To producers, be they Romanian or international, presence on supermarket and hypermarket shelves is becoming crucial as foreign retail chains get more than half of the daily food and consumer goods budget of Romanian consumers. Moreover, they continue to develop their business, while producers have limited options available.
“We have two options when it comes to modern retail: accept we won’t be making any profit and continue in the red but be on the shelves or not be there,” says a local entrepreneur, who owns a food business and wishes to remain anonymous.
The ‘taxes’ retailers charge to a put a producer on their shelves include: slotting fee, promotion budget or anniversary fee, producers say. The discount a retailer demands – safe in the knowledge that if a producer will not agree they can find another, amounts to 20% to 40%, says a food industry entrepreneur.
“If you will not pay those fees or discounts, the retailer won’t place an order with you and you get stuck with your products. No retailer commits to orders of a specific amount. They say volumes will be set by customer demand. If you don’t pay, you may find yourself completely removed from their shelves and there’s nothing you can do about it,” a food industry executive said.
Retailers do not care about market conditions, about raw material price trend or about the situation producers are in, they only pay attention to their battle with their rivals, which is mainly fought over prices, suppliers say.
Such sources only reveal information on condition that they not be named; the battle of retailers and producers is one of the taboo subjects on the market and the fees retailers demand from suppliers are one of the best-kept secrets of retail industry.
The battle of foreign retailers and producers is becoming fiercer and the latter say they are giving more and more ground to stay in the game. Retail chains can afford to drop one supplier, market leader or not, while to a supplier, the impact of a removal from the store shelves of a single network can be crucial. No access to the shelves of the two major retailers in Romania, Kaufland and Carrefour, means no access to almost 20% of the money Romanian consumers spend in grocery retail stores.
A recent ‘war’ is Kaufland and L’Oreal’s, as the former removed the latter’s products from its store shelves. This is not the first such move Kaufland has made. Last year ZF reported that Coca-Cola products, except the 2.5 liter bottles, were no longer available in Kaufland stores and valued the contract at tens of millions of euros.
Kaufland’s decision to stop carrying L’Oreal products was an international decision due to the failure of the two parties to reach an agreement on a contract, market sources told ZF. Kaufland is the leading retailer in Romania, while L’Oreal is the second leading cosmetics business in the country.
Modern retail started to develop in Romania with the arrival of Metro Cash & Carry in 1996. Nineteen years later, the twelve foreign chains in business have more than 1,500 stores and their sales stood at about 39 billion lei (about EUR8.8 billion) or 54% of the local retail sector last year.
“Traditional retail continues to account for more than 40% of the retail sector in Romania, so it still has critical mass and generates significant revenue for producers and importers in Romania,” says Bogdan Belciu, partner, management consulting with PwC Romania.
“Although distribution to traditional retail is costlier and more complex, margins are often higher than in modern retail, because of the significantly lower bargaining power of traditional retailers.”
More and more producers have repeatedly said traditional retailers should continue to exist in Romania.
(English version by Loredana Fratila-Cristescu)