Rice packers fighting for fairer deals
with big retailers
[Background on Retail and Wholesale Business Law (Thailand)][Site: Regoverning Markets: Small-scale producers in modern agrifood markets]
[Case Study: Chiang Mai Vegetable Supplier]
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Small businessmen I know in Chiang Rai used to express their frustration to me. They have no problem producing and packaging their tea product, they just can't distribute it. Sure they can get their product into small stores, but the shelves of superstores and convenience store chains are restricted to them.
Sometimes they have to pay millions of baht to get just to get their products on the shelves.
Of course the companies that do get their products on the shelves do very well indeed, but the ones that don't, they just disappear and the industry gets smaller and smaller, the competition less and less. More reasonable entry fees might allow more competition and more innovation, especially by small companies just starting out.
Protection for smaller local retailers from inroads by large European retailers such as Lotus and Carrefour is a big issue nowadays in Thailand's retail sector. Less competition in some industries when large retailers take a dominant position in the industry, like the packaged rice industry, is also an issue, just not talked about as much. That's what today's article is about:
Thailand's packaged rice market has decreased from 100 to about 20 companies in recent years. The business practices of large retailers have been an important factor in this decline.Excessive entry fees that must be paid to large retailers before a new brand of packaged rice is put on store shelves has been blamed. The fees range from 500,000 to one million baht. Rice packers are at a disadvantage compared to house brands produced by the retailer that don't have to pay these huge fees. Another problem is the excessively long period of time that retailers take to settle bills with rice packers.
The Thai Rice Packers Association has been active in taking action on these issues. Yesterday a meeting was held on the issue between rice packers, large retailers, and the Internal Trade Department of the Thai government. 7-Eleven was the only retailer to show up at the meeting. The meeting did agree that 3,000 was a more reasonable entry fee to place a new product in a new retail branch. Settling bills and paying rice packers within 30-60 days rather than the current 70-80 days was also proposed.
Tesco objected that it has no problems with its 15 rice suppliers. This does not really address the issue though, since the issue is high entry fees that limit the number of packers that can sell their products on store shelves. Exclusive rights to sell products on the shelves of large retailers have been very profitable for some with businesses growing as much as 300%.
High entry fees and difficulty of entry onto retail shelves is likely an issue with other small-scale producers of retail products such as tea in Chiang Rai, for instance.
(Source: Bangkok Post, Business, 21-11-07, temp-link)
Vocabulary:
retail - selling goods directly to the public in small quantities
retailer - a company involved in the retailing business
frustration - disappointment from failing after trying
distribute - getting products into stores that people will buy it from
convenience store - a small roadside store open at all hours like 7-11
a chain - a store that has many branches in different places
inroads - entering a new area that belongs to someone else
excessive - too much
at a disadvantage - lacking equal opportunity, have problems that others don't have
settle bills - pay bills
objected - disagree
address the issue - solve the problem, deal with the issue
scale - how comparatively large something is
