Bringing Down Finnish Food Prices

Posted on May 11th, 2012 by News Editor in News

The relatively high food prices in Finnish supermarkets are often one of the first things that expats notice upon moving to the country. Sometimes they are dismissed with remarks like, ‘This is Finland. Food is expensive’ but now even a government minister is now insisting that it shouldn’t have to be this way.

Lauri Ihalainen, the SDP Minister for Labour, is looking into how his government can break-up the de facto duopoly in the Finnish supermarket sector. Currently, two big groups –  the S-Group and Kesko – control eighty percent of supermarkets. S-Group (with a 45 percent market share) runs Prisma, S-Market and Sale, while Kesko (35 percent) runs K-Markets and City Market. Their competitors, such as Lidl, and the shops controlled by Suomenlahikauppa (Euromarket, Siwa, Valintatalo) and a few even smaller companies, control just twenty percent of the market between them.

The minister is concerned about ‘lack of competition’ and is now seriously looking into limiting the percentage of the food market that an individual food company can control. Some researchers in the area insist that it is this lack of competition which partly explains high food prices.

However, Suso Kolesnik, of S-Market, insists that the prices are reasonable when taxation is accounted for and that lack of competition is not the real reason for expensive supermarket food.

‘Finnish food prices are about average but you when you take into account 17 percent VAT on food and then the plenty of other taxes, about 44 percent of the price of food is tax. This is much higher than in other European countries,’ she explained.

‘Tax is the big issue. We try to keep food prices as low as possible. But we are taxed much more. Also, basic costs are higher – such as energy in a cold country. And we are also a big country, so transportation is more expensive.’

She also insisted that the S-Group does all it can to import cheaper food but that ‘Finns like to eat Finnish food because they think it is cleaner and safer.’

Anu Ora, of the Suomenlahikauppa, agrees. ‘Most of the price is VAT,’ she told 65DN. ‘On average the market leader is the cheapest. LidL has a lower price but there is less selection. We are welfare society and that has a price and it is reflected in our food prices.’

However, Lauri Sipponen, managing director of Lidl Suomi, is not so sure. He partly agrees with Ora, but thinks there’s a much more important reason for high food prices. ‘The biggest factor which affects food prices in Finland is, of course, very high value added tax,’ he told 65DN. ‘There are further taxes, such as on sweets and soft-drinks, and operating costs are higher than the EU average. Salary-related expenses, such as sick-leave payment, are, in relative terms, really high.’

But for Sipponen, there is a crucial reason which other supermarket representatives are ignoring. ‘The Finnish home market is not competitive,’ he told 65DN. ‘It does not encourage the entrepreneurial sector.’ This results in only a few domestic supermarkets and a system that is difficult for foreign supermarkets to penetrate. For Sipponen, this lack of competition keeps prices higher than they otherwise would be.

Sipponen also disagrees with the view that ‘Finns like to buy Finnish food’ and is ambivalent about the minister’s proposals because he fears it will interfere with a free, capitalist economy.

Social critic and author Taneli Heikka also dismisses the argument that taxes explain high food prices. Heikka reached national prominence in 2010 when his book Quasi-Democracy presented a withering attack on, amongst other things, Finnish food prices. When asked why food is expensive his answer is direct.

‘Lack of competition. And there has only been a serious debate about this for a few months. We have this duopoly, it has been like this for decades and nothing has been done,’ he complained.

To retailers who blame tax, Heikka responds, ‘Denmark and Sweden pay high taxes. Do they have healthy competition and lower food prices? Yes. Competition brings the prices down.’

Studies indicate, though cannot totally prove, that there are unfair obstacles placed in the way of potential competitors, says Heikka. ‘And if you are a new player you may have trouble adapting to what customers are used to but that’s not a reason to not even try and compete.’

4 Comments on “Bringing Down Finnish Food Prices”

  1. koen

    yes, S group and K group can do everything in finland,

  2. Steve Williams

    I always wondered why other large EU supermarket chains don’t enter the Finnish market.

    I shop in Lidl more than the other chains, but I feel that more competition would be healthy for all.

  3. Rob

    “To retailers who blame tax, Heikka responds, ‘Denmark and Sweden pay high taxes. Do they have healthy competition and lower food prices? Yes. Competition brings the prices down.’” Which is why Finns regularly go to Haaparanta for cheap food and booze.

  4. Jay

    “I always wondered why other large EU supermarket chains don’t enter the Finnish market.

    I shop in Lidl more than the other chains, but I feel that more competition would be healthy for all.”

    Finland is a small and highly regulated country with a tough business environment, which makes it an unattractive market for foreign chains. I hope this country will open up when most of the people from ‘Kekkoslovakia’ -era are gone.

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