France Food & Drink

Developments in France's mass grocery retail (MGR) sector are dominated by operators' efforts to portray themselves as the company offering the cheapest prices for everyday goods, while presenting a diverse product portfolio with particular expertise in the fresh product segments.

While the increasing popularity of discount outlets had already motivated the country's MGRs to compete on the basis of price and to develop their private label product ranges, the introduction of the Dutreil law in January 2006 has accelerated this process, with the new ceiling on back margin payments having required retailers to look for others sources of income.

BMI's Q306 Food & Drink Report provides a background to the changes introduced under the Dutreil law, and outlines leading MGRs' actions, aimed at improving profit margins and growing market shares. In addition, BMI's new regional overview of discount retailing in Western Europe provides further background to the discount phenomenon.

The price wars observable in the French MGR sector could reshape the French grocery industry, which has long been distorted by government law and political interference designed to protect small shop-owners. Food and drink manufacturers are strongly affected by these developments and, in July 2006, ILEC, the association of brand manufacturers in France, has launched a collective advertising campaign of 22 brands with the aim to counter the growing popularity of private labels and discount chains in the country.

Further pressure on manufacturers' brands is expected from January 2007 onwards, when a new law will allow retailers to advertise on TV, providing them with better opportunities to advertise private label brands. France's leading retailers have already developed TV spots, with Systeme U's first advert scheduled to be aired on January 1 2007.

In further news, the French government has been reported to consider the introduction of a soft drinks tax in order to reduce the country's health deficit, which is forecast to reach EUR6.3bn (US$7.9bn) during 2006.

In the tobacco sector, France received a 'reasoned opinion', an early stage in possible legal action, from the European Commission, accusing it of fixing minimum retail prices for cigarettes. While the commission admits that higher cigarette prices could reduce tobacco consumption, it argues that France should achieve this end by raising the excise taxes on cigarettes rather than fixing minimum retail prices.