Retail Industry sees Interesting Developments after 2010
Competition Act
KUALA LUMPUR, May 5 (Bernama) -- When the Malaysian Competition Act
2010 was gazetted on June 10 last year, it was aimed at providing a legal
framework for curtailing anti-competitive practices in the country.
And this applied to any commercial activity within Malaysia, except
for those performed by the energy, communications and multimedia sectors.
The significance of the Competition Act is that, it promotes a
competitive market environment while providing a level playing field for all
players, so that this process can eliminate anti-competitive practices, such as
cartels and collusions.
But recent media reports revealed that several retail groups,
including some major consumer products suppliers, have applied to the Malaysian
Competition Commission (MyCC) to be exempted from complying with the Act.
MyCC chief executive officer Shila Doraj Raj and the panel of
regulators will certainly have a tough time deciding.
Malaysia's retail industry is dominated by several chains of
hypermarkets and supermarkets. These modern trading outlets contribute about
50-55 per cent of the total local retail industry.
The traditional trade, including small sundry shops, do have a large
representation as evident from the number of outlets spread throughout the
country, and still contribute about 40 per cent of the business while the fast
growing convenience stores account for the balance.
The question is: how do you implement the Competition Act on these
retail outlets?
It is a known fact that modern hypermarkets and supermarkets like
Giant, which have about 120 outlets nationwide, contribute about 15 per cent of
the total retail business.
Tesco, with about 50 outlets, also contributes about the same
volume of the total industry. The other big players include Carrefour and AEON.
These stores are known to be tough negotiators as they ask for
several forms of incentives from suppliers (including product listing fees,
space and shelving fees, promotional allowances, discounts, etc).
Under normal circumstances, most suppliers will bow to these big
chains, since these outlets guarantee them the volume they want.
In the end, the suppliers will surrender up to 20-30 per cent
discounts above their normal trading margins, and the chain store outlets will
use it to lower their selling prices to consumers. So it is good news for these
stores.
While the suppliers are not so happy in giving out the discounts,
they will welcome the volume.
Meanwhile, the independent traditional sundry shops, although big in
number, have no muscle to negotiate for such discounts.
They end up buying their supplies at higher prices. The normal
arguments are always volume versus the cost of doing business versus buying
price.
The Competition Act does not allow anti-competitive practices but
how does one address the issue of big chain hypermarkets and supermarkets
versus the smaller traditional sundry shops?
At the other end of the equation, big suppliers like Nestle,
Proctor & Gamble, Coca-Cola, Unilever and many other multinational
companies, dominate the market share of several products. These companies are
also known to use their might to push their products into retail outlets.
Whenever they launch a new product, they will use their existing
major products to sell-in the new products, which the outlets (including
hypermarkets and supermarkets) are sometimes forced to buy.
The "big boys" also sign long-term agreements, which
provides a guarantee of shelve space, volume, promotional items, and new
product launches, to name a few.
Small suppliers, including local SMEs, always end up giving more
discounts to the big chains as they do not have bargaining power.
Source : Malaysian Reserve
Date : 7 May 2012
afternoon highlight (07/05/12/082/556)
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