Mr. Liu is a manager at a distribution company in Beijing and has been supplying supermarkets for ten years. He told reporters that a brand of rice crackers he distributes has an ex-factory price of 1.2 yuan, a supply price to supermarkets of 2.55 yuan, and a retail price of 3 yuan. The retail price is more than double the ex-factory price. Mr. Liu explained that on the surface, the supermarket buys the crackers at 2.55 yuan and sells them at 3 yuan, appearing to earn only 0.45 yuan. However, this is just the 'front-end gross profit.' There is also a portion called 'back-end gross profit,' which supermarkets earn from suppliers through various fees such as entry fees and rebates.

Mr. Liu told reporters that supermarkets now charge a wide variety of entry fees, including account opening fees, festival fees, new store opening fees, old store renovation fees, new product fees, barcode fees, contract renewal fees, poster fees, display fees, information sharing fees, promoter management fees, consulting fees, and promotional service fees. Due to the high fees, he has stopped cooperating with some supermarkets since 2010.

Faced with high entry fees, how can small-profit distributors survive? And how can the prices of products on supermarket shelves possibly come down? To learn more about entry fees, CCTV reporters posed as distributors and conducted undercover visits to several supermarkets. At the Beijing Carrefour North District purchasing department, a supplier of cooked food told reporters that the contract rebates are very high and are increasing at an alarming rate each year. 'The rebate here is 15 to 16 points, and there are many other fees. They deduct one thing today and another tomorrow. It increases year after year, it's killing us.' The supplier also said that because the rebates and fees increase too quickly, they cannot absorb them and have to raise product prices to maintain their thin gross margins. Reporters surveyed the prices of six types of dried fruits at Beijing Jinxiuda Wholesale Market and found that supermarket prices were 2.85 times higher than wholesale market prices. Please follow the WeChat account of Distributor's Home at wwwjxszjcom.

Investigations show that some supermarkets' various fees account for 40% to 45% of the product cost. That is, for a certain product, the supermarket adds a 40% markup to the purchase price, which is passed on to consumers. Reporters also found that department stores charge even higher entry fees than supermarkets. Chen Liping, director of the Marketing Department at Capital University of Economics and Business, analyzed that department stores typically have rebates of 30% to 40%, which is a fee paid by manufacturers to retailers as part of the 'factory-in-store' model, and it is a major source of profit for the department store industry.

Whether it's high tolls, rampant illegal fines on highways, or huge entry fees, all these logistics costs eventually become part of the price of goods, weighing down consumers. So is the phenomenon of supermarkets charging entry fees reasonable? Experts say that charging entry fees is a unique Chinese retail model and is an out-and-out Chinese-style 'commercial anomaly.' Because of entry fees, many Chinese-made products, even after being shipped overseas, are actually cheaper in foreign supermarkets than in Chinese supermarkets.

So how did this Chinese-style 'commercial anomaly' develop? Why has this model, which cannot expand abroad, grown wildly in China? Experts explain that in the 1990s, Carrefour entered China and brought with it a model for expansion in developing countries, earning back-end profits by charging suppliers channel fees and occupying payment periods, achieving low-cost rapid expansion. 'Carrefour's experience is ultimately a low-cost expansion, and the core of this low-cost expansion strategy is charging various entry fees,' said Chen Liping. He pointed out that this expansion method, relying on entry fees and extended payment terms, has not succeeded in other countries. In Japan, South Korea, and Southern Europe, there are mature retail markets, and international retail giants not only have limited market share but are also strictly controlled by antitrust laws and regulations.

However, during the early expansion of foreign supermarkets in China, the domestic retail industry lacked sound laws and regulations on antitrust and restricting retailers' abuse of dominant positions, allowing international retail giants to successfully introduce the entry fee business model. Moreover, because foreign retail enterprises enjoyed many tax and rent concessions in China at the time, they began to rapidly expand with this retail model.

Distributor's Home emphasizes that to externally push retail enterprises out of this vicious cycle and regulate entry fees, it is necessary to improve existing antitrust laws and regulations, clearly define the abuse of dominant position by large retailers, and have corresponding arbitration institutions supervise implementation.

Source: Distributor's Home

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