The “soft power” of supermarkets

Mar 21st at 13:14

21-03-2013 13:14:30+07:00

Displaying goods at supermarkets is the quickest way for manufacturers to develop their brands and expand the distribution networks. However, it’s not easy to squeeze into supermarkets where the space for product display is limited.

Though understanding that doing the outsourcing for supermarkets would put big difficulties for their own brands, manufacturers still have to “leap in the dark.” If they make products for supermarkets’ private brands, they would be able to enjoy some advantages. And if they don’t, they would not be able to display their products at supermarkets, or have to bear very high fees to put their products on the shelves there.

The owner of a garment company who asked to be anonymous, related that she once refused to make products for a supermarket. The distributor later outsourced to another garment company and sold the products at the prices 15-20 percent lower than her company’s prices.

The supermarket also became uncooperative by displaying her company’s products at disadvantageous positions. This then led to the sharp fall of the company’s sales.

Due to the sharp fall in the sales, the company had to take back its products from the supermarkets. She was told that if she accepted to make products for the supermarket, her company would be required the discount of 10 percent instead of 30 percent, and the company’s products would be displayed at good positions.

A senior executive of SG Food also said its products were once displayed at disadvantageous positions, but since the day SG Food accepted to do the outsourcing for supermarkets, it has got a lot of preferences.

Making products for supermarkets is not the thing manufacturers want, but this is really a profitable choice.

Dish washing liquid, detergent products that bear supermarkets’ private brands such as Co-op Mart, Big C or Metro have been recently made by Lix Company. With the big orders from the distributors who pay money on deliveries, Lix has been earning big money and living well. However, analysts have noted that the products bearing Lix brand have gradually disappeared from the shelves of the supermarkets.

“Supermarkets’ products with private names don’t compete directly with the company’s products. However, if enterprises focus on making products for supermarkets, they would eliminate their products from the supermarkets themselves,” said Le Thanh Lam, Deputy General Director of SG Food, explaining that with the limited area for displaying goods, supermarkets would reserve space for their products instead of other manufacturers’ products.

Therefore, Lam said, SG Food has reduced the outsourcing proportion from 65 percent to 50 percent.

The general director of a chocolate company in district 1 in HCM City, said it is very difficult to have somewhere to display goods at supermarkets.

The director refused to make products for the supermarkets; therefore, he has to pay high fees to put his goods on the shelves there. Metro, for example, has 19 supermarkets throughout the country, and each of which has its own birthday. In general, his company has to pay VND20 million for every birthday.

The director has revealed that he has to pay VND120 million a year in fees. If noting that every supermarket has 5.000 suppliers, the supermarket can then collect VND600 billion from fees. As such, the fees alone allow them to live well.