New Gondola Law will increase competition in Argentina’s supermarkets

Oliver Butterworth
Retail Analyst
@RetailAnalysis

Date : 26 November 2019

A new law is currently under review in Argentina, which, if passed, will regulate the grocery retail market, with the aim of better promoting competition. The ‘Law of Gondolas’ has been approved by Argentina’s Chamber of Deputies and has now been passed to the Senate for final approval.

The law consists of several conditions aimed at making promotional space on gondola’s more equal. This will support smaller manufacturers and farmers who are looking to get their products into major retailers’ stores. Marcela Passa, president of the Commission for the Defence of Competition, said the initiative seeks to combat "the unjustified rise in the price of food." 

More variety on the gondola

The law states products will no longer be able to exceed 30% of the available space they share with other brands or products with similar characteristics. The space must be shared with at least five other suppliers. The Ministry of Commerce can raise the ceiling to 40-50% for retailers with smaller footprints.

The initiative will give customers greater choice and remove the monopoly the government believes major brands currently have over the space. It is also likely to lead to a fall in basket spend as it will create more price competition between major brands and smaller private labels.

Greater support for smaller businesses

The Gondola Law states that 25% of gondola space should be reserved for products produced by small and medium-sized enterprises (SMEs) and 5% should be assigned to products from farms owned by families.

Renting preferential space on the gondola will be prohibited and the lowest priced items will be in the middle of the shelving unit height wise. On free-standing units or any other off-fixture displays, products made by micro and small national companies, or by cooperatives, should be assigned 50% of the space.

The payment terms from retailers to smaller companies can no longer exceed 60 days. Supermarket and hypermarket chains may not require financial contributions or advances from suppliers for any reason.

Who will be required to follow these principles?

The law applies to retailers with an annual turnover greater than ARS$1.7 bn (US$28m) and more than 345 employees. It will, therefore, mostly apply to larger retail chains.

Our view

This law would be a huge to benefit to both SME’s and the Argentine consumer. Customers will have greater choice and a potentially cheaper basket. As retailers would be lawfully required to provide more space to SME’s, manufacturers/farmers would need to consider whether they would be required to fulfil bigger or more frequent deliveries. They would also need to be prepared for the possibility of higher operational costs.

We look at five themes, including the growth of discounters and the continued strength of the atacajero format, that are set to shape the region's grocery markets in 2019 and beyond.

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