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Norway: New price strategy at Rema 1000

Discount Retail Chain Rema 1000, owned by Norgesgruppen, has broken with 30-year-old practice which, according to the Norwegian Competition Authority, may have been harmful. On Monday, the price of over 200 items will be cut.


Now the brand new Rema 1000 boss Christian Hoel goes out and talks about price cuts on goods in most categories from suppliers such as Findus, Orkla and Tine. On average, these 215 prices are cut by 2.5 per cent. The Rema boss guarantees that they won't put up other prices to bring in the money elsewhere. "This is real, without footnotes, real and honest. Prices go down from suppliers, because they have lower costs, and we take that out into the market," he says.


How discount competitors react

Kiwi:

"Kiwis should of course always be the cheapest, and this small price reduction of 2.5 per cent was adjusted with us from this morning. Our price cut, which started on Monday last week, is 20 per cent or more, and is valid until February 29. The price cut applies to large and important everyday goods for many, such as 1.75 litres of milk, wheat flour, Bremykt, gulost, and fish cakes. For us, the most important thing is to win the trust of our customers. That's why we're continuing price pressures in 2024 as well."


Extra:

"As the first discount chain, Extra started the year with a sharp price cut of over 150 everyday goods by an average of 7.5 percent. This came as a result of lower prices from our suppliers, which we passed on to consumers. Since then, we have adjusted prices further down for a large number of goods. We are also doing this now, so that customers, who are also our owners, can rest assured that they buy the cheapest at Extra."


May have hurt the competition

The price cut represents a break with well-established practices. Last summer, Rema 1000 announced that they are moving away from the traditional model with defined "price windows".


The system has existed since the 90s, according to the Norwegian Competition Authority.

Since 2005, it has been agreed that prices from supplier to retail chain are adjusted twice a year, 1 February and 1 July. On average, this has led to far stronger price jumps on food and beverages in February and July compared with the rest of the year.


The system is old-fashioned and inflexible, according to Rema 1000.


"Continuous negotiations give us the opportunity to be much closer to price throughout the year and challenge suppliers when we know that things are happening in the market," says category and purchasing director Line Aarnes.


In a report released by the Norwegian Competition Authority before Christmas, they concluded that the price adjustment system may have harmed competition.


More positive attitude

When the Norwegian news website E24 reported the change last summer, it was the first time several of Rema 1000's suppliers had heard about the matter. Aarnes says that some suppliers were involved immediately, while others were more sceptical at first. "It's natural when something new happens. When we change something that has been stuck for 30 years, you can get a little uncertain.


Over the past six months, she and the price team have had several meetings with the chain's many suppliers to explain how Rema intends to conduct negotiations in the future.

"It's a more positive attitude now than it was immediately. A lot of people are involved," she says.


Lower costs

There has been enormous attention to the rise in prices in stores over the past two years. Throughout the second half of last year, Statistics Norway consistently pointed to food and beverage prices as the strongest contributor to keeping inflation high.


The fact that more than 200 prices can now be cut can be explained by lower costs backwards in the value chain. Rema 1000 points to raw materials such as grain and coffee, as well as packaging, shipping and to some extent electricity.


"If we see that commodity prices or freight prices go down, for example, we will be much more actively in dialogue with suppliers to get price reductions," says Aarnes.


She adds that it will still take some time to get out of the price windows completely.


"So what we're doing now is something we're going to do more and more going forward.


David vs. Goliath

There are two tired Rema 1000 tops who pose for an E24 interview about the price changes.

As a new CEO, Hoel, along with the rest of the management, has been around the country to greet, learn from and motivate the chain's 675 merchants.


"I feel like I've been at a Coldplay concert for four weeks now, with me on stage. It's been really good. Lots of energy and a bunch of positive merchants who want to make a difference in their local environment.


The former Extra boss is ready for battle. The aim is aimed at Norgesgruppen, the trading house with the biggest muscles.


"It's fun to attack as a challenger. It's like David versus Goliath," says Hoel, who now heads a company with a turnover of around NOK 50 billion.


Norgesgruppen has reached NOK 100 billion.


"I think it's under-communicated how we are in a situation with one big and dominant player. In a strategic perspective, and for the Norwegian people, it is deathly important to challenge the largest.






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