Ex-antitrust Boss: Retailer Has Right to Control Process

"Super-Sol has the right to switch its stores over to self-stocking and it's good for competition, too, but that doesn't mean that beyond that it can dictate arbitrary trade terms to supplies and set any price it wants," former Antitrust Authority commissioner Dror Strum told TheMarker this weekend.

He warned that if the supermarket chain behaves like a monopoly in this regard it could find itself under the authority's scrutiny.

It was Strum who from 2004 to 2005, after studying the issue for a number of years, developed the code of ethics that now obtains between suppliers and the supermarket chains, setting a revolution in motion. Super-Sol's recent announcement of its intention in 2010 to wrest control of stocking the shelves in its branches from major suppliers falls within the provisions of that code.

However the suppliers have asked the Antitrust Authority to step in on their behalf and reopen the code for discussion. They are demanding a new code - or even a law - in which supplier-retailer relations will be spelled out.

Strum believes this is unnecessary, but cautions that the situation bears monitoring.

"The suppliers should be told that their war and their attempt to recruit the Antitrust Authority to prevent Super-Sol from stocking its own stores is doomed to failure," Strum said. "They would do better to focus their efforts on competition rather than ill-fated regulatory measures."

Strum's opinions on the matter are grounded in his examination of what happens when big suppliers are allowed to stock the shelves of supermarkets. "The major, monopolistic suppliers - Tnuva, Strauss, Elite and Osem - had control of stocking and always made sure that they had the premium shelf spaces," he explained. "Even worse, they made sure their competitors' products were placed in inferior positions. The main thing we learned is that what counts is the manner of display. When shoppers come to the supermarket, they don't always know what to look for, instead they take what's right in front of their eyes."

The dead zone

"We found suppliers rejecting price cuts carried out by the chains, and monopolistic suppliers interfering to keep out competing brands," Strum continued. "We discovered the phenomenon of 'dead zones,' very low or very high shelves where the dominant suppliers put their competitors' products" - while placing their own on the premium, eye-level shelves that guarantee high turnover.

"Small suppliers also complained about 'migrating boundaries,' whereby suppliers without the budget to keep full-time stockers at each outlet find that - when they do carry out checks - the border between their shelf space and that of the large suppliers is blurred, nearly always to the large suppliers' benefit. In short, shelf stocking is a reflection of power, and it enables control over sales volume in each branch," Strum said.

He added that the code of ethics was designed to deal "with the interface between the suppliers and the chains that affects the competition, the variety and the prices that the consumer receives."