Roisin O’Sullivan, Madrid Office, Bord Bia – Irish Food Board

According to recent reports, the consumption drop taking place in the first few months of 2013 has unleashed another price war in the Spanish retail sector. The last VAT rise, the contraction in consumption, the uncertainty in many homes and the historically high unemployment levels are being cited as the drivers for this move.

Given the straits of many families, operators have had to adjust costs. The 10.2% drop in retail sales experienced during the month of January, according to the association AECOC, set off all the alarms in the sector, especially since indications suggest that the decline is likely to continue.

Some of the bigger chains have already taken a big step forward in order to combat this drop that could have a domino effect throughout the industry.

• Juan Roig – CEO of Mercadona - announced that they plan to defer all international expansion efforts while they address the local market. 
• Carrefour has lowered prices of 4000 products a few months ago.
• El Corte Ingles have reduced prices for the second time in 9 months – this time with a further 5% decrease in food and cosmetic products.
• Eroski permanently reduced 2000 product prices with cuts of up to 30% on some products.
• All chains have increased their private label ranges.

The neighbourhood supermarkets (proximity) and utmost attention to the quality of fresh produce and Price Price Price are being imposed as the main ways to have any future success in the market.

While they are all making changes at their own pace, all retail chains are keeping a close eye on what their competition is up to and calculating more than ever the impact of their strategies.