Consumer prices – feeling the pinch, searching for solutions

Stores are talking about offering deep discounts and the government is talking about more competition, but can they bring down the price of cheese?

If you're a dairy food lover, you'll know that the price of a decent-sized block of your average Danbo cheese is close to 100 kroner these days. A tax on fat and rising food prices has the cost of cheese and many other staples noticably higher than in years past. That has consumers scouring weekly sales flyers more than normal and increasinly heading across the border to save a few kroner on their grocery shopping.

Facing the bad economy and price sensitive shoppers, stores, large and small, are searching for a way to keep customers in their aisles.

In one of the most blatant moves to give its customers the lowest price possible, Føtex, a hypermarket that has been steadily losing ground to small but mighty discount supermarkets like Fakta, Aldi and Lidl has introduced a new strategy called Price Match in an attempt to slow down the bleeding.

The idea is that representatives from the company will visit their competitors each week and record their prices. They will also keep an eye on competitor’s flyers. When a customer checks out at Føtex, the cash register will automatically calculate any price differences between Føtex’s prices and those of their competitors. The difference will be calculated and the discount applied automatically.

“Customers will not have to run all over town or spend time plowing through newspapers to find the lowest prices,” said Mette Maix, who recently took over as managing director of Føtex, told the tabloid BT. “We are making sure that they always get the lowest prices.”

Maix was previously head of SuperBrugsen, a part of the Coop group of food stores. Føtex, together with Bilka and Netto, is a part of the Dansk Supermarked chain and a Coop competitor.

Although discounts chains like Aldi and Lidl only account for six percent of the total market, their price cutting philosophies have clearly had an effect on the nation’s shopping habits.

By slashing prices on necessities like milk and other products, the discount chains lure customers in to make other purchases.

Dansk Supermarked, Coop and SuperGros, which operates the Super Best chain of supermarkets, are the biggest players in the Danish market. 

But while part of the price war between grocers is being carried out in full view of consumers, there is another front that suppliers say people don’t see. They complain that with just three major players, supermarkets have disproportional leverage to force them to lower wholesale prices, as well as to dictate in-store product placement. The chains, suppliers say, threatening to drop a supplier if they aren’t given the sweetest deal.

“Suppliers are feeling the pinch, and cannot afford to take the consequences, which may mean that they have to leave the Danish market,” consumer economist Henning Bahr to Jyllands-Posten.

The moves by retailers like Føtex come as the amount consumers are spending in Germany in Sweden is on the rise. After declining for several years running, the amount is expected to increase by one billion more kroner this year to 10.6 billion kroner.

Rune Mortensen, a musician who makes regular trips to perform in the southern Jutland town of Tønder, says crossing the border to shop in Germany will remain very much part of his agenda.

“The prices and selection are much better,” he said. “I got everything I needed for a party last month at less than half the price. I load up my car every time I go.”

Mortensen said that all Danes know that there are bargains to be had in just about any direction if a shopper is inclined to take a trip out of the country. And while trips south were normally made to stock up on items like alcohol and sweets, many big box stores on the border have begun marketing their grocery items as well. 

“I know many people that are even ordering perishable things like fish over the internet. It is much cheaper than your local fish monger.”

The government last week came out in support of retailers’ efforts to keep shoppers at home by battling price fixing and gouging. Among its 25 initiatives are tougher penalties, including jail time, for businesses that engage in anti-competitive activity.

“We want more competition, lower prices and a showdown with monopolies,” the business minister, Annette Vilhelmsen (Socialistisk Folkeparti), said as she presented the plan.

In addition to food stores and other retailers, Vilhelmsen said the government has its eye on chemists, dentists and builders.  

A particular area area of concern for the government is cable TV providers. Vihlemsen said she hoped cable companies could begin assuring that consumers will no longer be forced to buy large packages of channels to get the few that they want.

Peter Møllegaard, of the Copenhagen Business School (CBS), believes that the initiatives have the potential to lower prices across the board.

“Denmark has been late in introducing increased fines and tougher penalties for cartel activity,” Møllegaard told Berlingske. “We are also behind in liberalising the pharmacy business.”

Opposition party Venstre, however, said that higher taxes levied by the government on alcohol, sweets and tobacco have fueled the increase in cross-border shopping.  Some of those taxes, however, were initiated while Venstre was in power, and the tax minister, Holger K. Nielsen (SF), shook off the criticism as an exaggeration of the scale of the problem.

"It is overkill to say that cross-border shopping is a major problem for the economy at the moment," he said to Berlingske. 

Nielsen said the government recognised that people shopping abroad drained tax revenue, but said a recent report advised against lowering excise taxes. 

“The reality is that the benefits still outweigh the costs of cross-border shopping, which has held reasonably steady since the taxes came into effect.”