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Power imbalance

Released at: 08:11, 28/07/2014

Power imbalance

Most seafood producers are in an inferior position when negotiating prices and other issues with supermarkets.

by Anh Ngoc

    Given that Vietnamese spend some 70 per cent of their income on consumption, according to the Association of Vietnam Retailers (AVR), local consumers are major drivers of the development of the country’s retail industry and retail market. With export markets being increasingly subject to technical and commercial barriers, boosting domestic consumption, especially via supermarkets, represents an effective measure for domestic seafood companies to grow into the future. The problem for individual enterprises, however, is that large supermarkets like Metro and Big C have thousands of potential suppliers of seafood products to choose and tend to only cooperate with a limited number. And this cooperation is very much weighted in the supermarkets’ favour, as their position allows them to call for discounts from suppliers and insert cumbersome specified and unspecified “costs” into their purchasing agreements.

    Many seafood processing enterprises supplying products to domestic market are members of the Domestic Products Club under the Vietnam Association of Seafood Exporters and Producers (VASEP). Many large supermarkets, they claim, especially foreign giants such as Metro and Big C, have recently sent new purchasing agreements to suppliers that include the provision of discounts to the tune 2 - 3 per cent per year at least and as much as 5 - 15 per cent in some cases. Some of these discounts are tied to sales volumes. For example, sales of level one was VND1 billion ($47,619) in 2013, this supermarket proposed that it will receive a discount rate of 1.5 per cent if its sales reaches VND8.5 billion ($404,761) in 2014. Similarly, if its sales reach VND9.5 billion ($452,381), the discount rate will be 2 per cent over the previous sales of VND11 billion ($523,810), respectively, in its 2013 contracts.

    Suppliers are also requested to provide financial support to activities such as consumer festivals, retailers’ birthdays, and the opening of new supermarket, among others, and have to outlay on other costs such as fees for collecting orders and monthly fees for customer loyalty programs, which they believe should be paid by the retailers.

    Mr Vu Vinh Phu, Chairman of the Hanoi Supermarket Association (HAS), said that suppliers are often bullied by large supermarkets but small supermarkets are often bullied by suppliers. He added, however, that it is difficult to determine whether large supermarkets are making unreasonable demands on suppliers, but believes that a reasonable discount for supermarkets would be in the range of 15 - 17 per cent.

    A representative from Metro Cash and Carry Vietnam, meanwhile, said that at the moment it is not negotiating any purchasing agreements. It’s also impossible to say that Metro is imposing prices upon suppliers, as prices are openly negotiated. Purchasing agreements are only signed if both sides are happy with the terms.

    According to a representative from a seafood company in the Mekong Delta’s Dong Thap province, negotiations between supplier and retailers are often combative, with the one holding the dominant negotiating positing coming out on top. If retailers are reluctant to stock a particular product on their shelves or have a range of suppliers to choose from, suppliers will have to relent on price or other terms to secure a contract. Conversely, if the products of suppliers are popular among consumers they are better placed to lay down their own requirements to retailers. There are many supplies who seek top dollar for their products and even withdraw their products if they have a dispute with retailers. In order to become the dominant player in negotiations, according to the representative, enterprises need to create unique, high-quality products. “These will attract consumers and become an ace up the sleeve for enterprises when negotiating with retailers,” he said.

    Mr Phu added that a number of large supermarkets have not joined HAS, so it’s impossible to advise them on how to act reasonably. The most important thing at this time is to strengthen the role of associations, which can be a clear voice in protecting and asserting members’ rights.

    Retailers and producers, of course, both seek the highest profit possible and the requirements they set down on prices and other issues are perfectly natural and understandable. Retailers need suppliers and suppliers need retailers, so coming to purchasing contract terms that are acceptable to both is the obvious goal. And they should not forget about what is in the best interest of consumers.

According to the UN Food and Agriculture Organisation (FAO), seafood consumption in Vietnam was 19.4 kg/per person in 1999, 22 kg in 2007, 20 kg in 2009, and around 26.4 kg in 2010. The Vietnam Institute of Fisheries and Economic Planning (VIFEP), under the Directorate of Fisheries, forecast that domestic consumption of seafood will total 790,000 tons in 2015.


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