The delicate balance between retailer and supplier is again under scrutiny in France. Modifications to the famous Loi Galland have been proposed to the Parliament, which is expected to vote its approval before the summer. Back in 1996, big retailers - notably hypermarkets - were seen as villains, driving small stores and quality suppliers out of business. Two laws were put in place to curtail their power: the Raffarin law, which limited the number of store openings, and the Galland law which penalised loss leaders.
More precisely, the Galland law specified the type and amount of rebates and the services offered by the suppliers to the retailers. The objective was to clarify the three different levels of prices used in France:
- The supplier’s list price
- The supplier’s invoiced price to the retailer used as a minimum resale level for consumers
- The retailer’s real purchase price, called the net-net price
In theory, the Galland law achieved its objective: the consistent erosion in invoiced prices switched to a gradual slow climb. But the reality for suppliers was in fact a collapse in volume demand as consumers suffered persistent price increases.
To add to supplier misery, retailers pushed their own brands more aggressively as this was one of the few features they could use to distinguish themselves. As part of this trend hard discounters thrived - offering lower prices to consumers who had already accepted the concept of own brand products.
At its worst, the Galland law results in dominant hard discounters and own-labels. This nightmare for both suppliers and hypermarkets, is already evident in Germany, and helped add impetus to change the Galland law. But elsewhere in Europe, life is simpler. Most countries do not have a distinction between “on-invoice rebates” and “post-paid service discounts”.
The changes now proposed to the Galland law will take France a long way back to main-stream retailing in Europe. Suppliers should again be motivated as consumers react positively to lower prices and clearer marketing messages.
While the final amendments to the Galland law will only be known by June, the government is likely to opt for a solution that maintains a “minimum resale price” but allows for more flexibility. The government has finally recognised the need for suppliers to achieve volume momentum by decreasing the prices charged to the consumer. The amended law is expected to take effect as of January 2006.
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