Price wars coming to France

France has decided to allow more price competition in its retail sector, and is expecting an intense war among the country's hypermarkets -- especially Carrefour and Casino. Loss-leaders, for example, were formerly outlawed, but are now legal.

Loss-leading by big retail chains can squeeze out small shops. In practice, however, the restrictions created a cozy relationship between the biggest suppliers of branded goods and the biggest retailers. Protected from the tooth-and-claw discounting occurring in more open retail markets such as the U.S., they were in effect able to raise prices at will.

Grocers now have the flexibility to give back to the consumer at least some of the inflated profits formerly split between supplier and retailer through a byzantine system of backdoor fees. But the extent to which they will share the spoils in 2006 is not yet clear because annual pricing negotiations between suppliers and retailers have been protracted, delaying the effect of the law change. However, there have been plenty of bellicose rumblings since the start of the year that suggest prices of many well-known products are set to come down.

The government is hoping that prices will fall enough to help its candidates in the upcoming elections: "In the run-up to the election next year, a wave of hypermarket discounting would help the ruling UMP party blunt accusations that it has made consumers poorer. That could be good news for Chirac's most ambitious colleagues — Dominique de Villepin, prime minister, and Nicolas Sarkozy, interior minister, who both harbor presidential ambitions."