Retail Marketing

GCC Supermarket Retailers - It is time to rethink your unfair trade practices !!

For a market of its size, the GCC is unique in the sense that a vast majority of the popular Consumer Goods and F&B Brands that are found on the shelves are of foreign origin and there are few "home grown" brands that have become successful. This is in contrast to most other markets where the majority of brands will be home grown or manufactured locally / nationally. This is not a comment on the manufacturing sector of the GCC, but probably due a to a variety of socio economic factors and demographics, with the huge proportion of Expatriate work force in this region, who tend to prefer brands from their home countries. With most of the brands having their origins outside the GCC, the brand owners typically rely upon a Distributor to manage their operations in the region or country they are assigned to. Here, it is important to understand that in the GCC, the Distributor is not just a Logistics provider as is the case in most other countries. With the Brand owner based far away and having a limited knowledge and access to the GCC Market, the Distributor functions as a true partner and an extended arm of the Brand owner. This is a crucial difference which many brand owners fail to understand !

Given the important value addition and role that the Distributor plays in the GCC Retail market, it is important for both the brand owner as well as the Retailer to recognize this important role and support them. But does this happen in practise ? In reality, the Retail landscape in the GCC has, over the last ten years, become so restrictive and difficult to operate that it is starting to have serious implications for the consumers too, in terms of the variety, quality and price of the products and brands they would like to see on the shelves. At the risk of sounding too harsh, I would venture to opine that it is greed that drives most retailers in the GCC now, with little thought on offering a variety of product offerings and brands that their consumers may be looking for.

The first unfair practise is the Listing Fees which has now reached extortionate levels ! Even small groceries have started to levy this and the bigger hypermarkets couch this in terms such as "Range Management Fees" , whatever that is supposed to mean. This epidemic has reached such a level that introducing a new brand or even one single sku or bar code to the UAE market costs about $45000! There is no escape even if the Listing Fees has been paid once - if for some reason the Distributor is changed and a new one takes over, this has to be paid all over again, albeit couched in another term called "Vendor Change" Fees ! This extortionate attitude on part of the GCC Retailers is the one single reason why consumers in the GCC will not have access to many exciting brands and products and why GCC will always lag the rest of the world in terms of product trends.

The extortion does not stop there - there is further pressure on the margins of the Brand owner and Distributor in the form of "Rebates" - which is another form of extortion on part of the Retailers. The Rebates or Discounts demanded by some of the bigger Hypermarkets average about 15 - 18 % ! Each year, the Rebates go up by an average of 1 % ! The smaller Retailers have also gotten into the act now looking at the "easy money" available ! The end result of this is the brand budgets go up higher and higher each year to service these rebates and little investment goes into the brand or activities that benefit the consumers. Ideally, this investment should have gone into the brand and brand promotion activities which would have benefited consumers in terms of value added offers and promotions.

Some, if not all, Retailers have started treating their premises akin to a Real Estate businesses wherein every available inch is sold to the highest bidder ! Merely paying listing fees does not guarantee you visibility with the Retailer - for that, you will have to hire shelf space at exorbitant levels, the going rate at major hypermarkets for one meter space being $300 per month ! There is little thought given to category management or analysis done on which brands consumers prefer - instead shelf space is sold in a very similar way to real estate with the highest bidder occupying the maximum space irrespective of whether the product gets sold or not !!

I have listed only three of the major unfair trade practices - there are in fact many more, all of which is starting to have a negative effect on the right of the GCC Consumers to have access to the best products and brands. It is time the regulatory authorities take cognizance of this issue and start clamping down on these unfair trade practices or at least regulate this industry to ensure that GCC Consumers continue to enjoy access to the best brands and products from around the world !