COMMENT: Chinese wholesalers still a big obstacle
For many foreign food and beverage companies in China the significant losses they have incurred - or at least their failure to make a profit - is down to one phenomenon - the Chinese wholesale system. While it is true that the ongoing economic reforms and market liberalisations have reduced the power of wholesalers (as well as some spirited undermining by the likes of French retail giant Carrefour) they remain crucial to any fmcg distribution strategy.
Wholesalers in China are a legacy of the socialist command economy put into place after the 1949 revolution and modelled largely on the system in the USSR. The state held the monopoly on distribution and massive wholesale corporations were created controlling logistics across China's vast expanses. Most of the wholesale corporations were integrally part of city, provincial or local administrations.
As the command economy was rolled back under Deng Xiaoping it became apparent to the people who ran the wholesale corporations that they were extremely powerful in the economy - they retained their links with the authorities but were partially freed to start making a profit.
They profited well effectively controlling a region's food supply - they were able to dictate terms and enforce their edict on manufacturers, suppliers and retailers. If they didn't carry your product, or decided they didn't like you, or you didn't accept their often preposterous terms and conditions then your product stayed out of their area - national penetration was denied you. This led to instances of corruption and bribery.
At first foreign companies played the game - and it cost them - not just in long banquets but also in cold hard cash. The rush into China in the 1980s and 1990s meant that wholesalers could play brands off against each other and push up prices - what one writer called a game of 'one-sided poker'.
Companies handed over goods on credit - credit that was never paid by the wholesalers. All this was added to the poor state of the infrastructure that led to massive waste, breakage and spoilage. Legal remedies to recover goods or cash were few and far between - legal decisions winnable but rarely enforceable. All it did was annoy the wholesaler. The result has been literally millions and millions of dollars written off by foreign companies in lost goods and money.
Things are changing in the wholesale sector though much of that traditional distribution framework remains in place, albeit in an eroded state. WTO membership promises major liberalisation to China's distribution sector, though much of the liberalisation in the logistics sector will take longer. With immediate effect from China's accession to the WTO in December 2001, foreign firms have been able to invest directly in distribution and supply chain management. This may finally start to change the odds in the game of one-sided poker.
For more on drinks research company Access Asia see the just-drinks' research store at www.just-drinks.com/research
Global sales of Scotch whisky may have recently gone through the GBP1bn barrier but, writes Chris Losh, worries over declining volumes in major markets such as France and Spain have resulted in cautio...
The latest export figures for Scotch whisky make uncomfortable reading for brand marketers and the strategists at the Scotch Whisky Association, showing declines in both Asian and European markets. C...
The World Trade Organisation has upheld its ruling against Mexico in the soft drink row with the US....
World Trade Organisation talks on creating a register for wine and spirit geographical designations have failed after two years of negotiations....
India has decided not to sign a EU-proposed multilateral wines and spirits registry....
The US claims that it has won a World Trade Organisation (WTO) case against Mexico, with a disputes panel ruling a 20% tax on Mexican soft drinks manufactured with imported high-fructose corn syrup br...
The US Commerce Department has introduced preliminary anti-dumping duties of up to 60% on orange juice from Brazil following complaints from Florida citrus growers accusing Brazilian producers of comp...
The European Union (EU) has released more details of its proposed global register of geographical indications for wines and spirits it wants agreed during the World Trade Organisation's (WTO) ongoing ...
- Pernod Ricard 's first-half results - Preview
- Pernod Ricard's H1 performance by region - Focus
- Heineken's FY performance by region - Focus
- Forget Baby Boomers at your peril - Consumer Trend
- Carlsberg's full-year performance by region
- Asahi Group lines up Grolsch, Meantime, Peroni buy
- Pernod Ricard targets US through unit, exec switch
- William Grant & Sons' Ailsa Bay - NPD
- SABMiller's Europe chief to join Britvic board
- Asahi Group to buy Grolsch, Peroni from SABMiller
- Global travel retail insights - market forecasts, product innovation and consumer trends
- What Next for Beer and Brewers Following the MegaBrew Deal?
- Global Whiskey Market 2016-2020
- Emerging Drinks Industry Trends
- Global sparkling wine insights - market forecasts, product innovation and consumer trends research