In light of COVID-19, the EU’s new law may offer new opportunities for SME food businesses.
2019 measures by the EU may offer competitive advantage opportunities to SME food companies in the era of COVID-19.
“Most countries under that system, the iron curtain long ago gave way to membership of the EU and its single market. Yet consumers and politicians in the East remain convinced that goods sold in Western Europe — even well-known brands made by multinationals — are of superior quality to those sold under the same branding in their countries.” (Guardian)
The practice of dual quality standards is a long-term method used by multinational food companies and private label retail organizations. The companies in question generally produce multiple products similar in the finish but with different ingredients of varying quality. They then sell these products with an identical or similar label in two different markets. For the purpose of representation, I will limit my text to two different European states. More specifically, they sell the lower quality product to Eastern member states commonly thought to have lower food standards in general. By doing so they were able to eliminate local competition with a false price-quality performance representation. Making most of the smaller and less developed EU states food import junkies. This became evident to common voters after pictures of COVID-19 crisis’ empty shelves traveled around the globe.
European Commissioner Vera Jourova explained that there have been years of deception and cover-ups.
“We still see that people from Hungary go to Austria every week to buy things — and this is not just for the prices but the quality of products,” Jourová says. “We see the growing dissatisfaction and frustration of people who feel the need to buy things abroad — and we say for the first time clearly: this is unfair commercial practice.” (Guardian)
Some corporations undertaking this practice have argued that it is a matter of taste. They have claimed that the older states have different preferences for the new member states and that the method is a result of consumer demand rather than a cost-saving exercise. While they would say that tastes are different, what they are trying to claim is that the Eastern part of the EU has poor taste in food and thus would prefer the lower quality food.
“Coca Cola, whose drink in Slovenian stores was found to contain more sugar and more fructo-glucose syrup than that sold in Austria, says it adapts its original recipe to local tastes. Spar, whose own-brand strawberry yoghurt in Slovenia has 40% less strawberry than the Austrian version, claims it is merely producing what the Slovenians want.” (Guardian)
Thankfully the EU has seen that such claims are ludicrous. The lack of quality food in Eastern states has meant that higher quality food has not been available, but who in their right mind would take the lesser quality by choice? Two years of intense lobbying by the new member states of Europe has now led to the EU introducing a law intended to put a stop to this practice. The new code is not as straightforward as banning the practice entirely as EU regulations allow the same method as before. The new rules mean that if a company wishes to continue this practice, they need to provide adequate reasoning as to why this is the case. They then need to put these reasons on the package.
So How Will the Big Players React?
So, the question now is — will the food companies choose to provide the same quality food to both Eastern and Western parts of Europe? Unfortunately, the answer is probably, after several months, still no. Companies do not think like you and me. They have business rules, and, in most cases, those rules are designed for one thing — to make money. In this case, to begin providing the same quality to both countries will be a lot more expensive. But how much would it cost to have a label on the package, cleverly written by a legal team? — A label that states in a minimalist way that their version of the product is inferior simply because people in their country would prefer to eat the poor stuff rather than the good stuff. I second guess that in light of COVID-19 post-crisis world most will bet on governments not taking notice of the problem.
But for representation purposes, let’s say they go ahead and do this. What is the risk to the business? The worst-case scenario is that they will lose the customer. If there is a better-quality product on the market, this may happen once the patronizing labels hit the products, but it is unlikely. A lack of choice in the Eastern states will make it difficult for consumers to switch brands as commonly as it happens in the West. Also, the practice of canoodling between companies in such ways as cartel formation may be technically illegal, but it is still common practice just about everywhere in the world. One simple ‘under the table’ agreement between major competitors to keep standards in Eastern Europe low and the issue is solved. As a result, consumer choice is restricted, virtually eliminating the risk to the organizations.
What is the Opportunity for Smaller Brands and Governments?
One of the beneficial side effects of the new law is that it could mean an upturn in fortune for smaller brands moving into the market. More basic organizations cannot afford to have multiple manufacturing processes across the board. Their integrity of quality between East and West is not an ethical choice. It is merely a side-effect of the cost limitations of their business. Hence, this could become quite a unique selling point between them and the goliath organizations that they are up against.
The corporation’s product says, ‘We are giving you a poor product because you have a poor taste’. But you cannot have a political history like that of Europe and still view this kind of move as merely a business decision (although at its essence, that is precisely what it is). Regardless, consumers will assume all sorts of political agendas from this decision. Most importantly, it implies that the company selling the product sees people in Western Europe as more important than those in the East. This is probably the most significant risk for the companies that go down this labeling route. To a degree, the implication is real. Whereas technically, a company is money-driven and without political persuasion, in this case, political judgment is a prerequisite to reaching such an economic decision.
An intelligent, a smaller company might then choose to come up with a label of their own — a label that implies equality and hints at the practice as one that concerns human rights. It’s a powerful message — one that could appeal to the fight for equality among less fortunate Europeans and lead them to make political rather than sensory consumer decisions. Viewed in this way, more prominent companies will have a choice to make. Either they pay the extra and raise their standards across the board or, they risk losing competitive advantage to those that do.
As the Marketing Manager of a large company engaging in practices of dual quality, the first step might be to do an in-depth risk analysis of all the possible scenarios. No doubt, the one that comes in as the lowest monetary cost will win, regardless of the risk factor. That’s how big companies work. It’s about money, nothing more.
One of the complications of the new laws falls in the hands of private label retailers. These retailers, according to the preliminary study, were one of the biggest offenders when it came to the dual standards. The study explained that 9% of products with different compositions between countries had identical labels, and a further 22% had very similar packaging (source). Retail businesses using private-label suppliers from multiple countries may not be able to control this discrepancy in quality, but it’s not something that would be difficult to work out. They may argue that the cost of working out a solution will be expensive. But after all, isn’t the entire purpose of the new law to increase quality across the board? Such a concept, by its very nature, is always going to cost more money. In one sense, it is not that the retail business has to spend more money. It is just that the company must put back some of the vast amounts of money it has already saved by applying double standards across the board.
This new movement by the EU may not be foolproof, and with the masses of legal power at their disposal, the labeling loophole may become an escape route for big business. But, overall, it is a step in the right direction and an opportunity for the smaller company to gain leverage without initiating any significant change. For so long, the profit gained through these double standards has been purely financial and limited to larger multinational corporations. Now, thanks to these changes, that advantage may be offset. With the addition of a strategic marketing message, it may potentially become a rare competitive advantage for the smaller fish in a very big pond.
But that is not all. COVID-19 shined a new light on the problem. Many of the EU less developed countries are also quite dependable on the imports or cross-border movement of food products. Thus it is expected that the new state policies will be directed towards increasing self-sufficiency on the state level, but not restrain also on the overall EU market level.
My writing is based on true events and stories. It is as real as it gets. I changed parts of the stories and excluded real names, as I don’t want people to get hurt. But most of the stuff I write is authentic and includes my thoughts and feelings.