21 February 2019

Wonder why suppliers are deserting supermarket shelves?

China Central Television on Tuesday aired an investigative report about shady practices in the domestic retail industry.

Supermarkets generally make more money off suppliers than consumers. That partly explains, in a roundabout way, why China’s B2C (business-to-consumer) market has been gaining a lot of traction lately.

Retailers can get as much as half of their profit from suppliers by charging them for carrying their products and leveraging their bargaining power to gain concessions such as a longer repayment period for their supplies.

In some cases, the profit ratio could be much as 70 percent, according to research on some listed companies.

CCTV cited the case of Gold Tiantan, a former supplier of Wumart Stores (01025.HK). The state broadcaster reported that Tiantan made 1.13 million yuan (US$185,730) in sales through Wumart but ended up worse off after the retailer charged various fees which came to 1.28 million yuan.

Wumart charges a minimum carrying fee of 150,000 yuan for each merchandise plus a 25 percent commission on sales, the report said. There are other miscellaneous fees under various pretexts.

The report has sent chills up the spines of other suppliers which rely on supermarkets to push their products out to consumers.

But things could change for the better, thanks to online shopping.

For instance, Alibaba’s Tmall, the country’s number one B2C player, has a straightforward fee structure for its suppliers.

Merchants are required to make a 100,000 yuan refundable deposit and are charged an annual pay-to-stay fee of 60,000 yuan which can be returned if sales targets are achieved.

The only non-refundable charge is a technical service fee but that is merely 2 percent of the selling price of a product.

Does anyone even wonder why a growing number of suppliers are deserting store shelves and showing up online?

– Contact the writer at [email protected]


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