High foreign discounts cut local profit
Local producers are protesting against the discount rates afforded to foreign retailers, as it is taking a big bite out of manufacturer’s profits.
Recently, the Vietnam Association of Seafood Exporters and Producers (VASEP) filed documents with Big C Vietnam proposing that the Thai-owned retailer lower the discount rate for VASEP members.
From March to April this year, several retailers issued notice of a discount rate increase to seafood producers.
“The highest rising margin was set by Big C Vietnam-the distribution company operating 32 outlets across the country, at 4.25% to 5.5%. This is unbearable for the suppliers”, VASEP deputy chairman Nguyen Hoai Nam told VIR.
The association estimates that its members are being charged 17%-20% on average, with the lowest rate at 15% and highest at 25%.
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Local retailers propose a much smaller margin of increase. For example, the Saigon Co-opmart hike was only 1% on average.
VASEP members believe that the main reason behind the increase stems from the recent merger and acquisition activities of many big retail players, which challenges their human and marketing management.
Big C’s chain of supermarkets is the latest with its announced transfer to the Thai giant Central Group, from the French Casino Group.
As many find the current discount rate too high to make any profit, some suppliers have requested that Big C lower it by 15% or less. To date, they have yet to receive a response from the distributor.
Many suppliers are said to have ceased trading with Big C due to the recent tough policies.
Nguyen Anh Tuan, director of a Ho Chi Minh City-based company, specializing in the production of fish sauce and canned foods, told VIR that “Besides the high discount rates, Big C applied additional fees, for example, customer discount fees, and establishment celebration fees, among many others”.
Tuan said that the total cost of his firm rose to 25% of its revenue from the 10%-15% level two years ago, when he first signed contracts with Big C, forcing him to withdraw his goods from the distribution system.
Earlier, the Ho Chi Minh City Union of Business Association (HUBA), sent proposals to Prime Minister Nguyen Xuan Phuc on the same issue.
“Extremely high discount rates charged by foreign retailers are barriers to local producers selling their products through these outlets”, stated HUBA chairman Huynh Van Minh.
HUBA estimates that over 50% of the modern retail market (with distribution via supermarkets) has been acquired by foreign firms.
The association is also urging authorities to come up with measures to support local producers.
Given that the import tariff levied on various Japanese and Thai goods has been reduced to 0% since April 2015 and January 2016, respectively, the cost of imports has significantly dropped.
Big C Vietnam, however, assures that 90-95% of goods sold are still supplied by Vietnamese producers.
Government authorities said they would not intervene unless suppliers have evidence of foreign retailers’ discrimination against particular products.
“Selling contracts are based on the market principle of price and demand, it’s not a problem,” said the Ministry of Industry and Trade’s head of Domestic Market Department Vo Van Quyen.
