Bakoma official in Sejm pushes law that beat rivals

Hypermarket operators and private label producers are protesting a new amendment to the Unfair Competition Law banning discount stores from generating more than 20% of their revenue from sales of private label products. They argue that the law, scheduled for debate in the Senate next week, will harm consumers and put many private label manufacturers out of business. Around 500 companies in Poland manufacture products sold by hypermarkets under their own brand, slashing prices by cutting marketing costs. While private label products sell alongside regular brands in hypermarkets, they dominate discount chains like Leader Price, operated by France-based Casino Group. By forcing retail chains to cut back on private brands, market observers fear private label producers will be forced to cut production or go out of business. "We are working with nearly 160 Polish own-brand producers and have received many signals of concern about their future, saying that if this new legislation is enforced, these suppliers will have to reduce production and cut jobs," said Wojciech Sokół, spokesman for U.K. supermarket operator Tesco in Poland. Around 160 small- and medium-sized Polish companies produce more than 90% of Tesco private label products, Sokół said. "If this new legislation comes into force, it will significantly weaken the position of small and medium suppliers in Poland and strengthen big suppliers," he said.

Legal culture The amendment, which limits private label revenue of discount stores bigger than 400 square meters, was proposed by Peasants Party (PSL) MP Zbigniew Komorowski, a member of the board of yogurt and dessert manufacturer Bakoma, and was passed by the Sejm on May 23. "Polish manufacturers ... are being forced to produce under the brand owned by the (retail) chain owner's brand, otherwise the products cannot go on sale, removing the added value of the brand and forcing many Polish brands to disappear," Komorowski told the Sejm. The Unfair Competition Law was originally designed to protect small stores by preventing large retailers from selling goods without commercial margins and banning the use of high-value prizes in sales promotions and lotteries. In addition to the 20% limit on own-label products, it also provides a new legal definition of commercial secrets, bans financial pyramids and prevents publishers from attaching high-value free samples to publications.

Komorowski's amendment casts doubt on the future of discount stores such as Leader Price, which stocks more than 90% private labels, and Biedronka, operated by Portugal's Jeronimo Martins Distribution, which has around 45% private labels and over 600 stores nationwide, said Piotr Byrski, analyst at Kraków market research firm Polish Market Review. "They will be forced to completely rework their operating strategy," he said. "This is a danger to firms that have a strong brand but are not very competitive. The majority of companies that manufacture private brands for supermarkets are small, local Polish firms. These are companies that cannot afford promotion or to compete with larger companies so that they get pushed out of supermarkets."

EU in the mix By favoring large manufacturers that can afford to market and advertise their own brands, the new regulation contravenes European Union regulations, which are based on the principle that all companies are equal, according to the Polish Trade and Distribution Organization (POHID). "This may interfere with Poland's EU accession process, particularly in the area of competition," said Eduardo Madeira Lopes, chairman of POHID, at a special meeting of the organization last week. Negotiations in the area of competition will begin in July. But the amendment already contains a significant loophole that will impair its intended effect, since it fails to provide a definition of a discount store, analysts claim. "The amendment does not define what a discount store is," Byrski said. "In our opinion this means the law cannot be implemented. Large stores will simply hire lobbyists to prove that their shops are not discount stores."