The inquiry was launched amidst significant price increases for consumers, global and European developments in the supply chain and rising inflation.
“Our report provides a complete overview of competition in the food market in Austria, transparently describing the current situation in the market. It contains a substantial amount of facts and figures, which can be used to develop measures to strengthen competition and consumer protection,” says Natalie Harsdorf-Borsch, head of the AFCA.
AFCA’s approach to sector inquiry
The AFCA made requests for information in ten rounds, surveying a total of 700 trading firms and more than 1,500 suppliers. It also used data purchased from the GfK market research company for its analysis, as well as daily price data obtained from a selection of Austrian online food retailers and looked into by Austria’s central bank OenB on behalf of the AFCA. In addition, the AFCA surveyed around 1,000 consumers aged between 18 and 65 for this inquiry.
The survey questions were aimed at evaluating the competition situation in the food industry. They covered such areas as sales figures, product ranges, costs, pricing and own brands, for example, with a focus on the steps in the supply chain, specifically the processing industry, retail and the end consumer.
A reference basket was used as the basis for the survey, containing everyday food items such as non-alcoholic drinks, meat, fish, cold meats, eggs, fruit and vegetables, bread, rolls and cakes, dairy products, convenience food, cooking oil, frozen food, sweets and savoury snacks.
Results of sector inquiry
“Our analysis has shown several competitive weaknesses. The number of reported unfair practices in supplier relationships is worrying, for example, but we have also found weaknesses in the internal market and believe that consumers should have more price transparency,” explains Natalie Harsdorf-Borsch, head of the AFCA.
Brief overview of sector inquiry results:
General competition situation in the food market
Food retail sector highly concentrated, but no significant shift in market shares
The food retail market in Austria is highly concentrated, with no major shifts in market shares having occurred during the last few years. The four largest food retailers (Spar, Rewe, Hofer, Lidl) continue to hold a combined market share of 91%, which gives them a high degree of bargaining power over their suppliers. The inquiry could not establish a causal link between this market concentration and the price increases. Other criteria were a stronger driver (see below). However, a high market concentration is usually linked to structural competition issues such as a higher risk of collusion between competitors and higher market entry barriers. The market entry barriers for new food retailers are considered to be very high (e.g. high investment cost, oversaturation due to high branch density). For instance, more than 200 local retailers have closed down their corner shops since 2019, while the top four food retailers were able to open up even more branches during the same period.
Competition situation for consumers
- Intense competition helps low-income consumers to a disproportionate extent
When viewed in relation to consumers’ household income, the impact of inflationary food prices varies according to social group. Households with lower income profit to a disproportionate extent from stronger competition and therefore cheaper food prices.
- Price comparison sites might close transparency gap for consumers
Price comparison sites can be a beneficial tool for consumers who want quick information on current prices and offers. The AFCA published a focus paper on this in September 2023 (see press release of 15 September 2023). It includes four recommendations designed to increase price transparency for consumers. The AFCA’s key proposal is to allow fast, decentralised access to data without bureaucratic red tape to facilitate price comparison sites.
- More consumer protection needed in relation to reductions in the quantity and quality of packaged food products
Consumers indicated during the survey that they thought food retail companies should be required to provide clear information about changes to their products, in other words shrinkflation or skimpflation. Shrinkflation is when a product is reduced in size without any change being made to the price. Skimpflation is when producers secretly ‘skimp’ on the quality of a product while keeping the price and quantity similar or the same. Both constitute hidden price increases.
“Austria” price mark-up
- The inquiry found that food retailers with international operations were more likely to charge different prices for the same product in line with their country strategies. These strategies may be a significant factor in the setting of different food prices in different countries and in the setting of higher prices in Austria. The Austrian mark-up is an issue that transcends the national level as it is essentially an issue relating to the EU’s internal market. The AFCA will forward its findings to the European Commission.
Unfair trading practices
- Suppliers affected by unfair trading practices – high priority for the AFCA
A significant number of suppliers stated during the survey that they were affected by unfair trading practices. Suppliers had to contend with:
- Unilateral modification of contracts (14.3%)
- Payments not related to deliveries (13.6%)
- Payments for quality losses outside of their control (13.4%).
The AFCA, in the capacity of competent enforcement authority within the meaning of the Fair Competitive Conditions Act (FWBG; in force since January 2022), will work to combat these unfair trading practices as a matter of high priority. It is also in favour of tightening up the provisions of the FWBG.
Price increases, profit and trade margins in food industry
- Strong price increases in different product groups
The inquiry found that all product groups were affected by price increases, with no exceptions. Butter, margarine and mixed fats were affected particularly strongly. The retail prices for own-brand products rose more strongly than those of branded products.
- No rise in profit and trade margins in food industry
There was no systematic increase in trade margins for food retail companies, and thus no increase in profits, from the second half of 2022 to the second half of 2023. Overall, there was no indication that companies had tried to increase their trade margins during the inquiry period amidst rising and high inflation.
- Large producers – large market shares – different profit margin developments
In some product groups, producers held a high overall share of the market. The three largest producers of instant coffee, for example, had a combined market share of almost 84% in 2022. A similar picture is seen with potato snacks and soups.
Internationally active producers were able to grow their profit margins in single product groups during the inquiry period (e.g. butter, margarine, mixed fats by about +7%). Other product groups encountered huge drops in profit margins (e.g. natural yoghurt -11%). Profit margin developments in the food industry depended heavily on the product group.
Agricultural operations and intermediate agricultural goods
Rising concentration due to market exits – production costs and profitability both increasing
The number of agricultural operations has been falling for years, with concentration rising as a result. Compared with 2010, the number of farms has dropped by 21%.
Agricultural operations are highly dependent on international price developments when negotiating their own prices. Rising energy prices mean considerable additional costs for farms. Nevertheless, farms were on the whole able to improve their profitability.
Online food shops
Online food retail increasingly important
The importance of the online food retail sector is currently still negligible: its share of 0.3% in 2019 climbed to about 1% in 2022.
In view of the analysed data, online food retail is however thought to have “very high” development potential. Of the EUR 216 million sales in online food retail, some 67% (equating to EUR 144 million) was generated in Vienna, i.e. nearly seven out of every ten euros was spent on food online.
In accordance with the results of its analysis, the AFCA is proposing the following recommendations, which it believes would have a positive impact on competition in the food market and therefore also on consumers:
- Implementation of the measures set forth in AFCA’s focus paper on price comparison sites to increase price transparency for consumers in the food retail sector
- Strengthening of the internal market and involvement of the European Commission to deal with varying retail prices in EU Member States owing to food groups’ country-based strategies
- Increasing transparency regarding food products
- Enhancing and strengthening consumer protection
- No misleading price cuts
- Market inquiries based on the FWBG
- Legal security for suppliers through use of the written form
- No pressure to accept practices contained in Annex II to the FWBG
- Tightening of laws to enforce competition measures based on sector inquiries.
If you wish to make a statement or submit your thoughts on this Report, please email us at wettbewerb(at)bwb.gv.at.