Fine ordered for products – Newspaper Kommersant No. 2 (7447) dated 01/10/2023

With continued packaging and ingredient challenges, food manufacturers want more leeway for chains. Market participants are asking the Ministry of Agriculture to prohibit retailers from penalizing them for underdelivery of goods without order confirmation. But chains fear reduced supplier discipline, supply disruptions, and advocate self-regulation.

The largest associations of food manufacturers asked the Ministry of Agriculture to legally prohibit retailers from fining for underdelivery of goods without confirmation of orders by suppliers. Kommersant has a copy of the letter from the chamber of the Intersectoral Expert Council for the Development of the Consumer Market (MES) dated December 27, 2022. The appeal was signed by the leaders of Rusprodsoyuz, Rusbrand, Fish Union, the National Meat Association, the Union of Producers of Alcoholic Products, etc. The associations interviewed by Kommersant declined to comment.

As stated in the letter, largely due to the inability to predict demand, retailers can unplanned increase the volume of orders at times, and fines for underdelivery for some networks have become additional income and an option to bypass the restrictions on the amount of bonuses charged to suppliers.

For manufacturers, the appeal says, the practice is “disastrous”: orders do not correlate with opportunities, and fines threaten losses.

According to a Kommersant source among suppliers, supply contracts generally oblige to fulfill any network orders at a certain level. But since the beginning of hostilities in Ukraine, there have been difficulties with packaging and ingredients, so manufacturers regularly optimize their assortment, the source of Kommersant points out. In the spring of 2022, the Ministry of Industry and Trade recommended that chains introduce a moratorium on fines, but suppliers later noted that they did not notice any relief (see “Kommersant” dated April 4, 2022).

As noted in the letter, some players, such as X5 Group (Pyaterochka, Perekrestok, Karusel) and Azbuka Vkusa, allow suppliers to confirm orders without compromising business. Azbuka Vkusa noted that the mandatory confirmation of the order allows you to plan the loading of warehouses and logistics services, and suppliers – the volume of deliveries. Stanislav Bogdanov, director of government relations at X5 Group, says that confirmation of orders is a standard condition in company contracts, and this shows well that self-regulation tools in the industry are working and developing. A rapidly changing environment requires a flexible approach, which is why X5 continues to advocate self-regulation, he added. Magnet, Lenta, Auchan, Metro and Verny did not provide any comments.

Chairman of the Presidium of the Association of Retail Companies Igor Karavaev says that the fines are an important disciplinary nature, and the moratorium during the pandemic has led to a decrease in the level of service of suppliers in large chains to 60%.

According to him, if this initiative is supported, the chains will not be able to guarantee the stable availability of the necessary goods on the shelves, and objective cases of the impossibility of fulfilling part of the obligations without the application of fines are already being considered individually.

Marat Ibragimov, a senior analyst at Gazprombank, believes that it is better to give market participants the opportunity to regulate contentious issues themselves, which will give an incentive for networks to improve conditions for suppliers. So, the analyst notes, gaps in the assortment, for example, in carbonated drinks, in 2022 the business closed without the participation of regulators. Natalya Nazarova, director of the Institute for Entrepreneurship and Economic Development, agreed that requiring suppliers to confirm orders looks justified given their limited capacity. However, she believes that legislative changes will unnecessarily regulate the contractual relations of the parties and reduce the possibility of their rapid adaptation.

The Ministry of Industry and Trade stated that they did not receive the appeal. The Ministry of Agriculture promised to consider it, adding that “in general, they support initiatives aimed at developing mutually beneficial relations and creating fair conditions for suppliers to work with networks.”

Anatoly Kostyrev