European Council, 1990: In the early 1990s, as Europe prepared for and implemented its single market program, the Coca-Cola Retailing Research Council released a series of articles on many of the issues associated with Single Market legislation and changing grocery retailing conditions. This summary presents an abridged version of each of those studies in chronological order, in hopes of providing an overview on what European Union (EU) evolution was expected to mean for food retailers and how they responded to the ensuing changes.
Grocery Retailing and 1992 (March 1990)
The European Commission’s plan is a remarkably cohesive program with many of the measures in different areas of law supporting each other. As a result, when all the pieces are in place, Europe’s internal frontiers, as far as EC citizens, goods, services and businesses are concerned, should have no greater significance than lines drawn in maps. In addition, throughout the program, safeguards have been inserted to protect European citizens’ health and safety, as well as businesses’ fair competition and trade. Yet, the scale of program objectives is also gigantic – the creation of a unified market of 320 million people, a new economic entity and a body of law to regulate its affairs.
Trade in food products between the countries of Europe, if compared with many other items, has always been fairly limited, probably due as much to national cultural and taste differences as to barriers to free good movement. The coming of the single market does not mean that these differences will disappear. What, therefore, will the “completion of the internal market” really mean for food retailers?
Indeed, the pattern of food retailing is not uniform across the Community. In most northern member states, the food retailing sector has undergone a concentration process, while, in other countries, this process is not so far advanced, and the retail sector is fairly fragmented, comprising a relatively large number of small, independent grocery retailers. Moreover, in some member states, national legislation relating to health, safety, consumer and environment protection, employment, competition – all the areas which will be affected by 1992 legislation – is highly developed and rigorously enforced. In others, regulatory regimes are less developed or exacting. Thus, the impact of 1992 legislation on food retailing will vary from one member state to the next.
Yet, all the food retailing organizations will then be operating in one enlarged market, facing the same opportunities and competition drivers. It should be noted that the 1992 legislative program is not food-retailing specific. Many of the key issues for retailers – such as permitted business hours, store siting and size, traffic regulations and so on – will remain unaffected by the Commission’s activities and still be controlled by local or national authorities. Stores will continue to serve the same markets and consumers, whose needs will not change dramatically as the result of 1992 legislation.
Immediate Implications
The 1992 food laws, while obviously relevant to grocery retailers, will have their greatest impact on the production and processing end of the food chain. Retail organizations that produce or outsource their “own label” products may have to reformulate some of their recipes. However, as retailers, their chief concern will be to ensure that what they sell complies with the new food regulations. Essentially, the intent of the new laws is that food will be safe and that consumers will be fully informed of what they are buying.
In most member states, legislation of a similar nature is already in force. For most retailers, the direct effect of Brussels’ food laws is likely to depend on the stringency of their current national controls. Other legislative measures, in turn, may have greater significance. The Commission’s proposals on refrigerated foods, for example, may require many retailers to re-equip their stores with more effective freezer cabinets and, for those who run their own distribution systems, to change their vehicles. These compliance issues may imply major capital investments.
Longer-Term Implications
Even though the Community has adopted the philosophy of harmonization to overcome national differences, post-1992 is not going to see the food stores of Europe full of harmonized Euro consumers. National – and even regional – cultural, custom and taste differences will continue to make differing demands of retailers. Additionally, in most member states, food retailing concentration has resulted in a relatively small number of very large retailing organizations. The absence of barriers, whether physical, technical or fiscal, will not change the intense competition that characterizes these markets.
The volume of food sales in most member states has shown little or no growth in recent years, and, as Europe’s population continues to age, it is unlikely to increase in the near to mid-term, except in the less prosperous areas. The large grocery retailer’s only path to volume growth in domestic markets lies in the capture of market share from major competitors. Thus, differentiation through a wider range and choice of products, fresher products, competitive prices and superior service will become even more important.
Europe’s food industry is highly fragmented, and currently over 75% of processed food output is consumed within its country of manufacture. With the removal of border barriers and lower freight costs, retailers will be able to extend their sourcing horizons. Cross-border supply relationships will multiply when the single market is completed, bringing change to food manufacturers and retailers.
The Social Charter and Food Retailing (December 1990)
As currently proposed by the European Commission, the Social Charter aims to generate 12 basic rights for workers in areas such as job mobility, remuneration, living and working conditions, social protection, collective bargaining, vocational training, equal treatment for men and women, industrial democracy, health and safety, and special protection for children, teenagers, the elderly and the disabled. Some of them are innocuous: they merely reaffirm the existing rights in individual member states. The Social Charter was accepted in principle at the Strasbourg summit in December 1989. Since then, the European Commission has introduced an action program designed to produce a set of binding directives and non-binding recommendations to member states.
Social Rights
The Social Charter proposes 12 distinct rights:
- Right to freedom of movement: Every citizen in the Community should have the right to freedom of movement throughout its territory, for family or occupational reasons, without loss of rights under the social security and tax systems. Furthermore, wages and terms in host countries should apply to all workers from other member states.
- Right to fair remuneration: Decent wage rates should be established by law or collective agreements at national, regional, occupational, sector or company level.
- Right to improvement of living and working conditions: This applies to the organization and flexibility of working time, redundancies and paid leave, extending to all forms of employment.
- Right to social protection: Every adult, in or out of work, should have adequate social protection, providing a minimal acceptable standard of living.
- Right to freedom of association and collective bargaining: Every employer and worker should have the right to belong to any professional or trade union organization of his/her choice.
- Right to vocational training: Each worker should have access to training on a continuous basis to minimize the adverse social impact of industrial turnaround or technological change.
- Right to equal treatment: Men and women should have equal treatment in matters of remuneration, access to employment, social security, education, training and career development.
- Right to information, consultation and participation of workers: This applies to areas with direct implications for employment, such as technological change and corporate mergers.
- Right to health and safety protection in the workplace: This involves ensuring satisfactory health and safety conditions.
- Rights for children and teenagers: The employment age should be set at 16 years, offering equitable remuneration and complementary training during working hours.
- Right to a decent standard of living for the elderly: All retired citizens should have a reasonable income commensurate with a decent standard of living.
- Right to integrate for the disabled: The disabled should have the opportunity for the fullest possible integration into working life.
Short and Longer-Term Effects in Food Retailing
On the whole, the Social Charter is likely to raise unit labor costs, reducing profitability and employment levels in food retailing. This negative impact will stem largely from the industry’s historically slim profit margins and high labor intensity. The degree of impact, however, will vary between member states, depending upon their respective economic growth in the 1990s. Food retailers in Greece, Ireland, the Netherlands, Portugal and the UK are likely to suffer a substantial negative impact because of their unfavorable status on both these factors. Belgium, France, Italy, Luxembourg and Spain are likely to suffer a moderate negative impact because of the offsetting effects of these two factors. Denmark and Germany are likely to have no significant impact on account of their favorable position vis-à-vis these two factors.
In the longer-term, the Social Charter is likely to improve industrial relations by reducing the endemic tension between management and labor. It is also probably going to improve the skills’ base of the industry’s workforce through training, while enhancing sector competitiveness through the resulting improvement in service quality and quantity.
Food Retailing Alliances: Strategic Implications (January 1991)
With the removal of trade barriers after January 1, 1993, the key to unlocking the benefits of “1992” relates to the “sourcing” of raw materials for food manufacturers and finished products for food retailers. This provides the opportunity for individual food manufacturers and retailers to become “lowest cost supplier/buyer.” It will also be the source of all European food industry opportunities, challenges and conflicts for the rest of the 1990s. The concept of “1992” is here. Retailers and manufacturers have begun to organize: manufacturers are consolidating production facilities, while retailers are building pan-European buying groups and alliances.
A surge of retailer buying group activity has developed since 1988. The centralization of retail purchasing power will put pressure on manufacturers’ price structures in four ways:
- Order quantities will rise so that volume discounts demanded will rise as well;
- Buying consortia can quickly determine their lowest cost source, using individual members’ price levels as starting points for group negotiations;
- Parallel importing will undoubtedly be exploited, and
- Food retailers seeking new sources for own-label products should find plenty of choice among major brand manufacturers and smaller counterparts with surplus capacity.
The momentum of “1992” could be slowed because of cultural differences: Europeans will not magically become consumers of Euro-food overnight. However, new product development is certain to be stimulated with retailers’ own labels driving new product introductions. As both sides of the European food industry restructure for post-1992 operations, the collapse of communism in Eastern Europe and the unification of Germany suggest an opportunity for pan-European food retailers and buying groups to push to be “lowest cost buyers.”
Food Retailing in a Greener Europe – April 1991
During the 1980s, public concern has increasingly been focusing on a wide range of environmental issues. This trend towards what might be termed a “greener Europe” was reflected in the Single Europe Act adopted in 1986, which, for the first time, provided the Community with a specific legal responsibility to act and legislate on environmental matters. Currently, there are over 100 EC directives in force, covering a range of diverse subjects, such as car emissions, water purity and noise levels. The purpose of these regulations is to ensure that differing and sometimes contradictory environmental standards at national level do not constitute barriers to trade in the frontier-free Europe envisioned by the EC.
At present, two issues appear of particular concern. The first is waste management in general and packaging-related legislation in particular. A significant element of the proposal is likely to be the imposition of mandatory deposits on packaging containers of various types and recycling targets. The second concerns the effort to achieve a Community-wide system for “ecological” labeling – a process already underway.
The risk for retailers with regard to packaging legislation is that they become what might be termed “the dumping ground” for waste by being given the primary responsibility for the collection and disposal of packaging materials. A further potential risk of this legislation is that it goes against the trend towards mass distribution systems seen over the past twenty years. Innovative packaging has become a vital element of this process, and waste management legislation could harm mass retailers’ sales and margins. On the other hand, the eco-labeling proposal could introduce a form of discrimination between products bearing such a label and those without it. Unless retailers are fully involved in the symbol-awarding system, there is the danger that certain products that have traditionally been the vehicle for growth in retailing sales volumes will be discriminated against.
It seems likely that, in its initial form at least, EC-level draft legislation will contain elements of considerable concern for retailers, as they tend to be seen as the focus for the waste collection process. Undoubtedly, any emerging legislation will undergo a number of changes before full adoption, and, in the meantime, it seems unlikely that the Community will adopt mandatory measures. However, retailers should remain well informed and fully involved in this process, carefully considering prospect strategies to deal with an issue that will certainly continue to be significant throughout the decade.
Retail Logistics: Physical Distribution Post 1992 (May 1991)
In the post-1992 European market scenario, increasing concentration in grocery retailing will mean a shift in supply chain control from suppliers to retailers. In addition, inventory will increasingly be kept upstream of retail outlets, which will have important implications for storage and delivery management. Since retailers will concentrate more on their core activities, logistics service outsourcing will grow significantly, also driven by haulage sector deregulation, as haulers become more responsive to retailers’ needs.
The importance of information technology as a means to control supply chain operations will grow, adding to logistics service outsourcing attractiveness. As information technology is used more to integrate logistics activities, the responsibilities of individual contractors will increasingly extend to embrace more than one activity. Indeed, retailers will tend to want to use fewer, larger logistics contractors in an attempt to achieve economies from “bulk service purchases” and reduced administration costs.
Logistics Services: The Physical Environment
A major factor that will affect the growth and development of retail logistics within Europe is the road and, to a lesser extent, rail infrastructure. Alleviating congestion is a key concern for many European governments, but no clear direction has yet emerged. Road pricing is one option, but there are political difficulties for its implementation. Road building, the traditional way of dealing with congestion, is now not a popular option, and lead times for major developments are long. Yet, what appears to be lacking is a readily available central view upon infrastructure trends and planning. Somewhat similar considerations apply to an appraisal of environmental factors. There are many broad statements about the Commission’s intention to monitor the environmental implications of road improvements.
The deregulation of the international haulage within the EC derives from the Treaty of Rome and the right of any individual from any member state to provide goods and services anywhere within the Community. The European Commission rightly observed that the system of bilateral permits that controlled most international haulage within the Community amounted to cargo reservation. A not unimportant consideration was the role of national governments, both in negotiating quotas for permits and allocating them to haulers.
When the international haulage deregulation is completed by late 1992, any properly qualified hauler should be able to enter the international haulage market. Upon considering the consequences of this deregulatory process, there are three vital points to consider:
- First, although international permits of all kinds were in short supply in some countries before, there is little evidence to prove that this significantly inflated the prices for international haulage services in the EC.
- Second, there is no suggestion that labor union activity in international haulage led to excessively high wages and, hence, prices.
- Third, the European Commission has powers to intervene in the market “when serious disturbance to the market is likely to persist.” A collapse in freight rates, leading to major companies’ bankruptcy, would certainly be regarded as grounds for intervention.
Sophisticated logistics will play a significant role in the EC’s changing retail scene. The opportunity for retailers to improve the efficiency of their logistics by outsourcing these services could result in a further shift in control to retailers from their suppliers.
Prospects for Grocery Brands in the Single European Market (September 1991)
The coming of the Single Market does not imply the coming of the Euro-consumer. National identities will be preserved, as will regional variations in consumers’ tastes, habits and lifestyles. Certainly, Euro-brands need Euro-consumers to succeed. For their part, some major manufacturers have sought to develop global brands with a sales potential that transcends borders. A few, like The Coca-Cola Company, have made it work, while others have found it a difficult task. Nonetheless, major manufacturers will continue on this path post 1992, either by growing their own Euro-brands or, like Nestlé, via acquisitions.
The main competition will come from retailer alliances: 14 out of Europe’s top 20 grocery retailers have already become involved in these alliances. However, the real benefits of alliances come from their bulk buying potential and their ability to share information and expertise. The notion of an alliance Euro-brand does not apply, since participating retailers would then have to start offering yet another brand to their customers. Only the successful development of Euro-stores would offer potential for true alliance Euro-brands, and this is unlikely to happen in the short term.
Other cost-driven strategies are “generics” and “cheapest price.” Generics have been abused in the past and turned into nothing more than extensions of retailers’ own labels. Likewise, as pressures on margins increase, the “cheapest price” strategy becomes less attractive, harder to pursue and sufficiently small to accommodate only a few players. The best alternative is for retailers to go for their own value-added label. The 1980s saw a steady growth in own-label penetration in the grocery sector, but there is still potential growth there, at least at national level.
Historically, retailers have derived the greatest benefit from their own labels when their names are incorporated into the brand name. This will certainly continue in the 1990s. The more that these retailers invest in customer services and product quality, the more their own labels will be seen as offering greater value when store names are on the labels. Those, like Gateway or Auchan, who have dropped the store name from their brand names may find that they have lost the real benefits of their own branding.
In the short term, own label penetration seems to continue its growth pattern. In Southern Europe, this will be aided by increasing retailer concentration and help from northern retailers. In Northern Europe, too, the predicted pattern is for increased retailer concentration. In the medium term, the forecast is less optimistic. An increasing portfolio of own labels will require more corporate promotion – especially through corporate brand advertising – and more management resources – for research and development investments, logistics and marketing. The brightest future will be for store-named own brands, particularly those offering significant added value.
The most likely scenario for the post-1992 period is the continued trend to polarization in food distribution. Retailers basing their growth programs on international expansion will get even greater benefits from their added-value own brands. Elsewhere in the marketplace, manufacturers’ Euro-brands will become more important, increasingly so as time goes by.
The Opening up of Eastern Europe: Implications for West European Businesses (October 1991)
In most East European countries, purchasing power remains low, currency conditions are still uncertain and money transfer facilities are limited. In some cases, imports are made conditional upon exports – meaning that companies from Western Europe are required to participate in offset transactions. Furthermore, mental attitudes and business ideologies in these countries are very different from those in Western Europe.
The key role in the opening of Eastern Europe will probably be played by wholesalers. It will be wholesalers that pass orders to domestic companies in Eastern Europe and become responsible for import functions. Western European companies will also be required to become heavily involved in the sale of domestic goods, building much closer links with production sources in Eastern Europe. These companies will need to have good staying power, accepting a lean period of 3 to 5 years. To earn respect and trust in Eastern Europe, companies will also have to show serious commitment to the host country.
In Eastern Europe, industrial leaders are often political leaders, as well. Many of these individuals are unable and unwilling to come to terms with the process of converting to a market economy. Changes to the economic system generated from within remain limited, hindering Eastern Europe transformation. There are two possible scenarios for developments in this region: a rigorous switch to a market economy, or an attempt to find a new social order that combines democratic features with strong collectivist elements. So far, Poland, Czechoslovakia and Hungary seem to have opted for the former. Countries in search for the latter will need a clear understanding of the functions of the market to avoid objectives that are both contradictory and incompatible.
A General Business Strategy for Western Companies Trading in Eastern Europe
Any consideration of the strategic options resulting from the opening of Eastern countries must start with the philosophy prevalent in Eastern Europe. Its infrastructure and distribution problems call for a more comprehensive view of trade. An important criterion for successful involvement in Eastern Europe is “increasing convergence” – the creation of production facilities and trading outlets offering services that can be marketed throughout Europe. A key requirement for any trading venture in Eastern Europe is, therefore, the immediate creation of a well-rounded policy that avoids fundamental differences between East and West, as travel and cross-border shopping forays will bring about a rapid increase in the awareness of Western products and practices.
The central principle for success is top management commitment to Eastern Europe. Unless the identification level is extremely high, the risks of an involvement in the East will be underestimated and its opportunities, overestimated. As a rule, the time span required in Eastern Europe tends to be underestimated. Another unavoidable principle is that of dominance, since a belief in institutional strength and significance was nurtured for decades. The most realistic market structure will be a narrow oligopoly with the notion of decentralization only gradually gaining acceptance.
The most sensible policy for retailers will probably be to start with city and urban outlets, gradually extending to rural areas. Because of limited product ranges and existing supply levels, it is unlikely that the establishment of large food outlets will be an overriding priority. Even during initial phases, markets can be successful, especially in locations where a specialist market can be linked to a non-food self-service department store acting as an anchor store. Discount stores will be particularly welcome.
Every company must concentrate on achieving maximum self-sufficiency fairly quickly. This means that trading organizations from West Europe must also establish contact with industrial companies from Western Europe and encourage them to grant licenses in Eastern Europe or to pass on expertise to East European partners. This will ensure that goods acceptable and exportable to the West can be offered as quickly as possible on the domestic market and then made available for export as well.
Such considerations indicate that successful involvement in Eastern Europe will require major networking and specific training efforts. Also, Western companies will need to play a leading role in solving logistical problems, as poor logistics are a root cause of bottlenecks in this region. On the whole, any company that decides to trade in one or more Eastern European countries should set up a firm budget covering a period of several years, assuming that the return on both market and infrastructure investments will take several years to materialize.
Talking to Governments (July 1992)
The environment for dialogue with governments is currently under pressure in the Community to change and adapt to more formalized, but open, consultative procedures. At the same time, considerable restructuring is occurring within the Commission, and it is not yet clear whether retail interests will be reallocated inside this body. It is clear that the interaction of national organizations with EC organizations determines the nature and influence of the retail lobby. The current diversity of the retail trade representation clearly reflects the diversity of interests in the sector. A more focused retail lobby is necessary, with well integrated links to national federations and an active, direct participation of company representatives at both national and EC levels.
Representation of corporate interests through an association will be increasingly necessary as the pressures for regular and formalized consultation increase. Activity is already underway to group the resources of the retail lobby under an umbrella organization. These should be encouraged if the retail lobby is to improve its effectiveness in influencing all parts of the EC policy process and its standing with the European Commission.
The European Community is at a stage of rapid development and European public affairs are hard put to keep pace with this rapid evolution. Existing public affairs structures have developed through a historical process parallel to the development of Community Institutions. The stresses and conflicts that have arisen have led to a progressive disillusionment with the current dialogue by all parties and the proliferation of actors trying to influence government. At the same time, with the internationalization of capital and markets and with increased global sourcing, companies are operating on a more multinational basis.
Now that much of the Single Market legislation is in place, the retail trade will have a greater interest in seeing that it is effectively managed. It will be essential that adequate networks are developed between the Commission and the national bodies to enable practical solutions to be found by administrative cooperation rather than by further lawmaking. Trade organizations should formally liaise their activities, coordinating within a Council structure with national federations and companies.
However, the interests of national and multinational companies and retail alliances could be better reconciled with the views of trade organizations if companies were given an active role in EC federations. Company involvement through national federations lengthens communications and dilutes views by filtering them through administrative layers. Company expertise and a pragmatic approach could be injected directly into the retail trade lobby at European level, coordinated through a collective structure.
The attention being paid to lobbying by both the Commission and the Parliament cannot but result in a greater structuring of the institution/pressure group dialogue. In such a scenario, groups with a well-organized and coordinated structure will have the best access to policy and decision makers.
EC Retailers and Non-EC Suppliers: The Impact on Trading Relationships Post 1992 (September 1992)
The EC, as it is configured today, represents one of the largest consumer markets in the world. Yet, Europe’s 345 million consumers are not to be found within neatly packaged national units. Rather, the diversity of the regions within “the twelve” member states remains. This is remarkably evident in the food sector, where the range of lifestyles, attitudes and tastes present both an opportunity and a challenge to both retailers and suppliers.
At present, significant trade flows exist between the EC and non-EC suppliers. These relationships have been forged in response to a lack of domestic supply, a need to ensure out-of-season stocks and as a result of the drive to compete in servicing consumers with greater product choices. However, the physical trading of goods across the European border is largely confined to commodity and ingredient areas, such as fruit, vegetables and meat. Branded and processed packaged products tend not to be traded over great distances. Hence, non-EC manufacturers trading with EC retailers have long established local production facilities. More recently, the focus of activity has shifted with both EC and non-EC manufacturers investing in production facilities in the former East European countries – not only to service the “new” markets.
The drive to become least cost supplier to an increasingly demanding retail sector has led many national and international manufacturers to rationalize their production towards a European supply structure. Therefore, national boundaries have become irrelevant in determining sources of supply. Eventually, as the Community expands geographically, the question of EC and non-EC in terms of food industry trading relationships will be less and less significant, and the factors governing them will be no different from those providing the foundation for successful relationships with any other supplier.
The essence of success will be customer service at its broadest level. Faced with the need to compete harder for limited growth markets, Europe’s successful retailers have continued and must continue to drive for focus within their business operations. Whether this focus has resulted in strategic growth within a single national market with a range, quantity, or customer service base, or with a price offer, or it has led to the transfer of a format across borders or to an alliance with others, preferred suppliers will be those who can demonstrate an understanding of retailers’ needs. This understanding will be based, in turn, on a sound grasp on consumers trends influencing retailers’ individual categories. Chosen suppliers will offer assured supply, assured quality, technical efficiency in systems, and innovation in response to the increasing demands of consumers.
Such criteria are not bound by 1993 or by political boundaries. They will constitute the cornerstones of the successful relationships built between retailers and suppliers both within the Community and outside.
The Single Market Legislation, An Update (November 1992)
The Single Market Program is substantially on course for the implementation of most of its main measures by January 1993, and this has already led retailers throughout the Community to move towards compliance with a wide range of measures. Though the Program is more directly concerned with food and drink manufacture rather than its retail distribution, the range of indirect effects on retailers covers many aspects of their business activities, especially for the larger companies.
The freeing of exchange controls on capital payments is likely to be an incentive for cross-border acquisitions by retailers from 1993 onwards. The more general benefit of cross-border trade through the reduction of currency charges, however, will have to wait until monetary union is much more of a concrete possibility than it is now. Additionally, grocery logistics will gain in efficiency from an improved transport infrastructure, but lose through higher costs brought about by stricter environmental controls. A more long-lasting effect of these controls will probably be the encouragement of closer relationships between retailers, suppliers, customers and authorities. Changes in transport costs and practices will spread the benefits of modern grocery distribution more widely across the European Community.
There are substantial changes either in place or in the pipeline regarding food and drink products’ manufacturing and processing. The impact on retailers is mostly indirect, though new product development will have to take account of legislation that is still contentious in many areas. Also, new rules on food inspection place greater responsibilities on retailers, particularly for meat and fish products. Compliance with new rules on additives, flavorings and coloring agents will not pose a major burden, since these measures are being phased in gradually. Moreover, the introduction of a workable standard for organic foods may help boost the scale of their production and consumption. For most retailers, the new requirements on labeling, pricing and quantity measurement also account for few problems or costs in compliance.
Finally, compliance with the employer-employee aspects of the Social Charter will be one of the most costly elements of the Single Market Program for large grocery retailers. The impact will, nonetheless, vary widely between member states. In addition, the establishment of common vocational qualifications in food and drink retailing is likely to prove long and difficult, especially so far as semi-skilled workers are concerned.
In overall terms, while the production and retail sale of some specific food and drink products is affected markedly by the Single Market Program, the range and variety of food and drink sold in the Community’s grocery shops will definitely not be diminished. In many individual outlets, moreover, easier cross-border supply will increase the number and type of products available for sale.
The Single Market: 1992 in Retrospect (January 1993)
Throughout this series of papers, it has been consistently argued that:
- Retailing was going to be less affected by the proposed Single Market legislation than manufacturing or food processing.
- The existing structural variations between countries in food retailing were unlikely to be changed.
- National and regional variations in consumer markets and preferences would persist, certainly in the short to medium term.
This remains the case, especially as far as food retailers are concerned. The creation of the Single Market has been a considerable achievement. On average, some 80% of EC directives have been incorporated into national legislation. Many of the details still have to be worked out and definitions agreed, but it is really only in the field of indirect taxation that major problems still exist.
The boundaries between the 12 member states have now been effectively removed, and companies are free to trade where they wish, subject to environmental constraints. The removal of boundaries created the enlarged Single Market, but the real economies of scale only come when the same products can be sold in all, or at least all the major, countries. National and regional differences will make this hard to achieve. While this is more of a problem for suppliers, it does affect retailers with own brands. Creating Euro-brands remains as difficult as ever, even in the Single Market.
Yet, is the Single Market still as attractive a target as it appeared to be during the run-up period? The answer is almost certainly “No.” Time has moved on, and other things have happened – notably the creation of the European Economic Area and the opening of Eastern Europe. It is unlikely, however, that retailers’ view of the Single European Market will be enhanced by the addition of EFTA (European Free Trade Association) member countries. Although these are developed, politically and currency stable economies featuring good transport and distribution infrastructures, they have relatively low population levels, offer highly competitive markets and are high-cost countries with little opportunity for new entrants. Few retailers in the EC member states will feel excited about the joining of these nations. Rather, the opposite will be true, and EFTA retailers may see better prospects opening up for them inside the 12.
While national governments have gone a long way towards implementing EC directives, the rigor with which they have done it has varied greatly. This is true of both foods and non-foods. In fact, some national governments are more bureaucratic than others and, undoubtedly, “extend” Brussels directives to suit their own ends. In such circumstances, neither retailers nor suppliers are getting all the benefits from the Single Market to which they should be entitled.
Before the Single Market even came into effect, attention was turning to the prospects offered by the inclusion of EFTA countries to create the European Economic Area and by the opening of Eastern Europe. There is little in the former to attract food retailers, but the latter does offer exciting prospects. Investment in Eastern Europe, compared with investment in the Single Market, will be long term, high risk and difficult, but the ultimate prospects are good.