Price hikes: Supermarkets say no to suppliers

Ho Chi Minh City retailers choose to keep their shelves empty rather than give in to the demand to increase prices

On Wednesday many shelves at Big C supermarkets in Ho Chi Minh City were empty since it had suspended sales of certain products like dairy, confectionery, cosmetics, and personal care items.

Big C notified customers, saying suppliers have stopped delivery because it rejected their demand to increase prices.

The situation is the same at many other supermarkets since they fear the proposed price hikes — of 5-20 percent — will hit sales.

Nguyen Thanh Nhan, deputy director of Saigon Union of Trading Co-operatives (Saigon Co.op) which owns Co.opMart, said in 2009 the supermarket chain refused to hike prices as demanded by a milk powder supplier.

It then turned to other suppliers and they reached a consensus on stabilizing prices, he said. “Retailers consider suppliers their partners and so both sides should negotiate to set new prices and reasonable time frames for raising prices.”

Ngo Van Hai, deputy general director of the supermarket chain Citimart, said supermarkets and suppliers often terminate contracts when they cannot reach new agreements. But, he said referring to the Big C case, this was the first time a supplier had cut off delivery because the supermarket refused to hike prices.

Supermarkets said many suppliers have taken advantage of the gasoline price hikes this year to increase prices. Many hike their prices just to increase margins and so refusing to accept it is a way to protect consumers and ensure their own sales, they said.

The director of a company supplying goods to supermarkets said the fact that a supplier stops delivering goods to a supermarket is not simply because of disagreement over prices but is also related to other issues.

Many supermarkets require suppliers to subsidize their marketing and other costs, often printing catalogs and sharing costs for the opening of a new outlet.

For instance, each supplier has to contribute around 10 million dong (US$476) for celebrating a supermarket’s anniversary.

If a supermarket has 4,500-5,000 suppliers, it does not have to spend a huge amount of money on sales promotion.

“Supermarkets are known for their cheap prices but their suppliers do not make a profit,” the director revealed.

Duong Thi Quynh Trang, external relations director of Big C, said in the present circumstances businesses cannot help increasing prices and so Big C continues to negotiate with suppliers for acceptable prices.

However, when producers hike prices, they have to guarantee it is the same everywhere in the market, from retail shops to supermarkets, she said.

If retailers think suppliers are seeking to increase prices unreasonably, it is legitimate for them to refuse, she added.

“But a single supermarket cannot pressure producers,” Hai from Citimart said.

“They can still sell to other supermarkets and retailers.

“There should be an organization to create a stronger voice for supermarkets; for instance, an association of supermarkets or retailers.”

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Big C Supermarket has announced to successfully negotiate prices with the suppliers of 90 out of more than 100 items sold at the supermarkets so that they will continue to be supplied sufficiently.

The suppliers have agreed to raise prices gradually and reduce the price increase range so that it will not shock consumers, said Duong Thi Quynh Trang, external relations director of Big C. – Tuoitre

Posted by VBN on May 6 2011. Filed under Retail. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry