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France Food and Drink Report Q1 2008Published by: Business Monitor International Published: Feb. 20, 2008 - 73 Pages Table of Contents
AbstractA key recent development in the French food and drink market involves the slow and painful steps beingtaken towards liberalisation and deregulation as reported in BMI’s newly-published Q108 France Food& Drink Report. With food prices being driven up due to rising energy and commodity prices, the newgovernment of President Nicolas Sarkozy has made it a priority to reform the extremely complicated lawsthat govern the relationship between suppliers of branded goods and retailers, which have held pricesartificially high. With a President who leans towards economic liberalisation, France may potentiallybegin to roll back some of its other laws that currently deter foreign companies from investing in thecountry.An increasingly liberal attitude towards economic affairs may be partly responsible for the surprising lackof objection to the takeover of part of the French food group Danone. In November the world's secondlargest food and beverage company Kraft Foods acquired French producer Danone's biscuit and cerealdivision for EUR5.3bn (US$7.6bn). The biscuit business, which generates annual sales of aroundEUR2bn (US$2.9bn) includes the leading brands in France, LU and Petit Déjeuner. Up until now Francehas adopted a protectionist attitude to many of its most prestigious national companies, including Danone.In 2006 when PepsiCo was rumoured to be looking to acquire Danone, which owns the valuable Evianand Volvic bottled water brands as well as the Actimel and Activia yoghurt brands, the yoghurt industrywas declared an industry of strategic importance immune to foreign takeover. This type of restriction isunlikely to be repealed any time soon however moves around the edges hint that France may soonbecome a more favourable climate for foreign businesses to operate in. Indeed, with a rising trade deficitFrance may eventually be compelled to encourage more foreign direct investment (FDI) to make up forits lack of export growth. More immediate moves towards liberalisation involve the regulations that govern the relationshipbetween suppliers of branded products and retailers. A long-standing ban on selling products for belowcost price has been present in France, designed to allow smaller retailers to compete with the big chains.This law has been regularly updated and modified to specify exactly which costs and charges need to beincluded in the final retail price. In addition, current laws mean that it is difficult for large retailers tonegotiate large discounts, as suppliers are compelled to offer similar terms to all retailers. These lawshave been a boon to discount retailers, whose large percentage of private-label products are not affectedby the laws and the laws have also had the unintended effect of stimulating supermarket and hypermarketoperators to extend their own private label offerings. Recently their have been moves to relax these lawsand the newly proposed 'Chatel bill', that President Sarkozy wants to be voted into law before the end ofthe year, would allow retailers to pass on 'back margins' - discounts that suppliers currently give toretailers after selling a certain quantity of theirs goods - to consumers. This would effectively let largeretailers who sell greater quantities to sell at lower prices than smaller, local retailers. This could possiblystimulate growth in the beleaguered supermarket and hypermarket sector and make discount stores, whichare currently growing very rapidly, less attractive. Get Full Details About This Report >> |
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