Germany Refuses to Bargain on Wal-Mart’s Below-Cost Sales
In a ruling aimed at saving mom-and-pop groceries from cutthroat competition, the German Cartel Office on Friday ordered U.S. retailer Wal-Mart and two German competitors to raise prices on staple foods they have been selling below cost.
The decision is likely to slow, if not stop, the creep of high-volume retailing practices here. Germans are long accustomed to higher prices and indifferent service, and a preference for quality over quantity means the likes of Wal-Mart have yet to catch on.
The Bonn-based Cartel Office, charged with guarding against unfair practices, accused Wal-Mart of instigating a price war among major food chains this summer by charging less than it had paid for six key food items: milk, sugar, butter, flour, rice and cooking oil.
Wal-Mart’s prices were matched and even undercut by the Aldi and Lidl food chains, which also were ordered to cease selling below cost or face fines of about $445,000 for each product sold in violation of the order.
Germany’s heavily regulated retail industry is prohibited from selling merchandise below cost, except in clearly defined circumstances, such as when perishables are near their sell-by dates. Wal-Mart had been discounting staples since June in a direct challenge to the established ways of doing business here.
While saying it was not aiming to set up “protective fences” around small- and medium-size retailers, the Cartel Office said the ruling was necessary to protect consumers from a sharp rise in prices once other grocers were driven out of business by the big chains.
“The material benefit to consumers is marginal and temporary, but the restriction of competition by placing unfair obstacles before medium-size retailers is clear and lasting,” the Cartel Office said. “It’s more important to me to see that independent companies are not pushed out by unjust pricing strategies of big companies with superior market strength,” the Cartel Office chief, Ulf Boege, told journalists after the ruling was issued.
Friday’s decision was the first handed down by the Cartel Office against discounters in the $400-billion German retailing industry, which has been in a seven-year slump.
Wal-Mart’s German headquarters, in the western city of Wuppertal, said it would comply and raise prices. But the Arkansas-based retailer vowed to carry on the struggle to lower prices for German consumers.
“We understand and recognize the decision taken by the Cartel Office today and will orient our pricing in line with these recommendations,” the Wuppertal office said. “However, we still remain committed to lowering the cost of living in Germany by offering our customers the best quality products at the lowest possible prices.”
Wal-Mart, Aldi and Lidl have three months to appeal the ruling but could be liable for fines in the meantime if they continue pricing their wares below cost. Boege said fines had been only threatened, instead of imposed, to give the retailers a chance to comply.
Wal-Mart Germany has 95 stores and 18,200 employees, slightly more than Aldi’s 18,000 and Lidl’s German staff of 16,000. Both Aldi and Lidl have considerably more stores than Wal-Mart Germany, but the stores are far smaller than the U.S. giant’s outlets.
The German Retail Trade Assn., which represents 475,000 businesses with more than 3 million employees across Germany, hailed the Cartel Office ruling as “a hopeful signal of the end of ruinous, cutthroat competition.”
Since Wal-Mart entered the German market in 1997, it has pushed to liberalize shopping hours as well as pricing and marketing curbs. German retailing laws define most rebates and lifetime warranties as unfair practices, and they continue to prohibit shopping at night or on Sundays.
