News this week broke of price-fixing agreements that have been practiced over several decades during regular meetings of sausage producers, which were set up for information exchange about price developments in the German market. Due to the wide variety of sausage products and packaging sizes available in German retail, price ranges were agreed for certain product groups among sausage manufacturers when negotiating price increases. German sausage makers face multi-million fine over price-fixing The €338 million (£267m) fines imposed on some of Germany’s biggest food producers from fixing the price of sausages could well have noticeable impact on brand sales, if not the wider German sausage market. Value and trust appear to be key factors in helping Germans in their choice of meat products, with over half (55%) of meat buyers basing decisions on value, whilst 60% agree that “brands they know and trust” is an important factor in their choice of meat products. Given the wide number of companies involved and the considerable number of years over which price discussions took place, it is possible that millions of German consumers could have been paying over the odds for sausages for many years, and it may take some time for consumers to regain their trust in the brands, and companies, involved. Meat processing industry facing market pressures in Germany The German processed meat industry is very fragmented, with a large number of medium and small companies operating within the sector. However, this sector is showing an ongoing trend towards more consolidation. The processed meat industry is an important segment in Germany’s food industry. With a retail value of €8.63 billion in 2013, per capita processed meat consumption equates to nearly 14 kg. The value of the market has shown strong growth in previous years due to a sharp increase in average unit prices, which is attributed to rising raw material prices and energy costs. However, the revenue of the German meat processing companies remains under pressure. Due to the strong price focus of German grocery retail, meat processors face difficulties in passing on increasing costs to retailers, putting pressure on margins. Additionally, some retailers, such as Edeka or Kaufland, have pursued a backward integration strategy and operate their own meat processing plants, putting additional strain on other meat processors. The tough market environment therefore has a significant influence on how companies interact in the supply chain, and can in some cases lead to anti-competitive practices on the part of the industry, with affected parties joining collectives to strengthen their bargaining position. As the European grocery market becomes more competitive, scrutiny from competition authorities is also on the rise. Disruption resulting from anti-competitive investigations can be significant, causing damage to the brand reputation and loss of consumers’ trust. With the growing number of the Federal Cartel Office inquiries into the German food retail sector, a question worth asking is whether it is a strong negotiating position of German grocery retail which instigates counter-reaction in the food industry in an effort to tip the negotiating scale. You might also be interested in: No related posts.