Retailers and wholesalers are increasingly concerned by the way large, Fast-Moving Consumer Goods (FMCG) manufacturers fully exploit the EU Single Market on their production side and totally deny it on their sales side – leaving European consumers to pay a heavy price.
This year, the European Union celebrates the Single Market’s 30th anniversary and while much has been achieved, there remain important flaws to fix. One of the most striking is the way a handful of large FMCG manufacturers have managed to effectively obstruct the Single Market for decades.
In a properly functioning Single Market, retailers and wholesalers would be able to arbitrate on behalf of consumers. This could be either by sourcing from the markets on which FMCG manufacturers are selling for the best prices and/or sourcing centrally for their stores in different member states. However, the manufacturers are doing all they can to prevent that from happening. They do this by imposing Territorial Supply Constraints (TSCs) and a 2020 European Commission study estimated the resulting consumer welfare loss was €14 billion annually – at a minimum.
Interestingly, the European Union tackled TSCs on the Business-to-Consumer (B2C) side in 2018 through the Geo-blocking Regulation. This prohibited practices used by online sellers that result in the denial of access to websites from other Member States. The Geo-Blocking Regulation leaves traders free to set different prices on websites that target different customer groups and to define who they deliver to. While the Geo-Blocking Regulation does not create an obligation on traders to sell, it does prohibit traders from discriminating on the basis of a customer’s nationality, residence or establishment when selling. So, a customer in Belgium who wants to arbitrage on better prices on the French or Dutch website of the given trader cannot be blocked from ordering. Freedom of contract remains, subject to compliance with non-discrimination rules.
We question why the same principle of non-discrimination does not apply to business-to-business relationships.
Most FMCG manufacturers are taking full advantage of the Single Market by producing identical goods at scale and at the lowest cost at only one or two manufacturing facilities in the European Union. Irrespectively, they impose the obligation on retailers to source in every country where they operate for local resale at often significantly different sourcing prices.
Purporting that TSCs are unavoidable due to different labelling rules, languages, different consumer preferences, and so on, is simply a smokescreen. Retailers and wholesalers deal also with large manufacturers of their own brand (private label) products, which they often sell under their own supermarket name. For these manufacturers, central sourcing for different national markets in the EU presents no problem at all. They simply use the same specification, uniform packaging and multi-language labelling as much as possible. Where local adjustments are needed they are simply made and if these result in different costs, they are readily explainable.
The European Union should finally stand up and stop FMCG manufacturers from being the only ones able to enjoy the Single Market, yet fragmenting it to the detriment of retailers and wholesalers and ultimately, European consumers. In the end, this is simply a matter of fairness. After 30 years, it’s time for a better recipe!
For more information, please visit: It’s high time for the Single Market to benefit all – EuroCommerce