New report encourages supermarkets to allow easier access for new suppliers
A new report calls for a review of restrictive supermarket practices that may stop new small and medium suppliers find their way onto the shelves of the big outlets.
Under the title ‘How big supermarket chains in southern Africa keep out small suppliers’ , moneyweb/co.za warns the industry needs more sustainable measures to increase participation of emerging suppliers.
“Efficient supermarket suppliers with competitively priced, high-quality products are unlikely to succeed if they can’t get their products to consumers,” it says.
“Here, large supermarkets play a key role. Onerous requirements and exertion of buyer power by large supermarket chains can result in small- and medium-sized suppliers and entrepreneurs failing to enter and participate in the economy.”
It concludes that successfully developing supplier capabilities in the region requires a much larger, long-term and commercially oriented approach by supermarkets in partnership with governments. This can be done through the creation of supplier development funds similar to the Massmart/Walmart programme. Funding can also come from fines levied by the competition authorities in abuse of dominance or cartel matters in each country.
Moneyweb examined the obstacles to accessing shelf space in supermarkets in Botswana, South Africa, Zambia and Zimbabwe. The research revealed a range of costs that suppliers incur even before a single unit of their product is sold off supermarket shelves in each country.
It said: “The formal South African supermarket industry is concentrated, with only a handful of large chains holding more than 70 per cent of the national market share. South African supermarket chains also have a strong and growing presence in each of the other countries assessed, although recent years have seen the emergence of other African and global chains too.
“Fees can be prohibitive for small suppliers. Estimates of listing fees in South Africa range from US$350 to $3,500 per year for a single product line of a basic food item on the shelf. They can go as high as $17,000 to $20,000 for prime till positions for products like sweets and lollipops for a limited time period.”
In Zimbabwe, listing fees can be up to $2,500 per product line, with $50 to $100 for the introduction of additional new product lines by the same supplier.”
Suppliers are also often required to offer supermarkets settlement discounts for paying them within the number of days stipulated in the trading terms. This varies depending on the supplier.
Long payment periods put considerable pressure on suppliers’ cash flow and working capital which is problematic particularly for small suppliers. Local suppliers in Zambia raised this as a key reason for non-participation in supermarket value chains although it was a concern in all the countries studied.
The report was prepared by Reena das Nair, Senior Researcher, Centre for Competition, Regulation and Economic Development, University of Johannesburg
