It is rare that we see public demonstrations of what we verbose academics call the appropriation of quasi-rents. But just such a scenario is playing out in the Belgian retail arena.
In early February Belgian supermarket chain Delhaize (the 33rd largest retailer on Deloitte’s list) ceased stocking around 300 products from Unilever, the world’s 3rd largest fast-moving consumer goods giant (behind Nestlé and P&G). This represents a sizable majority of the 480 products usually stocked (and includes such brands as Dove, Sunsilk and Lipton).
This move springs from Delhaize’s unwillingness to match Unilever’s price demands and also the retailer’s desire to not stock some of Unilever’s less popular brands.
This is exactly the sort of scenario transaction cost economists get all excited about. There are a series of relationship-specific investments in place (in brands and locations) leading to small number bargaining. This means firms are want to hold up the other party in an attempt to extract the quasi-rents from the situation.
Put differently, this is the bargaining power of suppliers/buyers element of Porter’s Five Forces at work.
It is a little unclear who triggered this. Supermarket chains are often chastised for squeezing suppliers and there is a feeling that the current climate is escalating this tendency. On the other side of the equation, giants such as Unilever are typically viewed as less susceptible to such pressures due to the enormous breadth of their offerings. The fact that this breadth is a stumbling block in this standoff is enlightening. Delhaize would seem to be trying to shift the balance.
Currently, the data coming out seems to indicate that Delhaize is been hurt by this decisions with customers showing considerable loyalty to the brands rather than the retailer.
It is worth noting that Delhaize is only pursuing this approach in one national market at the moment, and that market is less than a quarter of their business. Perhaps they are getting some practice (or testing the waters) before trying it on a bigger stage (such as the US which constitutes almost 70% of their sales).
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