be made about industrial production: on the one hand, some sectors and areas have suffered a reduction, but on the other hand others have undergone an ever-increasing concentration in recent years. We believe that the two strategic variables that can account for the existence of these sectors and the areas are the following: the importance of the static type economies of scale and the degree of differentiation of offerings. By combining these two variables, much more fragmented structures, or more consolidated production structures, can emerge. The gradual consolidation process may constitute a general tendency; however, the intensity and speed of this process vary according to the specific importance of the two critical variables considered above.
With respect to commercial distribution, Italy still suffers from clear structural delays since its efforts to modernise the distribution system have been slower and it started later than the other countries. As we know, this modernisation mainly comprises the introduction and progressive acceptance of modern off-the-shelf type areas.
However, modern distribution, with its off-the-shelf stores, has accounted for over 70 % of food product sales (fresh and packaged) in Italy for several years. In 1996, the modern distribution model accounted for about 50 %, rose to approximately two-thirds in 2000 and stabilised at about 70–72 % of food product sales in recent years. In other words, the “natural” shift in food product sales from small traditional shops and other market entities to large-scale retail outlets seems to have stopped at the levels noted above.
This analysis makes specific reference to the level of concentration recorded in the retail sales market. The picture changes if we examine the consolidation levels attained by modern distribution at the purchasing stage, in its negotiation relationships with the other parties on the supply chain. In this case, the actual consolidation level is higher because of the widespread nature of what are known as large-scale purchasing centres, which include almost all the large-scale retail operators purchasing packaged industrial products on a group basis.
In general, it seems that the most important phases of the agro-food chain are progressively moving downstream. First, there was a shift from the merely agricultural stage to the commercial stage, when the sale of unprocessed, raw agricultural materials was the main source of goods, followed by a shift towards primary transformation when the first food factories were established and, more recently, to the commercial management of the product as well as the focus on distribution, with large-scale retail groups originating and strengthening further.
12.2 Law and Regulations
12.2.1 Italian Competition Law
Italian competition is governed by Italian Law no. 287 of 10 October 19902 (“Italian Law”), and the ICA is in charge of its application.
With respect to the food sector, the overall aim of the Italian Law is to ensure that competition is fair, for example, by encouraging restraint in price increases, more competition on the markets or the access of new players. The objective of the ICA in the food sector is to remove critical competition situations that can occur at both horizontal and vertical levels. With reference to the horizontal levels, it focuses, for example, on preventing what are known as “purchasing centres”3 from implementing more extensive, well-organised coordination forms that could jeopardise competition between the member companies and therefore go beyond joint purchasing. As a result, the bargaining power of large-scale retailers towards small and medium-sized producers would increase. With respect to the vertical levels, for example, the imposition of retail prices or any exclusion caused by the sale of own-brand products (or private label products), which leads to large-scale retailers increasingly acting as direct competitors to their own suppliers, creates competition effects. Therefore, a careful assessment is needed to ensure that it does not prejudice consumers.
In addition to the provisions of the antitrust Italian Law,4 in Italy there are specific laws aimed at controlling the structure of the grocery retail market and the behaviour of large grocery retailers. In particular, such rules were issued with the aim of monitoring the structure of retail sale food market, as well as the actions of large-scale food distributors. Among them, mention should be made of Art. 62 of Law no. 27 of 24 March 20125 containing urgent provisions on competition, infrastructure development and competitiveness. It represents the legislative response to the growing tensions in Italy between primary agricultural producers and the food processing sector, on the one hand, and commercial distribution sector, on the other, with respect to how the purchasing terms are negotiated for products meant for distribution.6 This provision, conferring the ICA with the institutional responsibilities and power to monitor its application,7 introduced certain restrictions to ensure greater transparency and balance in the relationships between the various agro-food supply chain operators. It has thus put an end to unjustified contractual imbalances between the parties, which damaged the weaker one. More specifically, Art. 62, para. 1, established the obligation to put these types of agreement in writing, indicating their essential elements, such as duration, quantity, price, characteristics of the product, delivery terms and payment, under penalty of voidance. This provision states that such contracts must be “conform to the principles of transparency, fairness, proportionality and reciprocal performance with reference to the goods provided”. It identifies a series of legally prohibited actions, as regards both the enforcement of contracts involving the sale of agricultural and food products and, more generally, the “commercial relations between entities operating in the sector”.
According to this law, payment of the remuneration must be made within the maximum time limit of 30 days for perishable goods and 60 days for all other goods. In both cases, the term starts from the last day of the month in which the invoice was received, and interest will automatically accrue from the day after the term expires. The interest rate is increased by a further two percentage points in these cases and is non-negotiable.
In addition to the aforementioned Art. 62, further provisions were introduced to regulate this sector. These include the Bersani Decree,8 which reformed the commercial sector, thus marking a significant step towards deregulating the market and simplifying bureaucratic and administrative procedures. The law establishes general principles, and Regions are in charge of planning commercial development and establishing urban planning measures. This reform modernised the sector by bringing regulations more in line with most European countries and, more specifically, providing for the introduction of two goods areas—“food” and “non-food”—replacing the previous 14 tables or goods categories and also separating sales outlets into the following types: neighbourhood outlets, medium-sized sales structures, large sales structures and shopping centres.
Another substantial deregulation measure was Law no. 248 of 4 August 2006, which provided—among other things—for specific subjective requirements, both professional and moral, that were needed to carry out trading activities in the food sector. Municipalities are in charge of checking that these requirements are met and valid in order to start up a business providing food and drink.
In addition, Legislative Decree no. 59 of 26 March 20109 regulated the requirements necessary for access to and exercise of commercial activities. More specifically, this decree provided that the access to and exercise of services express the freedom to exercise economic activities and may not therefore be subject to unjustified or discriminatory limitations. However, this prohibition on limitations does not apply if the service involves general economic interest for which there are no exclusive regimes in place, to the extent that this is not an obstacle to the specific idea of the interest of the public.
Law Decree no. 98 of 6 July 2011, converted with amendments by Law no. 111 of 15 July 2011, gave businesses the option of not complying with set opening and closing times, the obligation to close on Sundays and holidays and to close for half a day during the week, on an experimental basis and only for those businesses located in municipalities that are on regional tourist location lists or art cities.
The subsequent law decree10 revived and guaranteed the principles of free enterprise and competition. Under the decree, the provisions governing access to and exercise of economic activity must not contain restrictions unless in the public interest and must not discriminate, directly or indirectly, on the basis of the nationality and registered office of the enterprise.
Finally, the “Save Italy Decree”11 introduced further deregulations regarding both the management and opening of new sales outlets with the aim of relaunching the Italian economy. More specifically, it extended the deregulation provisions to the opening days and times referred to under Law Decree no. 98/2011 to all commercial businesses and not just those located in tourist locations or cities of art. Starting from 1 January 2012, commercial enterprises pursuant to Legislative Decree 114/1998 and businesses that provide food and drink in Italy can carry out their activities without any restrictions on opening times and without the obligation to close on Sundays or holidays.
Recently, the ICA completed two surveys in the food sector,12 an in-depth study of the agro-food sector13 and a further study on commercial distribution in Italy.14
126.96.36.199 Market Studies of the Retail Grocery Sector
The Study of the Dry-Pasta Supply Chain was carried out in 2011 as part of a project by the ICA to monitor food product prices, with specific reference to the ways in which raw material fluctuations were transferred downstream by the operators at the various stages of the production and distribution chain.
Furthermore, the Study on the Commercial Distribution was carried out to examine the organisation and regulation of the commercial distribution sector. It describes how the Regions manage the powers given to them under national law.
In 2005, ICA conducted a Survey (IC28) on Agro-food Distribution on account of the increasing significance of the sector, in terms of volumes and costs, and the widespread perception that fruit and vegetable prices increased with the changeover from the Italian lira to euro on January 2002. Therefore, its aim was to check whether multiplying effects, if any, were somehow boosted by the change in currency and whether inefficient supply chain structures and/or related competition issues encouraged the adoption of speculative and/or anticompetitive practices by actors at the various stages of the supply chain.
In 2013, the ICA ended its Survey on Large Scale Retail Sector. This survey examined the following criticalities, often found in this sector: (1) on a horizontal basis, the competitive dynamics between large-scale retail operators when contractual restrictions require the pooling of one or more corporate functions (affiliation relationships, consortia, purchasing centres or super-centres, etc.) and, (2) on a vertical basis, the role of private labels in the establishment of contractual relations with suppliers and the nature and impact of increasing requests by large-scale retailers to suppliers for a contribution to the display, promotional and distribution activities that are separate from the purchase quantities and prices.
188.8.131.52 Conclusions and Recommendations
In the Study of the Dry-Pasta Chain,15 the calculations made led to the following outcomes: (1) there was a surge in agricultural prices starting from the second half of 2007 causing—despite a slight delay—an increase in consumer prices that went well beyond the extent and period needed to permit the entire supply chain to recover the higher costs incurred; (2) the industrial transformation stage contributed most to that increase between prices of agricultural commodities and consumer prices, as it recorded a substantial average increase in its margins over the 3 years considered, compared to 2006 (period used as a benchmark); on the other hand, margins in the milling industry were generally stable, while the distribution area seems to have generally played a “virtuous” role in keeping prices down; (3) there was an especially noticeable increase in margins in the pasta sector in 2009, when both commodity and processing prices dropped, although the latter fell to a lesser extent.
Firstly, the Study on the Commercial Distribution16 came to the following conclusions: (1) the regulatory environment related to the commercial sector is extremely diverse at regional level, and commercial federalism seems to have entered a stage of consolidation; (2) the greater freedom given to the Regions has not always resulted in greater deregulation; (3) the small-scale retail sector is competitive, with many entities and high turnover rates, and it is increasingly difficult—due to vertical integration dynamics—to distinguish retail distribution from wholesale distribution; (4) large-scale retailers are marked by an increasing concentration of groups, the creation of purchasing groups, the development of vertical integration structures between wholesale and retail sales, the appearance of distributor brands and the increasing internationalisation of groups and larger-sized chains.
Secondly, the Survey on Agro-Food Distribution17 showed the following: (1) there are very different situations in the fruit and vegetable distribution supply chain due to the different types of products and also because of the number and characteristics of actors at the various stages, which often results in an excessively long distribution chain, making it easier to adopt speculative behaviour to increase profits; (2) large-scale retail outlets could have a decisive role to play in increasing the efficiency of the entire distribution chain, unlike neighbourhood outlets, which appear incapable of facing any type of innovation aimed at increasing the efficiency of the supply chain; local markets and street traders can continue to play a significant role in stimulating the reduction of distribution costs of fruit and vegetables; (3) large-scale retail outlets need to reorganise the upstream sectors of agricultural production and wholesale selling in accordance with the specific requirements of modern distribution and a correct competitive structure on a horizontal basis; (4) with reference to the agricultural supply, it is necessary to improve the level and quality of the commercial organisation, including by giving incentives to consortia and association type structures to amalgamate producers; (5) with reference to the wholesale distribution sector, a form of intermediation between production and distribution could be useful; (6) it would be advisable to concentrate this intermediation into one stage only, to shorten the distribution supply chain; an important role could be played by what were, until a few decades ago, wholesale markets, transformed into more modern and efficient agro-food centres; (7) finally, with reference to the terms that can guarantee proper horizontal competition between large-scale retail outlets, the need to remove certain problematic aspects in the regional implementation of commercial reform emerged, such as planning of commercial distribution on the basis of expected quantitative restrictions on entering the markets, unfair application of the rules aimed at blocking the entrance of new actors or the expansion of parties already on the market.
Finally, the Survey on Large Scale Retail Sector18 showed the following results: (1) the degree of concentration in the large-scale distribution sector in Italy is not particularly high, especially if compared with that of the other major European countries; if the concentration is moderate at the national level (on January 2011, 90 % market share was held by about 18 operators, of which only 2 with a market share exceeding 10 % and only 6 with a share of more than 5 %), at the local level, however, there is a very high degree of concentration, which weighs on the power of the actors in the supply chain; (2) franchising weighs very significantly on the net sales area of many major distribution groups, representing also, for some of them, the prevailing way of management of its sales network19; (3) the number of the so-called supercentrali di acquisto (large group purchasing organisations) increased very significantly (there are 7 altogether, that aggregate 21 chains, with almost 80 % of the national retail sales); (4) there are conflicting relationships between producers and supermarket chains in relation to contributions paid by producers to obtain distribution and promotion services. Moreover, the ICA stated that besides the traditional instruments of antitrust intervention, it intends to make use of its powers in the field of abuse of economic dependence20 and abuse of bargaining power.21
12.2.3 Regulations Applying to Retail Grocery Market Aside from Antitrust Italian Law
For the sake of completeness, it is necessary to highlight certain regulations applying to retail grocery market aside from Antitrust Italian Law in order to have a complete view of the main features of the said market.
184.108.40.206 Online Sales
E-commerce is subject to certain specific legal restrictions that must be scrupulously observed.
To start with, the “sale by correspondence, television or other forms of communication” covers all types of retail sales, including online.22
This rule provides certain restrictions on starting up commercial activities over the Internet (including the obligation to give prior notice to the Municipality where the operator resides if it is a physical person or where the registered office is if it is a legal person).