Manufacturers cornered by supermarkets
  • | Tuoi tre | April 23, 2012 09:52 PM

Many manufacturers have no choice but to agree to provide high commissions and a number of fees to supermarkets in order for their products to find their place on the latter’s shelves.


 A private label product on shelf at Big C supermarket -Photo: Tuoi Tre
Businesses also have to suffer long-delayed liabilities from the retailers, which they said have deliberately cornered them, forcing them to produce private label products for the supermarkets.

Recently, Metro Cash & Carry has informed some suppliers of a new schedule for price adjustments. Specifically, suppliers are required to announce new pricing schemes to the supermarkets 30 days in advance, and the adjusted prices can only become applicable 90 days after the supermarkets approve them.

“This means manufacturers have to wait at least 120 days to sell their products at new prices,” lamented T, director of a food processor.

If suppliers disagree with the new regulation they have to take their products off the shelves, or switch to producing private label for the supermarkets, members of the Domestic Club under the Vietnam Association of Seafood Exporters and Processors (ASEP) said.

And this is only the last straw, as manufacturers have accepted many requirements to keep their products on shelves, they said.

“Firms must have strong financial muscles as liabilities at supermarkets usually last at least 30 – 45 days,” said a food processor.

This is not to mention a number of different fees, and the steadily increasing commissions, he added.

“While commission last year was 10 percent, it is 20 – 25 percent this year,” he said.

“Retailers also reap a whopping profit of VND50-60 million from every leased shelf.”

“What matters here is that all of the expenses will be taken into account in the retailing prices,” director of a cosmetic company said.

“We earn almost no profit from selling the products via supermarkets, but we have to anyway since having your products on shelves at supermarkets is a form of quality assurance to customers,” said Thai Quoc Huy, director of Thao Huong Co.

Heavy reliance

Small- and medium-sized enterprises which have yet to develop adequate distribution chains of their own are those facing the toughest problems with supermarkets, insiders said.

Another problem is that there are currently many manufacturers, while reliable supermarkets are too few, said Chau, director of HancoFood.

“Manufacturers have to heavily rely on the major supermarkets to have outlets for their products,” added Chau.

H, deputy CEO of a food processing company, said that it is difficult for businesses to accept the 120-day waiting period to adjust their prices at Metro.

Most supermarkets usually require that manufacturers wait 30 days to adjust prices, she said, adding that the time at some retailers can be as short as 10 days.

“The inconsistent timing amongst supermarkets will drive consumers to those whose prices have yet to be hiked,” she said.

“Moreover, if businesses agree to make private label products, they will not have to pay certain fees or commissions.

“In other words, supermarkets want to force firms to make private labels for them.”

“However, outsourcing private label products means businesses agree to push their own goods off the shelves,” said Luong Van Vinh, director of My Hao Co.

“You have to see your market share reduced, and your brand slightly affected, but you have no choice” said Truong Chi Thien, director of Vinh Thanh Dat Co, which is outsourcing private labels for a supermarket.

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