Territorial Supply Constraints mean higher prices for consumers
What are Territorial Supply Constraints?
Territorial Supply Constraints, or TSCs, are restrictions imposed by large brand suppliers on retailers to prevent them from freely purchasing goods in the countries of their choice.
Territorial Supply Constraints are unjustified and illegitimate practices which force retailers to source products domestically, or prevent them from ‘parallel trading’ products from another Member State.
For example, a Nike retailer will be forced to buy Nike trainers from Nike at certain prices in certain countries. If the retailers try to circumvent the TSCs, the large brand suppliers are well placed to withhold or ration supplies due to their market power.
Defenders of TSCs claim that these national supply agreements make introducing products in less wealthy countries more economically attractive, but economic modelling suggests that getting rid of them will have no impact.
Why does it matter for consumers?
Territorial Supply Constraints can lead to significant price differences for consumers depending on where they live. Because retailers and wholesalers are not able to source their supplies at the best rate, consumers in one country end up paying more for goods sold elsewhere.
TSCs effectively result in price discrimination for consumers based on where they happen to live.
Besides the high costs borne by consumers, TSCs break basic EU Single Market rules. They represent an artificial cross-border trade barrier preventing retailers, and ultimately consumers, from benefiting from the European Single Market.
Small countries tend to pay higher prices
A large-scale study from EuroCommerce, a membership group of national commerce federations from across Europe, found TSCs lead to higher priced branded goods in small countries, such as Belgium, Greece or Ireland.
In the case of the small countries that make up the ‘Benelux’ group of Belgium, Luxembourg and The Netherlands, TSCs are found in micro, small, medium-sized and large companies. They affect a wide range of products from books to electronics, sports equipment and jewellery.
67-77% of retail respondents in Benelux said that TSCs increase consumer prices; restriction of product range and a decrease in profit margin.
Territorial Supply Constraints in the Retail Trade, Benelux Union, 2018
Other studies find that, if the practice were to be abolished, current high-price markets would approach currently low-price markets. Conversely, it would not lead to any significant price increases in high-price markets, since economies of scale will persist in those places.
Test Achats/Test Aankoop and Benelux Union among stakeholders tackling Territorial Supply Constraints
Current EU competition law is not the best tool to tackle these issues, since it requires a clearly evidenced dominant position which the suppliers often don’t have, despite their size and influence.
Therefore, the Benelux Union, an intergovernmental partnership between Belgium, the Netherlands and Luxembourg has been campaigning to change the law on TSCs. At a recent exploratory meeting Euroconsumers member Test Achats/Test Aankoop joined the EC’s Competition directorate and other consumer organisations to establish a way forward on the issue. There was broad consensus that TSCs have an impact on prices, choice and quality, and that it goes against the single market principles and therefore pose harm to consumers.
Current inflationary price rises and the ongoing effect of Covid-19 crisis on income means that higher prices are even more of a priority for consumers and consumer organisations.
Every aspect contributing to the price increases must be addressed and every excess adequately tackled. Test Achats/Test Aankoop and other consumer organisations recognize the significance of Territorial Supply Constraints in this regard, and are considering the most effective way to approach the issue and achieve a fairer market and lower prices for consumers. This includes reaching out and teaming up with retail companies who have a crucial role to play here.