Retailers expand, because they can
Retailers use a variety of methods to increase revenues and to make themselves more competitive, but these same methods drive suppliers to raise their prices.
The relationship between suppliers and retailers may strengthen the strong players and reduce competition, according to the committee drafting recommendations to reform the country's food sector.
Retailers use a variety of methods to increase revenues and to make themselves more competitive, but these same methods drive suppliers to raise their prices well beyond the increases in input prices, the committee found.
Examples are the way retailers force suppliers to finance new branches and to sign exclusivity agreements regarding sales, use their market power in one field to push out competitors in other fields, and unilaterally change contracts with suppliers. Meanwhile, the major suppliers take over shelf space and push aside competitors.
Ultimately, all this hurts consumers, since suppliers raise their prices as a result.
"Since opening new branches has become cheap, it's likely that supermarket chains regard the option of expanding too easily," states the draft report. "It's very likely that too many branches are being opened relative to the population growth. A quick calculation shows that opening 40 new stores a year, at 2,000 square meters each on average, at a cost of $1,000 per meter, of which 80% is funded by suppliers, means that suppliers are paying NIS 225 million a year that is ultimately being passed on to consumers."