IRTS: black box or Pandora’s box
Elsevier Food International Vol.7, No.4, November 2004
Pascal Kuipers
“Our competition authorities are sleeping authorities,” complains a French supplier. “I know of suppliers who received requests for a better price after Auchan and Casino compared conditions.” “In principle, transparency between competitors is not allowed but there is no legal risk as it is also not prohibited,” another insider says. “IRTS only toughens the purchasing negotiations in France.”
When Auchan and Casino announced the creation of IRTS (International Retail and Trade Services) on 18 November 2002, they stressed that IRTS was to be a joint organisation for the implementation of ‘global services’. Both partners’ national purchasing organisations would remain separate.
On 20 November, the European Commission received notification of the intended joint venture. This notification stated that “[…] the creation of IRTS will not affect the commercial autonomy of each group on the downstream retail sales markets […] Their cooperation will be confined to providing services on the upstream supply market.”
The EU publication summed up the services IRTS intends to provide. These entail developing a range of services to suppliers such as collecting and processing statistics of product sales and the development of the suppliers’ market share, activities related to the launch of new products, execution of international advertising campaigns, and so on.
According to general manager Alain Cappannelli, service is key to IRTS, which he compares to a consultancy. Services are sold, not embedded in purchasing conditions. “We have nothing to do with purchasing,” stresses Cappannelli. “Like any consultancy we sell our services to suppliers. We organise and implement global promotions for instance. We have done this for Casino and in the near future we will do an international promotion in all countries where Auchan is represented.”
So it is ‘services’ instead of purchasing. However, two of IRTS’ objectives expressed in its November 2002 notification to the EU suggest a grey zone:
• To combat unjustified price differences that result from the compartmentalisation of markets.
• To prevent large suppliers (listed restrictively) practising unjustifiable discrimination to the detriment of the parties, without this implying any sharing of information between the subsidiaries and national teams of Auchan and Casino.
“We are a service provider and see purchasing more as a problem than as an opportunity," says Cappannelli, who was Auchan’s international purchasing director before he was appointed as IRTS’ general manager. “IRTS knows all buying conditions of Casino and Auchan in the different countries of operation. We compare these conditions and if we see any irregularities, we ask the supplier for an explanation. And if the difference is still unjustified, we ask the supplier to make a modification. There is nothing wrong with that. Should we close our eyes if we notice such an unjustified discrimination between the conditions of Auchan and Casino in a given country? No. We make this clear and transparent and the supplier is entitled to a fair explanation. But let me put this clear here: IRTS is a black box, so we share no information with either Casino or Auchan.”
Has it happened often, that IRTS unveiled unjustified price differences?
“In reality it is difficult comparing conditions between countries that have been negotiated by either Auchan or Casino. But yes, I know of some examples of IRTS finding discriminative agreements by suppliers. After a discussion, suppliers decided to make a modification.”
Do you not think that these suppliers give in, afraid of being de-listed by either Casino, Auchan or even both?
“No. We are not a listing company and we are not entitled to de-list a company. After two years of IRTS, no international supplier has been de-listed by Auchan or Casino due to our activities. On the other hand, however, it has happened that suppliers decided to de-list themselves. In Spain, two international suppliers no longer sell their products to Auchan.”
You characterise IRTS as a black box, operating independently from its members Auchan and Casino. Still, IRTS belongs to Auchan and Casino. How independent and objective are therefore the criteria IRTS uses for assessing such a thing as unjustified discrimination? And is there an independent third party checking IRTS’ operations?
“The IRTS team consists of 30 people that are on the payroll of either Casino or Auchan but they are 100 per cent dedicated to IRTS. We all signed an official confidentiality paper, which clearly stated that it is not allowed to give information to Auchan or Casino. No, we are not checked by an independent, third party. This is based on mutual trust. Suppliers have to trust our integrity. Again, we don’t share information. The only information IRTS shares with Casino and Auchan are the details of international agreements we clinch for instance with regard to the implementation and execution of international promotions.”
When IRTS says it wants ‘to combat unjustified price differences that result from the compartmentalisation of markets’, I suppose the lowest price is applicable here. Is that right?
“Of course. Well it is all very complicated comparing these conditions. We have not yet done international price comparisons. We are primarily focused on services and our first objective is to extend our international agreements geographically. We are still focused on Europe, but we will extend this to South America and Asia.”
But combating unjustified price differences can hardly be called a service to suppliers. It is more a service to Casino and Auchan.
“It’s not a service to suppliers, I agree. In my view it is not a service to Auchan and Casino either. It is first of all a service to the consumers. I know that suppliers are concerned. But again, our first priority is selling services as a consulting company. Suppliers can use IRTS to help them implement their international operations. Our second priority is IRTS’ function as a black box, not sharing any information on buying conditions nor commercial strategies, when looking into our members’ buying conditions per country.
There are two types of people we engage, and I clearly see this as a people’s question: some people see IRTS as an opportunity to a better way of doing their business with Auchan and Casino internationally; others perceive us as a means of Auchan and Casino just to make extra money. With these people it is difficult to build an international agreement.
We have built 226 international agreements now with all international suppliers except one. These agreements are totally separated from national buying agreements done by the teams of Auchan and Casino respectively.”
IRTS has an international focus but its two members still do most part of their business in their domestic market, France. Is IRTS not about Auchan and Casino trying to leverage their domestic market power?
“I don’t understand why you say this. Auchan’s business is 50 per cent French but 50 per cent international. I don’t know the equation for Casino but Casino is a big company in South America. Auchan and Casino achieve most of their growth outside France. Casino in South America and Auchan in emerging markets like Russia and China. It is just not right to say that it is a French operation.”
The EU, however, passed the decision of approval of the joint venture on to the French competition authorities, saying that the emphasis of this joint venture lies in the French market.
“I am unaware of the issue of approval by either the EU or the French authorities. We sent our notification to the EU in November 2002 and now it is two years later and we sell services especially to the large international suppliers, that are implemented operationally. Operationally there is no problem at all.”
Especially Casino has minority shares in several countries abroad. What does IRTS mean to its local partners and is it interesting enough for them to deal with IRTS?
“If Casino has a minority share in a country, that is not a problem for me. I separate the legal view from the operational view. I recently spent two weeks in South America visiting Casino’s operations in different countries. Some were 100 per cent Casino, others were joint ventures where Casino has a smaller share. Everywhere we explained what IRTS is and we encountered no operational problem whatsoever. In Brazil, we had good discussions with the people from Pao de Açucar, who asked IRTS to implement international agreements in Brazil. In all of Casino’s South American countries our international promotions are working. Regardless of Casino owning a majority or a minority share, joint venture partners give a mandate to IRTS to implement agreements with international suppliers. Before we created IRTS, Auchan already had international agreements on a European basis. In Italy, Auchan was a minority partner in a joint venture but there was no operational problem. It is not a matter of who owns what percentage of the shares. It is a matter of knowing the person who can make the actual decision. We work directly with joint venture partners.”
What targets has IRTS set for itself and are revenues shared 50/50 between Auchan and Casino?
“As a consultancy we have set ourselves a target of global turnover. Also, our members Casino and Auchan want to develop good relations with international suppliers via IRTS. Our target is therefore to get an agreement with every international supplier. IRTS has no profit and loss account. We are based in Geneva and we make no fiscal profit in Switzerland. Who gets what, depends on the capacity of Casino and Auchan per country. Benefits are shared in the operations per country.”
Combined French retailers Auchan and Casino account for €48.2bn of sales, with a foreign share of 30 per cent. This puts them in a 6th position globally.
Auchan
Sales: €26.2bn
Cross border, French retailer Auchan owns its operations in Angola, Argentina, Hungary, Luxembourg, Poland (84 per cent), Portugal, Russia, Spain and Taiwan. In China and Italy Auchan has a 50 per cent joint venture with a local partner.
Groupe Casino
Sales: €22bn
Casino’s foreign operations unfold to 14 countries, large and small, in all corners of the world with various degrees of ownership. Casino has a majority share of its operations in Argentina, Venezuela (50.01 per cent), USA (59.8 per cent), Thailand (66 per cent) and Poland. In Taiwan, Mexico and Uruguay it’s engaged in a 50/50 joint venture. Casino holds minority shares in its operations in Madegascar, Vietnam, Mauritius (all three via Casino’s 33.34 per cent stake in Vindemia), Colombia (33.47 per cent), Brazil (27.5 per cent) and in The Netherlands (38.7 per cent).
Source: IRTS and – for the ownership shares – M+M PlanetRetail
Alain Cappannelli was international purchasing director at Auchan before he was appointed to the position of IRTS’ general manager. Before his career at Auchan, Cappannelli sat at the other side of the negotiating table when he was sales and marketing director of Rivoire et Carret Lustrucru, a French supplier of pasta products.
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