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Tunisia-price increase: hypermarkets are the problem and the solution!

It is no longer a secret that inflation ended the first month of this year (January 2012) up 5.1%, even if in this rate, more than 2% of the inflation is inherited from 2011.

This price increase is, in every way, so visible that we do not even need these figures to perceive its immediate impact on the purchasing power of Tunisians. It is explained in part by higher industrial sales prices.

Throughout the year 2011 and compared with 12 months of 2010, the index of what is commonly called the IPPI (Industrial Product Price Index or the prices sold by producers to wholesalers) was up 6.5% (5% excluding energy and 4.7% excluding mines).

Since they are high at production, it was normal that prices are soaring in consumption. It should also be noted that over 80% of these prices are market free and neither the state nor the hundreds of controllers that the Ministry of Commerce could mobilize will help.

Only the law of supply and demand will now be able to help lower prices.

All this said, it is equally important to note that the traditional distribution channels [Producers Wholesalers-Retail-Consumers] haven been destabilized since the arrival of hypermarkets that now buy directly from producers through their power of shopping.

Distribution channels are no longer composed of hyper-producers-consumers. Even the local grocer who used to be the link of the retailer now buys directly from the hypermarket and makes his own margins from the price of hypermarkets.

Figures of the Price Observatory of the Ministry of Commerce are visible on the website of the Ministry. They point to the significant price difference between hypermarkets, supermarkets and grocery stores. The latter being always the most expensive.

The practice of back margins, unregulated and always on the borderline of legality

This reorganization of distribution channels and the birth of purchasing centers for retail giants (including Géant, Carrefour, Magasin Général… etc.) with a huge bargaining power has given rise to new power relations between producers and Hypermarkets.

Producers will never say it publicly, although they complain in very restricted meetings between professionals or in front of the Administration, but in recent years they face a new practice that is bleeding for them but one that could provide a serious opportunity to lower prices directly for final consumers. This practice is known in France, where it was imported in Tunisia by the two main supermarket chains in place, under the name of “back margin.”

Professionals define them as “a business practice of the mass distribution that consist in offering a special promotion for suppliers of their products in supermarkets (gondola, tasting, showcase, etc …) in exchange for a remuneration of suppliers paid after the sale. Thus, shelf prices do not change (front margins, or difference between the selling price to the consumer and the purchase price by the retailer to his supplier remain unchanged), but the brand collects the margin on its second supplier.

It even happens, according to some producers whom we have contacted and who decided not to speak openly, that this margin is preceded by a sizable drop imposed by the bargaining power and it (the back margin) also contains the producer’s participation in the design of the marketing tools even of hypermarkets, including catalogs.

Now normally, this subagent commission should go back to the consumer, and at least in part, assigned to help lower prices for consumers. Tunisian legislation on the modernization of trade and the various distribution channels, including that of 2009, is still silent and at best vague about it, and it is a delight for hypermarkets and in some respects even producers who are not enthusiastic about anything that could lead to more transparency on the margins.

This law states, in effect, that all commissions, including subagent ones, must be clearly identified in invoices between producers and distributors. The law does however make it an obligation and, in the opinion of several executives of this business administration, it has never tried to see things a little clearer, the distribution sector being held by groups close to decision-making centers. There is however no doubt that legislative pressure on supermarkets to surrender all or part of these subagent commissions to consumers through lower prices remains the only solution.


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