The “Broken Promises” of Large Retail Sector in Italy: A Case Study on Grocery Market Applying Foundational Economy Approach
However, these promises were only partially kept. The C3 index show a highly fragmented market at a national level but an inhomogeneous distribution of the large retailers with local monopoly in specific regions: for example, the first three national operators hold approximately 34% of the market, compared with 61% of the equivalent companies in Germany and UK; if we measure the level of concentration compared to stores above 1500sqm this proportion rises to almost 50%. In some regions, such as Tuscany and Emilia Romagna, the first three have a 78% and 80% market share; in these regions, so-called "red" for their administrative and cultural tradition close to the Left parties, the first operator is Coop that alone holds a market share of 41.1% in Tuscany and 48% in Emilia.
Another interesting element is the high “fluidity” of the alliances in the so-called "central purchasing" that have undermined an homogenization of prices and assortments: since 1996 the number of central purchasing in Italy and their internal composition have been evolving, with a strong increase of the transparency of the conditions of purchase and exchanging of confidential information with the frequent passage of a chain from a center to another. The increasing tendency to seek global strategies and, at the same time, the growth of a second or third level of bargaining undermine their role. The savings realized may be resized by the increasing levels of decision-making, as well as the complexity and duration of the negotiations. The benefits obtained, if equally distributed among enterprises with different dimensional and organizational characteristics, are not, by definition, commensurate with the degree of efficiency of each retailer.
In addition, the Anti-trust Authority highlights how buyer power and trade spending practices transformed into unfair conducts against suppliers of the food industry: during the period of supply, the distributor asks frequently to change the economic advantages already defined in the earlier negotiations in 67% of cases, in many case (almost 40%) with a retroactively effect. In cases of refusal, 74% of respondents claimed to have suffered at least some consequence (delisting or a deterioration in the conditions of the next supply). Moreover, the supplier is required contributions to the distributor for services that are not realized or not clearly accountable in almost a third of cases. Such unfair practices don’t seem to exclude even the operators of the "cooperative movement" and they appear more strongly demanding for those smaller suppliers, with less than 10 million euros revenues that serve a limited number of chains (between 1 and 3), that are the most widespread in this business in Italy.
Also in terms of quality, in Italy there were several cases of food fraud (the most famous is the case of methanol wine) as well as several cases of collusion between the retail firms and the organized crime in order to altering competitive mechanisms and selection of suppliers. Equally alarming is also the growing financialization of cooperative groups, almost a taboo topic in Italy, because of the strong proximity between the cooperative movement and the left parties at the local and national level.
Nowadays, the crisis of food consumption in Italy has challenged the large retail system and both producers and distributors, redirecting their strategies and attempting practices of "reconnection" with the foundational economy: form a greater tendency to downsizing of store formats, trying to retrieve a relational dimension with customers, to the increasing attentions for "high quality oriented" targets and new retail format like Farmer Markets, Buying groups and Food Boutique. These experieces emphasize the need for restoring and protect an entrepreneurial pluralism and restore a new retail "bio-diversity". At the same time the relations in food chain is not only an italian issue but is considered strategic for European Union which has recently launched the "Green Paper on unfair trade in the supply chain between food and non-food businesses in Europe" (2013), while the European Commission has enabled the establishment of a Multi-Stakeholder Forum "For a Better Functioning Food Supply Chain.