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Monday, March 19, 2018

“The economic crisis has exacerbated the conflict between manufacturers and trading networks”

Trading networks are trying to increase their profits at the expense of the manufacturer, who is often forced to pass the costs on to consumers, reducing product quality and resorting to fraudulent tricks. In connection with the fall in sales caused by the crisis, this conflict escalated dramatically, and buyers risk to suffer.

In the published forecast for 2016 the audit chamber has calculated that Russia faces a deficit of meat and dairy products. Among the reasons for such gloomy prospects experts believe that the weakness of the technical and raw material bases in Russia, as well as the decline in consumer demand. A way out of this cognitive dissonance is hard to find, because the supply will provoke the growth of prices and the purchasing power of many Russians already scarce. Moreover, the attempt to contain inflation leads during implementation to unexpected consequences. The fact that many Russian producers (particularly in regions) lack of competent and legally, and economically. And in the mechanism of their interaction with large retail chains dominating the retail market, it can run complex but devastating cascade of reactions.

“Interestingly, almost all large retail chains, developing its activity on the territory of Russia registered abroad”

World history of hypermarkets has more than half a century, but in Russia it is a relatively new phenomenon: the first “monsters of retail trade” appeared only in the late nineties. Not at first enjoyed the special confidence of wholesalers and manufacturers, over time, they have won a solid reputation having cleared the market of many small competitors. The scale of the networks do not affect their strategic agility: all the major players in this market are well-versed in the conditions and the first to recognize trends. Today, they are concerned about competitors on the Internet, the world economic situation and declining purchasing power of the population in which the most relevant steel network discounters. Discount in today’s economic realities is becoming the most important competitive advantage, but the principle of discounting should be – not “cheap products”, and “cheaper than all” that in practice is implemented mainly by the manufacturer.

Manufacturers and representatives of trading networks to each other a lot of claims. Although signed in 2012, the Code of good practice, retailers continue to complain about poor quality products and weak legal literacy providers, and manufacturers – on the extortionate terms of “input” to the network. “Login” as a rule, hammered in the price list as “additional services”. Also, the manufacturer pays for marketing campaign, logistics, counter space, promotions and much more. Besides, a special vintage bonus (a percentage of sales, which the manufacturer will return to the network, according to the law it should not exceed 10%) and fines that the supplier is virtually guaranteed.

And most importantly, network representatives initially sought to lower the cost of production as low as possible. Negotiations often last for several stages, so much so that exhausted by a protracted process suppliers eventually sign obviously unprofitable conditions for at least a year, because at the time the contracts almost never are. And the larger the network, the larger should be the caliber of the manufacturer (and its budget). And turning to the next network (if we can negotiate acceptable terms for the first) will need to consider that contract prices should not be higher than the competitor. Network giants constantly monitor the prices of each other, so to get around this point will be difficult. And careless approach could be that the more product sold, the higher the losses of the manufacturer.


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