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The Warsaw Voice » Law » November 21, 2002
LAW AMENDMENT
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NO SALE
November 21, 2002 By Wanda Jelonkiewicz   
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The Sejm has passed a law on retail trade that is contrary to the Polish constitution and European Union standards. As a result of widespread criticism, work is in progress to amend the law.

The amended law on combating unfair competition took effect Nov. 10.

Yet even before the law came into force, work was under way to amend it. The new law, passed in July and designed to defend small retailers from the invasion of large chains, is taking flak from large retail chains, the Polish Confederation of Private Employers and the Consumers' Federation, and from the Ministry of the Economy.
For several years, a veritable fight between David and Goliath has been in progress in Poland: small and medium-sized retailers are afraid that some of them may be pushed out from the market by foreign distribution chains which have had their sights set on Poland since 1990. The battle flared up in the summer when parliament decided to introduce new regulations to limit the expansion of super- and hypermarkets under the slogan of combating unfair competition.

Small retailers may feel threatened since chain stores-hypermarkets, supermarkets and discount stores-accounted for almost 30 percent of the total value of sales of fast moving consumer goods in 2001. "Hypermarkets alone accounted for 13-15 percent of the total sales of foodstuffs, household chemicals and cosmetics, depending on product categories," said Magda Zimna of CAL Company Assistance specializing in retail trade research.

Fifteen large retail chains are currently in operation in Poland. This is still a far cry from Western European standards, where in some countries modern distribution channels like hypermarkets, supermarkets and discount stores account for up to 75 percent of the market share.

The restrictions introduced in the amendment are unlikely to improve the position of small retailers. Instead, they are more likely to encourage large chains to look for new solutions to avoid the
negative consequences of the legislative changes. For example, they could split their stores into smaller units. Those opposing the new law point out that the new regulations may hurt Polish consumers hunting for bargains in large stores.

Unfair

The amendment introduces a whole catalogue of acts defined as "unfair competition." These include the sales of goods and services in stores with an area exceeding 400 square meters at a price that does not include a markup. The same goes for selling goods for which customers pay not in cash, but with coupons issued by large chains. Retail chains are also not allowed to attach different types of goods as a bonus to goods on sale; for example, a small radio attached to a refrigerator on sale. On the other hand, retailers are allowed to attach to the product a sample of another product of a nominal value.

Sales without markups are only admissible twice a year: post-season sales at the end of the summer and at the end of winter. Sales without markups are also possible in the event of a store closing, and it is also possible to hold month-long sales if the shelf life of a given product draws to a close.

Goods sold under the brand name of the given chain can only account for up to 20 percent of the sales in discount store chains. This latter regulation contradicts EU laws, which explains why it has drawn protests from large chains. Most probably, however, the regulation will remain a dead letter because the law fails to define a "discount store," and discount store chains are arguing that this regulation does not apply to them. This argument was quoted in Rzeczpospolita by Tomasz Skołyszewski, financial director at Plus Discount, which owns a chain of 134 outlets. This chain's sales of goods under its own brand name account for 30 percent of total sales.
The national average is much lower. According to data from the GfK Polonia Institute for Market Research, store brands accounted for only 6 percent of the total value of fast moving consumer goods sales in Poland in 2001, versus 25.7 percent in Germany and 34.8 percent in Great Britain.

The heads of large chains operating in Poland note that some of the new regulations are contrary to EU laws. "The experience of the Metro corporation shows that none of the EU countries have regulations that would either limit or decree the type and amount of goods offered," said Renata Juszkiewicz, director of the Metro AG representative office in Poland. "This also applies to selling goods under the chain's own brand name. In EU countries, regulations are in force that regulate the rules of competition, including the issue of promotion, sales and minimum prices for a single market. They hold that promotion is a special case and authorizes retail companies to use low prices, including prices lower than the costs of delivery." Metro is the owner of the Real, Praktiker, Media Markt and Makro Cash & Carry chains.

Consumer interests

Małgorzata Niepokulczycka, chairwoman of the Consumers' Federation, finds the interests of consumers threatened. "Confusion was unnecessarily created around shopping vouchers, for example, which are increasingly popular in Poland," she said. "Employees expect that in the weeks before Christmas, their companies will fork out extra money and offer it to the personnel in the form of coupons. Many companies hurriedly bought vouchers, because there were rumors that they were only available until Nov. 10. Lines formed outside coupon sales outlets. On the other hand, some of the employees who received coupons panicked and decided that they needed to shop for them as soon as possible. Lines formed in stores as a result. Later it turned out that they were still available after Nov. 10. The confusion created in the process is hurting consumers."

The drafters of the amendment decided that, by offering coupons, employers indicated to their employees what store they were supposed to shop in, which is against the principle of free competition. According to Niepokulczycka-who is encouraging law makers to take into account the opinion of ordinary customers-the most important thing for most people is to get a coupon and do the shopping with it, and save money in the process. Consumers do not necessarily feel "attached" to a given store only because they get a coupon for this store once a year.

According to the Consumers' Federation, the new regulations will not help small retailers, nor will it satiate the appetites of larger stores. All that has been done is to cause disorientation and indignation among consumers, especially among low-income shoppers
who hunt for bargains in hypermarkets.

"The average Polish consumer has a low income and is price-oriented," Niepokulczycka said. "Many consumers take advantage of all types of promotions-including those which are in fact sales-to buy something for themselves cheaply."

"We rate the law very poorly," said Maria Andrzej Faliński, secretary-general of the Polish Organization of Trade and Distribution (POHiD). "It harms the entire economy, including small and medium-sized companies, even though it was supposed to defend them; it also harms consumers. It is against the constitutional principle of business freedom and against the EU's acquis communautaire in the area of the free movement of goods and in the area of guaranteeing freedom in making contracts."

He says the new regulations are contrary to the EU's market policies and integration policies oriented toward consumers and supporting promotions, with a view to reducing people's shopping expenses. The POHiD has obtained an expert opinion from White & Case, showing that the law is against EU laws. The European Commission presented an identical position in its latest annual report on Poland's preparations for accession. The POHiD affiliates 14 large distribution companies, chiefly foreign-owned. They account for 80 percent of the capital invested in distribution and more than zl.30 billion in investments made in Poland.

The Ministry of the Economy and the Office for Competition and Consumer Protection (UOKiK) are working on an amendment to the law, in a bid to remove restrictions on the sale of goods in retail chains and to restore the possibility of issuing coupons valid for different chains or a specific chain. "I hope the law will be amended by the end of the year," Faliński said.

Preliminary work has also begun on new legislation on trade and competition.
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