I believe many distributors have encountered bully contracts when cooperating with hypermarkets, and this situation mostly occurs in hypermarkets with good sales performance. Faced with such bully contracts, most distributors feel helpless. Once such a contract is established, the hypermarket becomes a "chicken rib" in the distributor's business—no meat to eat, but a pity to throw away. If they do business, there's little profit; if they don't, they lose a market. It's a love-hate relationship, unable to let go.
Why do I say this? Because as mentioned earlier, hypermarkets that impose bully contracts are usually those with good sales performance. Such hypermarkets can create attractive sales figures for distributors. At the same time, due to the large foot traffic in hypermarkets, the display of products creates a sensory brand effect for customers, which is also a form of invisible advertising. Furthermore, hypermarkets have centralized delivery times and locations, and unified procurement, which saves distributors logistics and labor costs, greatly improving their profit margins. It can be said that whether from operational costs or from manufacturer rebates brought by sales performance, such hypermarkets hold a pivotal position.
Hypermarkets are well aware of their importance to distributors and know that distributors will not easily give up this market, so they unhesitatingly propose bully clauses in contracts.
The signing of new contracts is a concentrated and clear exposure point of bully clauses. To some extent, the contract determines the distributor's overall income during the cooperation period. Perhaps it is a seemingly insignificant 1% or even 0.5% deduction point in the contract that decides whether the distributor ends the year with a profit or loss. However, the bully contracts of hypermarkets are not limited to new contracts; promotional agreements, new product agreements, and sponsorship agreements in later cooperation can also contain bully clauses.
Most distributors, when facing bully contracts, tend to make concessions repeatedly to meet the hypermarket's demands, fearing it might affect performance or future cooperation. Little do they know that it is precisely this attitude of concession and compromise adopted by most suppliers that encourages the hypermarket to repeatedly raise more demanding requirements, leading to multiple bully contracts during cooperation and ultimately leaving suppliers with no profit.
The author has a friend who is a distributor, running a small trading company, supplying a globally renowned hypermarket with women's accessories, mainly headwear and clothing accessories. As is well known, such products are high-profit and high-turnover items. Logically, in a hypermarket with considerable foot traffic, there should be ample business space. In fact, this distributor friend struggled for half a year and then withdrew in frustration. When asked why, he calculated an account for me: monthly sales per store were 30,000 yuan, cost was 12,000 yuan, gross profit was 18,000 yuan. The hypermarket's deductions totaled 34%, amounting to 10,200 yuan; due to many small items, loss and damage were 1.5%, about 450 yuan; employee wages were 450 yuan base salary + 1% commission = 750 yuan per person, with two promoters totaling 1,500 yuan; hypermarket promoter management fee was 800 yuan per person per month, totaling 1,600 yuan; delivery personnel wages were 800 yuan; delivery vehicle costs were about 200 yuan per month; promotion fees were 800 yuan; festival fees were 1,000 yuan. The net profit was 1,450 yuan, excluding entry fee amortization, financial and other back-office wages, and losses from inventory backlog. After calculating, this distributor smiled wryly, saying that the business seemed to be doing well, but in the end, it was all in vain—they were working for others. The fees collected by the hypermarket alone amounted to as high as 45% of total sales.
I believe many suppliers have similar experiences. For hypermarkets that play an irreplaceable role in our business domain, how should we resist their bully contracts to protect our interests?
Strike After the Enemy Has Struck
Smart suppliers, when dealing with hypermarket buyers, do not rush to express themselves but first listen patiently. During listening, they understand the hypermarket's purpose and attitude, and based on the buyer's state, adjust their own thinking, reorganize their plans, and then present reasonable results with evidence, achieving targeted action.
When you express yourself before understanding what the buyer wants to convey, it's easy for the buyer to understand your mindset. Sometimes, the buyer's psychological expectation is not very high; it's the supplier's premature expression that exposes their tolerance too early, increasing the buyer's expectations and allowing them to gain more than expected.
Listen! Listen! Don't rush to express; first understand the hypermarket's attitude and requirements, and don't reveal your true bottom line. Even if the buyer's demands are close to your expectations, don't compromise quickly. After fully understanding the hypermarket's true intentions, quickly adjust your bottom line, analyze your strengths and weaknesses, and present your opinions.
First Mover Advantage
Here, "first mover advantage" does not mean expressing yourself first when dealing with the hypermarket. Its premise is that you basically understand the buyer's purpose, or after understanding the buyer's needs, you first set a basic scope, confining the negotiation resources within a range. It can unconsciously confine the buyer's thinking within a boundary, greatly reducing the upward space of the hypermarket's expectations. It's like a glass of water: there's a difference between pouring out some before drinking and not pouring out any.
If a cup A has 300ml when full, after pouring out some, it becomes cup B, and even if you drink it all, it's only 200ml. It's the same as drinking a cup of water, but you've unknowingly reduced it by 100ml. This is a common and simple example in daily life, but it's very practical in business. Unconscious reduction is more effective and concise than back-and-forth bargaining. When countering hypermarket bully contracts, before the hypermarket makes explicit demands, shrink the optional range as much as possible, and use every opportunity to pour out the water you will give the hypermarket. The more you pour out, the better; what remains is what they can drink and what you truly have to pay and bear.
United Front
In 2003, the "Carrefour roasted seeds and nuts dispute" was widely reported by various media. According to Carrefour's "industry rules," the entry fees paid by roasted seed companies each year were on an upward trend. Because according to Carrefour's logic—the longer you stay, the higher your sales, the more profit you make, so entry fees should naturally rise. Therefore, in the new contracts to be signed with Carrefour that year, the entry fee threshold was raised again, causing resentment and resistance among the roasted seed companies. The final result was that Carrefour agreed not to increase new entry fees in the cooperation contracts with these manufacturers that year, and some disputed entry fees would be appropriately mediated. Regarding this incident, the association's secretary-general Chen Enguo said in his reflections, "It is crucial for a group of enterprises, or even the entire industry, to unite." The roasted seed companies that stopped supplying Carrefour, such as "Zhenglin," "Dahaoda," "Alishan," and "Taifeng," all had leading sales volumes and were truly first-tier brands (according to statistics, among the association's member companies, 6 companies accounted for 75% of Shanghai's market sales, and 10 companies accounted for over 85% of national market sales). Imagine if all first-tier brands withdrew from Carrefour's roasted seed counters, leaving only second- and third-tier brands, it would surely disappoint consumers, which Carrefour had to consider.
Because many suppliers were involved and the impact was widespread, the hypermarket dared not make a hasty decision. In fact, for hypermarkets, suppliers and products determine their performance. Imagine, without products to sell and lacking supporting brands, would hypermarkets be attractive to consumers?
The most powerful resistance against hypermarkets is to "unite all forces that can be united." Removing one supplier has almost no impact on the hypermarket, but a large-scale withdrawal of suppliers would eventually leave the hypermarket with nothing to sell and no merchants to recruit.
When as many suppliers as possible fight for their interests together, their words and actions carry weight, forcing the hypermarket to stop signing bully contracts to protect its ultimate interests. This involves teamwork and collective action. It's difficult to talk about unity between short-term and long-term interests, after all, money goes into each person's pocket, and manufacturers are competitors, so the issue of leadership and centripetal force becomes particularly important.
Softness Overcomes Hardness
Some suppliers get excited or indignant when facing bully contracts, but experienced suppliers usually adopt a soft approach. For hypermarket buyers, excessive behavior only makes things worse. First, show understanding and support in attitude, but firmly argue at key points, presenting evidence that can convince the other side. For example: analyze sales trends, list areas where recent sales are poor and the impact on the supplier's business; or point out any recent inappropriate actions by the hypermarket that caused losses to the supplier; or propose promotional methods the supplier will take to change the current situation, the expected effects, and the benefits for the hypermarket, as well as what the supplier will pay for it...
Keep your cards close to your chest, don't easily make concessions, and firmly maintain your stance while chatting and laughing. Remember, a steel needle stuck into cotton has no force and causes no harm, so sometimes being a piece of cotton or a gummy candy may be more effective than raising your feathers.
Curve to Save the Country
Of course, no matter how you delay, you must eventually reach a result in negotiations with the hypermarket. When the conditions proposed by the hypermarket are unacceptable, to avoid a deadlock, you can find flexible solutions. For example, when signing contracts, the sensitive areas of hypermarket bully contracts are mainly fees. Experienced suppliers will find ways to change the payment form: pay in cash or deduct from accounts, pay a fixed amount or a percentage point, and choose the method that is more favorable to them through budgeting and comparison.
Many hypermarket buyers, when renewing contracts, calculate a lot of data to persuade suppliers to accept higher cooperation conditions, usually by projecting next year's sales growth rate to paint a beautiful blueprint, with the ultimate goal of increasing fees. Therefore, suppliers must understand the current year's business situation in detail before negotiations, including sales trends over the past few years, this year's profitability, and analyze factors that may affect sales next year, to make an accurate judgment of the new year's business situation as a basis for contract negotiations, and also refer to these to choose a payment method favorable to them.
For the whole year's business, there is a big difference between percentage points and fixed amounts. Especially for suppliers with poor sales, a seemingly small fixed fee can be very high proportionally due to their small sales base. Conversely, for suppliers with large sales, a seemingly insignificant percentage point can amount to a considerable sum due to the large base. When negotiations cannot reach an agreement, you can propose changing the payment method to negotiate indirectly, ease the negotiation atmosphere, give both sides more options, and promote consensus.
When facing hypermarket bully contracts, the biggest taboo for suppliers is to blindly compromise and give in. Only by arguing with evidence, uniting all forces that can be united, and not tolerating bully clauses can we fundamentally reduce the frequency of bully contracts, effectively counter them, and protect our interests.
Introduction: Huang Jing, graduated from the Law School of Wuhan University, full-time hypermarket purchasing manager, deputy general manager of Senpan Textile Trading (Shanghai) Co., Ltd., and freelance consultant for KA projects. She is a contributing writer for several professional media outlets in China. Email: marchhuangjing@yahoo.com.cn
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