The Competition Council (CC) of Latvia has concluded sector inquiry into the market of cooperation networks/purchasing associations of food retailers. Within the inquiry, the CC analysed the competition situation and identified problems that have to be averted by retailers by the start of 2016 when anew Unfair Retail Practice Prohibition Law enters into force.
In Latvia, there are six purchasing associations of food retailers – SIA „Baltstor” with Mego and Vesko shops, SIA „Latvijas tirgotāju kooperācija „AIBE””, SIA „Latvijas tirgotāju savienība” (LaTs), SIA „ELVI Latvija”, SIA „Iepirkumu grupa” with top! and Labais shops, as well as SIA „Rust” and SIA „Savel” with BETA shops. While cooperating within one purchasing association, individual shop owners are able to carry out joint procurements in order to receive more favourable trade terms and greater discounts from suppliers. Furthermore, within purchasing association retailers are able to use one brand and perform joint marketing activities, for example, in the form of unified customers’ loyalty programs.
In spite of a fact that there is a close cooperation among participants of purchasing associations, shops belong to different owners and they are able to mutually compete with prices of goods.
Purchasing associations in Latvia are gradually developing, however, none of association’s market share exceeds 10% and therefore is not considered as equivalent competitor to the largest retailers Rimi and Maxima each having a 30–40% market share. The biggest purchasing association by the number of shops in Latvia is SIA „Baltstor” with a total of 543 Mego and Vesko shops. While the higher market share belongs to SIA „Iepirkumu grupa” with a total of 230 top! and Labais shops.
Currently, cooperation between large retailers and suppliers in Latvia are regulated by a special article of the Competition Law, however from 1 January, 2016, the new Unfair Retail Practice Prohibition Law will enter into the force. According to the new law, all food retailers, irrespective of their size, in relations with suppliers will not be allowed to abuse their market power. Thus, starting year 2016, participants of purchasing associations, which are excluded from the current regulation, will have an obligation to establish their cooperation with suppliers in accordance to requirements of the new law.
During the sector inquiry, the CC identified particular problems, which have to be considered by participants of purchasing associations until the new law enters into the force. For example, retailers have to ensure that their applied penalties would be proportionate, goods that are not sold during discounts would be exercised in accordance with interests of both suppliers and retailers, as well as suppliers’ freedom of action to offer prices of goods to other retailers would not be affected.