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The comments of InfoMarket agency

Supermarkets will have to learn how to make the money: they will no longer be able to sell their shopping areas and live at the expense of manufacturers. It was said by the Director of the largest food companies in Moldova in an interview to InfoMarket agency, commenting the changes to the law on local trade, effective on January 1st, 2017.

The owners of retail networks united against changes in the law. They reached the government and ask for the elimination or at least delay of new rules with subsequent latitudes and they also applied to print press. This is why we do not call a single name of a supplier or manufacturer, who expressed their backing for the new changes. Angry networkers can boycott products of active defenders of the new law on domestic trade, if desired. But almost all the local producers from dairy, meat and fish industries are fully encouraging the innovations.

What, in fact, has changed? Firstly, the shops are forbidden to collect any payments from producers. Secondly, the shops are forbidden to return unsold goods to manufacturers, all unsold goods should dispose at the expense of shops. Third, the maximum period of payments settlement between suppliers and sellers has been reduced from 90 to 30 days from January 1st, 2017.

It all started in 2002-2003, when Moldova has come a large foreign trade network. They explained to the entire retail segment of Moldova how to “work” with suppliers and set an example. If you are a manufacturer or supplier and you want to be present at the sellers’ network, then pay an entrance fee, pay for shelf your item posted, pay for participation in the catalog and marketing promotion, the products are delivered with an additional discount on wholesale prices (that is, give bonuses to the store) and finally additional discounts at the end of the year on the volume of goods sold.

Here is an exclusive data from the agreements between stores and suppliers recently published in “Economic Review” journal: “The size of a discount from the basic price of the supplier (it is a bonus) from 3% to 8% with each delivery; the percentage of pre-sales services – 5%; marketing contributions – 0.5-2% of annual sales and 160 euro up to 4000 lei for each promotional campaign, entrance fees to the new store 2000 to 5000 lei for each heading, fee for entry into a shop of the new brand from 400 lei, the fee for the space on shelves of 50 euros. “

The most important is everything that the store did not sell, it could return to the supplier, or rather the supplier itself provided the disposure of their unsold goods. The store did not give any guarantees to suppliers and manufacturers that all the provided goods will be sold. The stores ordered many products, as placed on the shelves, but not as much as you can actually sell. There are no risks for the retail sector, all that is not sold, the suppliers must take back. There was always an abundance of goods clogged the shelves and beautiful display-windows in large shopping networks. This “beauty” paying by suppliers. Suppliers and manufacturers became powerless and voiceless “sheep” who are constantly “sheared” over the past 15 years.

Until now, the standard delay of payment for the sold products was 60-90 days (the period reached up to 1 year for some products, with a long shelf life). The stores credited from suppliers: decorations for display-windows, built new stores, etc. The contracts are often prescribed that the conditions may change during the year depending on the economic situation. Moreover, a retailer could “hide” the competitive brands on the shelf on purpose. If the supplier did not like it, he could do nothing, except to quit partnership with retailer. It was the principle of “cooperation” between suppliers and sellers, which operated until 2017.

Speaking of stores, they are large supermarkets and shopping networks. Speaking about the suppliers and manufacturers, we mean food supplies.

MAF shops (minor architectural forms) really know how to calculate the volume of goods, they buy as much products as they can sell. They learned long ago how to make calculations based on the actual demand of consumers. That is why such small shops always have the freshest products. A small shop with a small volume of sales cannot afford to dictate terms to the supplier, the possible loss of small shop is not critical for a supplier. It cannot be said about the large shopping networks. The major stores have to learn now how to count and guarantee the sale of the suppliers’ products, albeit in smaller amounts.

Independent experts say that the amendments to the law will be beneficial to local food manufacturers, it will give impetus to their development. Yes, probably, it will increase the cost of additional supplies of products in shops, but now the number of supplies may increase several times. It is definitely cheaper for manufacturers and suppliers rather than freeze their money on the beautiful supermarket shelves, providing shops with flourishing display-windows, then dispose their unsold products, putting additional losses on themselves.

There is another aspect of the returning products practice. Anyone who is even slightly versed in accounting, is well aware that it is a great opportunity to evade taxes. This so-called unreported “gray zone”, where is often used cash rotation. Some returns of the products were not less than 20% of the initial delivery, the enterprise-manufacturer blew return products to re-production without a corresponding tax, which could be used for purchasing quality raw materials.

It would be wrong to assert that changes in the law apply only to relations between economic agents. It is directly related to consumers as well. Producers receiving returned products from the shops, were forced to use again the expired products in order to minimize losses. They made different sausages out of expired sausages, cheaper and lower quality; lower-quality dairy products out of expired dairy products, cheap bread out of expensive unsold bread. Thus, the quality suffers greatly affecting the final products in stores. Now consumers have more guarantees that the products are made from high quality raw materials, not of expired products. After all, the manufacturers simply will not have expired products and nothing will be re-processed.

It was prohibited by law in many countries to take advantage of manufacturers; maximum prices for the seller to get the goods from manufacturers were set in some countries. The law on local trade in Moldova, in fact, has been amended to take account of the recommendations prescribed in European directives. Moldova has long been adjusting all its legislation according to the EU practice.

Regarding to major retail stores, they currently have to comply with the new rules. Practice shows that any law adopted in accordance with the European directives will not be canceled by the Parliament even if it is not a benefit for the country, because foreign partners of Moldova will not understand a cancellation of the law. These changes in the law would “harm” only large supermarkets and shopping networks, which are in fact trading areas and did not give any guarantees to manufacturers that their products will be sold. In addition, the supplier of food products will be paid within 30 days now, the manufacturers will no longer lend to the stores, they also will be able to direct more resources to their own producton development.

Most of the annual supplies contracts will be renegotiated in January. All contracts must be signed by February, in accordance with the new legislation. We can expect the stores making compliance with the new contracts and current legislation in February.

On the one hand, the retail network has teamed and continue to fight for changes in the law, on the other hand it is already looking for a replacement of prohibited bonuses. Some economic agents came up to include in the contract the supplementary levy to the supplier 15% for “lost profits.” Some decide to return unsold goods to the supplier under the pretext that the packaging is not in good condition. Retail network is looking for a way to compensate its losses; the stores can make some benefit out of those tricks but hardly to the amounts existed at the end of last year. The new law provision on local trade came into force on January 1st and stores already have to comply with it.