French law reform may cut branded beer price
opportunity for branded brewers to fight back against private
labels and poor growth through better deals with retailers.
France's switch from the Loi Galland to the Loi Dutreil (Dutreil Law) should enable retailers to cut prices on branded food and drink for little extra cost, said UK-based brewer Scottish & Newcastle (S&N).
Under the Galland Law, retailers are not allowed to sell branded goods below invoice costs, giving private label an advantage.
But, the current switch to the Dutreil law is set to reverse this rule, and also allow retailers greater scope to use extra funds to fuel price cuts.
S&N argues that while it gives extra money to retailers to cover promotions and shelf-placement costs - the so-called back margin - the Galland law restrictions on using extra funds to cut prices prevent this money from being passed on to the consumer.
The new Dutreil law lays out a 50 per cent cut in back margins paid to retailers from January 2006 to the end of 2007; theoretically cutting manufacturers' production costs and so freeing up room for price cuts on branded products all the way through to the consumer.
S&N believes its Kronenbourg brand, which is almost twice as big as its nearest competitor, is "best placed [in beer] to benefit from these changes".
Branded beer volumes in France fell 4.2 per cent in the first half of 2005 and S&N spokesperson Linda Bain said private label beers posed a big problem.
She said the majority of beer in France was sold through the off-trade, and own-labels now had a 33 per cent share of this market.
S&N also said the price gap between branded and private label beers had widened significantly in 2005, contributing to volume declines for Kronenbourg and other consumer brands.
However, not everyone is so sure that reform of the Galland law will produce such sweet results.
The reduction in back margins will initially take money off retailers with bigger branded portfolios, according to the Institute of Grocery Distribution (IGD).
IGD said that in October last year, French supaermarket Casino planned to cut the proportion of national brands on its shelves by 10 per cent, partly to insulate itself against Galland Law reform.
France's major supermarkets have also shown reluctance to cut prices. Carrefour, Auchan and Leclerc agreed with suppliers to cut prices by two per cent from September last year and by another one per cent this year.
They said proposed reforms to the Galland Law had helped to facilitate this, but the cuts were still below the five per cent wanted by Nicolas Sarkozy, government finance minister at the time.
Aside from the Galland Law, brewers in France must do more to help themselves.
The beer market has suffered alongside other sectors from the nation's poor economic growth and reduced consumer confidence.
S&N said it planned to focus on building up its core brands, particularly in the premium category, and shaving costs. A similar strategy is yielding decent results in the UK.
The group said it was looking for consistent two or three per cent growth across Western Europe as a whole in the near future.
S&N's underlying profits in the region fell 10 per cent in the first half of 2005, though its premium brands, especially Grimbergen - outperformed the French market.
