Mark-ups in Russian multiples under scrutiny by antitrust authorities

April 7, 2009 16:17

The total increment of all the mark-ups and charges added by Russian retail chains to the goods' end price ranges from 20% to 60% in Saint Petersburg, reports ( with reference to RBC.

Such conclusion has been made by Russia's Federal Antimonopoly Service after studying the practice of trade chains' payments to product suppliers (namely, dairy products, bakery products, meat, sausages, fish, groceries such cereals, pasta, etc., juices and drinks) in Saint Petersburg.

More specifically, the Service has checked at least 40 contracts with suppliers of such chains as Pyaterochka (OAO Agrotorg), O'Key (OOO O'Key), Diksi (ZAO Diksi-Peterburg) and Lenta (OOO Lenta) all together occupying ca.60% of the city's retail food market, besides the Service has sent enquiries to another 16 suppliers for the sake of counter checks. The Federal Antimonopoly Service has also analyzed contracts of trade chains with producers and suppliers starting from 2005 to the first half of 2008.

The analysis has revealed that though the minimum level of retail mark-ups amounts to 10-15% most of the goods have been sold at a 30-40% mark-up.

The Service has come to a conclusion that the retail price is formed not only from the production costs and the mark-ups at the distribution levels (mark-ups of producer, distributor and retailer), but mostly from the supplier costs connected with the extra payments to the retail chains, costs associated with delays of payment by retail chains.

In particular, the share of extra payments (bonuses, fines, marketing services, etc.) of the supplier to the retail chains fluctuates from 5% to 40% of the volume of goods sold to the chain. For instance, while in 2005 bonus payments of responding groceries suppliers to the Pyaterochka chain amounted to 1.93% of the supplied volumes, in 2008 they rose to 22.75% and in 2009 as compared to 2008 they jumped by another 50-70%. Besides, according to the Service, if the delay of payment for sold-out products for all retail chains in 2005 averaged 21-25 bank days, in 2008 it was extended to 45-50 days sometimes even reaching 65 days.

The Service is sure that discriminating conditions are incorporated into contracts with most of the suppliers regardless of the size of the supplier and the level of the trademark (local, transnational). When cooperating with the suppliers all the chains use two mechanisms capable of influencing the level of competitiveness on the market sector under analysis. The above mentioned two mechanisms are financial (bonuses and awards, payment for marketing services, fines, guaranteed margins) and administrative including the instruments aimed at leveling out the risks for the chains (return of unsold products, etc.), the Service says in its report.

Thus, Russia's Federal Antimonopoly Service says it has collected new proof of unfair practices of the retail chains which has resulted into increased end prices for food products. While the suppliers rely on the working capital borrowed from the bank, they actually also have to give credit to the retail chains, says the Service.

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