The French government is not playing fair, by Jean-Yves Sebaoun
On 10 July, for the second consecutive year, the French Minister of Education, Xavier Darcos, held a meeting in Paris with representatives of the nation’s major supermarket chains in order to instigate a price freeze on a number of essential back-to-school items. The retailers agreed to hold the price of 30 items at the same level as last year and, in some cases, to reduce prices or sell some items at cost price
Whether it is the role a government to intervene like this is a matter for debate. In France there has always been an interventionist culture in the business economy, in particular with regards to prices. For example, if we look back to 1982, there was a price freeze put in place by the then Prime Minister, Jacques Delors. But consumers in France are being affected just as much as their European counterparts by higher energy prices and rising costs of everyday items and, in the current climate of economic slowdown, the government considers its role to be that of a guardian of purchasing power. This could be regarded as a legitimate notion. Furthermore, the back-to-school period is a time of year that affects many people in France and the government chose to intervene in a high visibility campaign based on price moderation. Why not?!
From a macro-economic point of view, though, this kind of initiative is shocking! It puts pressure on the whole industry, from the manufacturers to the resellers, to encourage it to maintain or reduce price levels when everyone knows that production and delivery costs have risen sharply.
And who will have to absorb this cost inflation? The answer is that it will affect the whole distribution chain – the manufacturers, the resellers and even the consumers. For example, there will be a lot more budget price articles on offer that are not of the highest quality. Consumers will lose out in the long run because these products will not last as long as more expensive and better quality items. Secondly, retailers will be tempted out of necessity to increase the prices of ‘less visible’ products and, thirdly, some chains could even be tempted to offset their margin loss by offering products in bundles or by vendor discounts, which does not lead to a transparent situation!
However, there are a number of other things that, in my opinion, are not really acceptable because there was a lack of equality about the government’s approach:
1. The government’s efforts – through its PR and meetings – were solely focused on mass retailers, which gave a lot of publicity to these chains. Because the government only talked to these multiples, it led consumers to think that this retail channel represents the essential part of back-to-school shopping and that the mass retail sector is cheaper (though the 2008 back-to-school study by the association Familles de France shows otherwise – see table).
2. The campaign was based on just 30 products which represent a tiny proportion of back-to-school items. One possible effect of this is to increase the share of the big supermarket chains’ entry level private label products at the expense of well-known brands. We’ll have a clearer idea about this when we get the final figures.
3. It ignores 4,000 local stores (stationers and office superstores) which, for the most part, are recognised for their high levels of service, their price competitiveness, their transparency and their commitment to providing products that are environmentally responsible. This is unfortunate because the specialist channel still represents a significant amount of the total back-to-school expenditure and, as can be seen ,right, compares very favourably with the multiples on price.
French back-to-school market 2008
For the survey, Familles de France selected a typical basket of BTS stationery items and compared the prices in 289 stores across the country. As you can see, it turns out that the prices of the three channels are very similar.
The survey also included a section on the quality of in-store service. In specialist stores, 94 percent of the researchers received in-store help compared to 56 percent in hypermarkets and 30 percent in supermarkets.
At the specialist stores, clients will even go as far as giving their back-to-school lists to sales staff who then go and find all the items! This shows that the specialist retailers have a clear advantage in terms of service. Apart from that, we can also note a wider choice of products, a larger number of branded products which are compatible with current environmental demands and a willingness to offer products individually rather than in bundles.
Office superstores gaining market share According to a study by I+C Consultants, the back-to-school market in France is estimated at j777 million ($1.08 billion). Between 2005 and 2007 the market grew by 3 percent which, if we take inflation into account, means the market value stagnated. Changes in BTS buying habits between 2005 and 2007
• The most striking conclusion we can draw is that the number of superstores (Office Depot, Top Office, Bureau Vallée) is increasing rapidly and they are concentrating a lot ore on the back-to-school season.
• The number of supermarkets/ hypermarkets is increasing, though their market share is decreasing, even if this channel still dominates the market.
• Consolidation continues in the specialist retailer channel, but those remaining are usually very competitive.
• The superstores and specialist retailers are starting their BTS campaigns earlier each year, from June to mid-September, while it seems that the supermarket chains are, in fact, reducing the duration of their BTS displays.