With the deadline for general sales conditions agreement approaching, Anne Granger, FLV and Associes partner, takes a closer look into the issues facing these companies and the challenges that the wider French business landscape must now tackle.
Could you briefly describe the French retailer’s annual pricing agreement with suppliers to our international readers?
To ensure transparency (including mandatory disclosure of international agreements), and fairness in commercial relationships, suppliers must negotiate and enter into written agreements. Each agreement must be for one to three years. These agreements set forth their mutual obligations further to any negotiations. These agreements should outline their mutual obligations to each other for the purposes of the agreed price: prices, rebates or discounts, business plans and product ranges.
There are more rules that govern how prices are fixed (prohibition on rebates for fresh fruits, vegetables, and biocidal products; prohibition on negotiating the price of raw agricultural material; specific disclosure of the structure and prices of agricultural products). The negotiations now focus more heavily upon the services and counterparts offered to retailers. This has led to the prohibition of giving advantages without a counterpart or clearly disproportionate to the agreed counterpart.
Commercial agreements are usually concluded annually. This puts pressure on both parties. The supplier must send its general sale conditions, which is a key document in the negotiation process, no later than December 1, each year. In principle, the retailer should then comment within a reasonable time. Most retailers simply send back the template of their annual agreements, disregarding the fact that the legal basis for negotiations should be the general sales conditions of each supplier.
The agreements must be signed no later than the 1st of each subsequent year. Therefore, time is of the essence. There is no way to amend the regulations after they have been approved without a justification factor. In the context of cost inflation, the regulations that freeze commercial conditions for a year to protect suppliers turned out to be a trap as retailers were reluctant to negotiate prices.
The agreements must be signed no later than the 1st of each subsequent year. Therefore, time is of the essence.
What are the economic conditions that have impacted negotiations this year?
The current economic environment places additional pressure on commercial negotiations. The discussion will be dominated by logistic issues and the impact on prices.
This context is complemented by two other elements: (1) French retailers’ purchasing power through strong purchasing groups (to-date, three purchasing group represent nearly 80% of market share) and (2) continued expansion of EU/French environmental regulations (sorting/product composition, packaging, labelling etc.). These factors have had an impact on both R&D and production costs for greener products.
French legislators constantly create new laws to counter the power of retailers. Unfortunately, this often raises more questions than it answers and makes it harder for suppliers to justify their prices. This means that commercial negotiations are held in a unstable and unclear legal framework. Sellers and buyers must amend their contracts to conform to new laws. Each party will naturally be tempted to interpret new laws in the most favorable way. Egalim 2 is the best example of new rules governing logistic penalties; no logistic agreements have been altered to reflect these rules.
Retailers are most likely to threaten suppliers with the immediate delisting of their products. This practice is rarely challenged in court. However, it is important to remember that even though the negotiations are conducted on an annual basis, the majority of commercial relationships with retailers can be considered to be ‘established’. Without a reasonable notice period during which the turnover must be maintained at all costs, any termination will be unlawful.
What are the implications of the new Egalim 2 law on contracts in the food distribution industry?
Egalim 2 law aims to achieve the same goals as Egalim. To promote fairness between agricultural and food industry operators to address the imbalance between retailers and suppliers. The Egalim 2 law is intended to supplement the first Egalim law and provide better protection for farmers’ remuneration through strengthening the regulation of commercial relationships between suppliers and retailers.
Egalim 2 prohibits negotiations over the price of raw materials for food products and requires that suppliers disclose the structure of their prices in their general sales conditions.
French legislators constantly create new laws to counter the power of retailers.
The price fixing clauses are regulated through a complex set of rules that allow retailers to influence the product’s prices. This includes being able to access production costs and to question them.
As we near the year’s end, what should we expect in negotiations? Do they look very different to the current?
One could expect that retailers will attempt to transfer their own costs, particularly logistical, to the suppliers. They may argue that they are doing all the distribution and dispatching of the products to the point of sale.
Suppliers and retailers will need to cope with the uncertainty and complexity of the constantly changing legal negotiation framework. French administrative authorities often issue opinions and guidelines for the interpretation of law. These guidelines and opinions can be described as’soft law’ but they don’t have the power of statutes or bind courts. This year’s negotiations will focus on how these new legal provisions should be constructed.
Parties must remember that reciprocity is the main word in any negotiation. In order to achieve a long-term commercial relationship, suppliers expect fair negotiations from retailers to add value to their products as well as increase their turnover.
Are there any predictions on how they will impact the wider French business landscape?
Due to the increasing complexity of applicable law in commercial negotiations in relation to agricultural and food products, it is possible to expect that negotiations will gradually shift from these types of products to nonfood consumer products. These products are also facing rising costs and inflation of industrial raw materials, but are not subjected to such complex regulation.
Nevertheless, it is evident that commercial negotiations are becoming more complex, and there has been an increase in legal restrictions.
Due to the complexity of the legal framework and the long negotiation process, parties may be tempted to enter into contracts for two-years or three-years with automatic price revision or indexation clauses. The choice of the price index is crucial in such situations.
It is vital that any supplier drafts its general sales conditions to ensure a solid negotiation base. This includes logistics and logistics. These conditions are crucial for negotiations, especially regarding logistics and financial sanctions.
Anne Granger, Partner
10 Av. 10 Av.
Anne Granger, a member of Paris Bar and a partner at the FLV & Associes in France. Graduate of Pantheon-Sorbonne University’s law school, she has extensive business knowledge, including distribution, competition, and consumer law. Her vast experience in competition and distribution law enables her to assist suppliers in the implementation of product distribution strategies and setting up distribution networks. She is also an expert in antitrust issues (cartels, restrictive practices, and private enforcement actions).
FLV & Associes, a Paris-based law firm, advises both small and large-sized businesses and public companies in all areas. They also represent clients in judicial and arbitral proceedings. Partners of the firm strive to build long-lasting relationships with their clients by providing personalized services delivered by a team that is experienced, responsive, and qualified. Each partner of the firm is a general commercial lawyer, but each one also has a specific area of expertise.