Suppliers squeezed from Big C merger
Bangkok Post: 31 Jan 2011
Suppliers feel squeeze
Big C seeking increases in feesThe recent merger between the two giant hypermarket chains Big C and Carrefour is taking a toll on suppliers, who say they are facing tougher and possibly unreasonable trade conditions.
The mightier Big C is said to be flexing its muscles, demanding that its suppliers pay higher rates.
Representatives of Big C have told suppliers unofficially that if the fees they were paying to Carrefour and Big C were different, the higher rates would now apply.
Suppliers interviewed by the Bangkok Post said this practice was unfair because the character and positioning of Big C and Carrefour were different. They said Big C had also started to call for unreasonable demands and charges from suppliers.
The Big C chain, now with 113 branches, is now comparing Carrefour's contracts with suppliers with its own contracts. On an itemised basis, it is possible that the higher fee will be chosen.
For example, the fee charged for displaying products at the front of a shelf row is higher at Carrefour, so this rate could be applied to all suppliers at both chains.
But Carrefour charges lower fees for inclusion in the promotional brochures it mails out, so suppliers may end up paying the higher rate charged by Big C.
Suppliers are also complaining that Big C is requesting a new extra payment known as a buyer fee. This is in addition to the entrance fee, promotional fee and special discounts on products participating in promotional campaigns.
Carrefour will soon be a thing of the past.
However, a spokesman for Big C Supercenter Plc said there was no plan at the moment to revise contracts or commitments with suppliers.
"At Big C, we have always been working closely and fairly with our valued suppliers. That's our policy and principle," he said.
Another supplier who asked not to be named said Big C should leave annual fees unchanged if it does not plan any branch expansion. The hypermarket operator has justified fee increases by saying it faced higher expenditures from opening new branches.
"Now there are only three hypermarket chains so suppliers have no bargaining power as the government does not control these fees," said an executive from the beverage industry.
"The government should reconsider the antitrust law or support Thai retail chains to strengthen their operations through special interest-rate funding or tax measures."
Hypermarket leader Tesco Lotus, meanwhile, is also issuing new trade conditions, asking suppliers for sales volume commitments if they want to stage promotions at its stores. Sometimes, they are asked to absorb the price differences between those of goods sold at Tesco if they are cheaper than at rival chains.
"I was initially very glad when I heard Big C was merging with Carrefour as I hoped that it could break the dominance of Tesco Lotus. But now the situation is the opposite. Everything got worse," said a dairy industry executive.
"Now that Big C is bigger, trade conditions between suppliers and Big C or Carrefour are tougher."
The source said the suppliers were now negotiating with Big C. If they do not succeed, they may reduce the number of products distributed through the chain or keep only those that sell quickly.
"We may suffer a 20-30% cut in sales but it's better than losses," said the beverage industry source whose company sells 40-45% of its products through the two chains.
Chalit Limpanavech, chairman of the marketing management group at the Thailand Management Association, said the Commerce Ministry should intervene to examine the strategies applied by hypermarket chains, especially to Thai suppliers who have lower bargaining power.
Competition between both foreign hypermarket chains would benefit consumers in the short term but they might get lower-quality products in the longer term as suppliers have to adjust to survive in the business, he said
"If the government does nothing, I'm worried that the future of Thai suppliers and consumers would be under the control of foreign hypermarket chains," he added.
He foresees a dim future for small and medium-sized suppliers who have limited distribution channels.
Mr Chalit urged suppliers to form an association to increase bargaining power. As well, he said, the government should consider empower some agencies such as Consumer Protection Board to examine fees that do not directly relate to business operations.
http://www.bangkokpost.com/business/retail/219023/suppliers-feel-squeeze
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