Further changes next year to the Loi Galland legislation, which regulates the relationship between manufacturers’ selling prices and retail prices, will allow retailers to cut prices by about 18 per cent. It has been thought that this would likely contribute to further grocery price deflation and slowing sales value growth in the country.
In August, new French president Nicholas Sarkozy, who wants to drive economic growth by increasing consumption, said that he would push for reform of the Loi Galland in an effort to make good pledges made before his election in June.
However, Deutsche Bank analysts said that additional freedom to cut prices would be “largely insignificant”.
Analyst Ingrid Azoulay said: “Price movements will instead be determined by competitive conditions and we believe these will improve in 2008.”
She added that a “far more significant” contributor to the destabilisation of the industry was Carrefour’s shift, begun in 2004, towards a more competitive price position and the subsequent reaction from rivals whose market shares became threatened.
The Loi Galland was introduced in 1996 to prevent anti-competitive practices and ensure small retailers operated under the same conditions as larger rivals.
The first two stages of the reforms, last year and this, allowed food retailers to cut prices by 13 per cent and 5 per cent respectively, leading to branded goods price deflation of about 2 per cent over both years.
* French retail giant Carrefour is reportedly set to sell its Italian cash and carry division in the country’s north and its hypermarkets in the south.
The retailer’s 11 cash and carries and 17 hypermarkets have a combined turnover of 250 million (£174.3 million).
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