Auchan began to fight with suppliers to control prices

In the face of increased government attention to rising prices, some retailers are resorting to unconventional ways to curb inflation. Thus, the Russian structure of the French Auchan asked suppliers not to raise prices until the end of 2023, otherwise preparing to appeal to regulators. Suppliers see the network’s actions as an attempt to shift all the risks of volatility onto them, and analysts see it as a desire to protect themselves from possible claims.

Auchan suppliers in Russia received letters from the network asking them not to raise prices until the end of 2023, sources among manufacturers told Kommersant. As stated in Auchan’s appeal, a copy of which appeared in the industry Telegram channel “Okoloriteil”, “continuous trends in price growth” are observed in all segments and for certain items the network finds the increase justified. But, the letter says, the Ministry of Industry and Trade and the Federal Antimonopoly Service (FAS) have repeatedly emphasized the importance of curbing inflation. In this regard, Auchan will not accept price increases for goods whose supplies have been agreed upon until December 31, and if there is a “persistent desire to increase prices and the partner has such an opportunity in the contract,” it will inform the regulators about this. Auchan Russia told Kommersant that it proposes that suppliers make joint efforts to curb price increases on the eve of the New Year holidays.

According to Infoline estimates, in 2022 Auchan was the sixth FMCG network in the Russian Federation with revenue of 272.4 billion rubles. In January-June 2023, the network’s turnover decreased by 2.2% year-on-year, Infoline reported, without giving absolute figures. As of July, according to Infoline, the company operated 230 stores, including those under the Atak brand. Auchan is part of the French group Association Familiale Mulliez, along with DIY chain Leroy Merlin and sporting goods stores Decathlon. Against the backdrop of Russian military actions in Ukraine, Leroy Merlin reported on the possible transfer of control in Russian business to local management, and Decathlon sold its business in the country to ARM. Auchan noted that they continue to work in Russia.

Kommersant’s sources among manufacturers are not aware of similar requests from other chains to suppliers recently. In November 2020, Verny reported on its refusal to accept price increases until December 31 due to the pandemic and declining household incomes (see Kommersant, November 2, 2020). Verny declined to comment.

Lenta told Kommersant that they are receiving notifications of price increases for all categories of goods that are being considered for justification. A Kommersant source in another network confirmed that negotiations are underway on the terms of contracts for 2024 and there are notifications of price increases in all categories. X5 Group (Pyaterochka, Perekrestok, Chizhik), Magnite, Metro did not provide comments. The Association of Retail Trade Companies said that retail is holding back the growth of purchase prices for some socially important products, including at the expense of its own costs.

Rusbrand executive director Alexey Popovichev says that Auchan actually suggested that suppliers, at their own expense, keep prices down, which can be regarded as an ultimatum given the high dependence of manufacturers on large chains. According to him, suppliers usually increase prices in several stages, without compensating for the increase in all costs at once. Auchan itself, notes Mr. Popovichev, did not propose to reduce its margin to curb inflation. A Kommersant source among product manufacturers says that if they refuse to raise prices, suppliers may reduce discounts.

As Dmitry Vostrikov, executive director of Rusprodsoyuz, notes, such moratoriums on price adjustments contradict self-regulation standards and lead to a deterioration in the economy of producers, who bear all the risks of market volatility. For the buyer, continues Mr. Vostrikov, lack of flexibility in pricing can result in a critical situation in the absence of goods on the shelf.

Senior analyst at Gazprombank Marat Ibragimov notes that today all retailers are interested in curbing price increases to maintain traffic. General Director of Infoline-Analytics Mikhail Burmistrov notes that price increases may be especially painful on the eve of the presidential elections in 2024. Auchan, in his opinion, should resolve the issue individually, based, for example, on when the supplier raised prices. According to Mr. Ibragimov, sending such letters can be considered as insurance for networks in case of questions from regulators.

Kommersant’s interlocutor among manufacturers notes that the prerequisites for rising prices remain, and regulators are trying to solve the problem only through restrictions, for example, on exports. NielsenIQ reported that 60% of surveyed FMCG business executives reported plans to increase prices by the end of 2023. The Ministry of Agriculture and the Ministry of Industry and Trade did not answer Kommersant. The FAS only stated that it supports responsible pricing.

Anatoly Kostyrev, Alina Savitskaya