Arrival of Lidl in Finland leads to sharp cuts in retail prices of food
Study calls for less regulation of retail trade
The arrival of the German discount grocery chain Lidl in Finland has brought reductions in retail food prices of up to ten percent in different parts of Finland.
The opening of a Lidl outlet has had its greatest impact on stores in small communities.
In larger cities and towns the effect is much smaller. According to the study by LTT Research Ltd., the arrival of Lidl in Finland in 2002 has sharply increased price competition in the grocery retail trade in Finland.
The study reveals that the emergence of the German competitor has had affected sales at Finnish grocery chains less than the opening of new Finnish-owned hypermarkets.
The greatest effect of a Lidl outlet is usually on sales at nearby stores of similar size.
Competition from Lidl has reduced the gross profit margins of neighbouring stores by just over one percentage point.
In their efforts to compete with Lidl, Finnish chains have increasingly focused on marketing products such as fresh fruit, vegetables, bread, and meat, which still tend to be more expensive in Finland than in other European countries. However, the price level is about ten percent lower than when Finland joined the European Union ten years ago.
The LTT study also examined the impact of state and local regulation on the profitability of the retail trade. Regulations restricting the construction of new shops were seen as having the greatest economic impact.
The more difficult it is to is to build a shop, the higher the threshold for new entrepreneurs to establish themselves.
The study also concludes that relaxing regulations on store opening hours would have a positive effect on competition and on the profitability of the retail trade.
Allowing the sale of wine and non-prescription medicines in grocery stores would also improve customer service, and help eliminate another competitive problem: the location of a pharmacy, or an Alko monopoly liquor store tends to favour grocery stores that are situated nearby.
However, the study does not conclude that lowering value-added tax on food would improve economic efficiency. Such a move is seen as merely subsidising one branch of business at the expense of another.
The study on the effect of internationalisation on the grocery retail trade was commissioned by the Ministry of Trade and Industry, to support a report that is to be given to Parliament. Also taking part in the funding of the study was the Finnish Food Marketing Association.
Helsingin Sanomat
