Increase of the resale below cost threshold and double cap of promotions, what’s the outcome today?

Almost two years ago, Ordinance n°2018-1128 of 12 December 2018 (hereinafter « the ordinance« ) established the increase of the resale below cost threshold of 10% for food products and pet food products, as well as the regulation in value (34%) and volume (25%) of promotions related to the same products.

These measures were adopted in order to restore economic balance in the food chains and to fight against promotional inflation. They came into force in 2019 on an experimental basis for a period of 2 years.

Nearly two years after their entry into force, the time has come to take stock. For that purpose, the recent evaluation report produced on this subject can be fully used. Indeed, as required under Article 4 of the ordinance, the Government has submitted to Parliament an evaluation report which concerns the effects of this ordinance and considers the elements for assessing their relevance.

Available on the French Frauds (DGCCRF) website since 7 October 2020 with a full expert report, this evaluation report includes a reminder of the context in which the ordinance was adopted, and the results of the evaluation work carried out by two independent experts.

The evaluation report states that the impact of the ordinance on farmers’ incomes could not be assessed, in particular due to the unavailability of relevant public data. The effectiveness of the economic mechanism implemented by the ordinance, which is based on the “run-off margins” from downstream distributors to upstream producers, could therefore not be determined as part of this study.

The evaluation report further mentions that inflation on food products is low, contrary to what had been predicted. Indeed, the analyses show that the inflation differential for all food products is less than 1% in 2019 compared to the two previous years. It is worth mentioning that the said inflation does not affect private label products and, to a lesser extent, products from SMEs (i.e., small and medium-sized enterprises) since they both have experienced price declines which probably result from the promotions regulation in terms of value.

In addition, the new regulations have caused a decline in sales volumes, except for certain private labels and products sold by SMEs for which a significant increase in sales was recorded. A decline in sales on promotional operations is also to be noted.

Further, the evaluation report underlines that the promotional policy conducted by the actors of the mass distributor sector has evolved in order to consider the new applicable requirements. According to the said report, this has resulted in the use of new promotional instruments (e.g., promotion of lots made up of different products), as well as the simple promotion of the attractiveness of the prices offered without highlighting any quantified price reduction.

Although the evaluation report provides indications on the consequences of the measures, it is important to point out that the effects of each measure (i.e., increase of the resale below cost threshold, promotions regulation in value and promotions regulation in volume) could not be assessed separately by the experts, which makes the analysis of their relevance even more complicated.

In conclusion, it is still difficult at this stage to clearly determine the effects of the resale below cost threshold increase and the double cap of promotions and to further analyse their relevance. The extension of this regime until 15 April 2023 as provided under the Bill on the acceleration and simplification of public action (Projet de loi d’accélération et de simplification de l’action publique or ASAP bill)^[1] is therefore to be welcomed since it may finally allow operators to determine whether these measures are adapted to the objectives pursued.

[1] The Bill was adopted on 28 October 2020 and is currently before the Constitutional Council.