Translated material
No discounts
FAS warns retail chains about growing risks
Just five months after the Law on Trade came into force, market participants and officials were already talking about the need to prepare a whole package of amendments to it. The likely changes were discussed yesterday by members of the expert council on the development of trade activities in Russia under the Ministry of Industry and Trade.The most difficult questions, naturally, relate to the most painful provisions of the law for retailers and suppliers, which prohibit bonuses and limit the possibilities for the development of retail chains when they reach a 25 percent share in the total grocery turnover in a certain territory.
Representatives of regulators are ready to give their explanations on the most controversial issues, but at the same time they doubt that these explanations will be used by the courts when considering quite likely claims. Retailers are encouraged to classify possible costs as commercial risks.
Oleg Sazanov, Director of the Department for Regulation of Domestic Trade of the Ministry of Industry and Trade, urged the participants of the meeting of the expert council to remove bonuses prohibited by the law “On Trade” from their vocabulary and talk only about discounts. According to him, the law provides a clear definition of the difference between a bonus (reward) and a discount. A discount is something that reduces the price of a product. Bonuses that suppliers provide (or more often were forced to provide) to networks change the contract price and do not affect the price of the product.
Council members immediately began asking questions about the possibility of using retro discounts in the relationship between the supplier of goods and retail chains (previously they were called retro bonuses and were often “knocked out” from suppliers after the sale of their goods at the price fixed in the contract). It is interesting that an attempt to legalize at least part of the previous schemes was made by representatives of not only retail, but also large suppliers.
It turned out that the Ministry of Industry and Trade and the FAS have different approaches to what is considered the price of a product, and for this reason their points of view on the legality of retro discounts also diverge.
The Ministry of Industry and Trade considers the price of a product to be the amount fixed in the supply agreement between the supplier and the network. Naturally, it does not match the price indicated on the store shelf. And although Oleg Sazanov made a reservation that “it’s better to avoid retro discounts - they are very similar to rewards,” he eventually admitted that under certain conditions he considers them quite acceptable.
As Oleg Sazanov explained to Vremya Novostey, this could be, for example, a discount for delivery times. “If the chain picks up all the ordered goods from the supplier on time, then everyone benefits: the manufacturer, who does not have to spend money on warehousing and complex logistics, the buyer, who always has the opportunity to purchase fresh goods, and the chain, which receives everything on time. Under these conditions, a retro discount based on the results of the reporting period is well deserved, and it cannot be provided in advance and included in the price of the product. Or a discount for the network purchasing the entire range of products produced by the supplier, and not just the most popular goods. The fulfillment of this condition can only be verified at the end of the month. The main thing is that the terms of such a discount were initially agreed upon in the supply agreement, and not after the fact,” explained Mr. Sazanov.
He agreed that such a retro discount could, at best, only affect the prices of goods on store shelves next month. And not in all situations, the official admitted.
And Deputy Head of the FAS Andrey Kashevarov is convinced that the discount must be reflected in the price of the product on the shelf. And for this reason, he deeply doubts the legality of any retro discounts. Indeed, the buyer will not be able to receive a retro discount on goods previously purchased in the store. Therefore, such discounts only increase the networks’ margins.
“The reason the legislator banned retro discounts is that they are not taken into account in the price of goods on the shelf, they fall as an additional burden on the supplier, his costs rise, while the price for the consumer does not decrease,” Mr. Kashevarov explained to VN. “If the discount is immediately taken into account in the price, then the market becomes more transparent, and you can immediately see whose marginal income is growing.” He considers the presence of circulating discounts for assortment to be discrimination against small suppliers who are not able to offer the same discounts as large ones. “The choice in favor of a product should be made by the buyer, focusing on price and quality, and not by retailers, focusing on the profit that the supplier can offer them,” the FAS representative is convinced.
Following Oleg Sazanov, Mr. Kashevarov suggested that those wishing to work with discounts for assortment or for regularity of deliveries, negotiate in advance all possible discounts and include them in the contract price, posting them in the public domain for everyone to see.
The Ministry of Industry and Trade and the FAS also disagreed on how to calculate the only permitted remuneration for the volume of delivery (the more goods you purchase, the cheaper it is, but the discount cannot be more than 10%). The Ministry of Industry and Trade believes that the maximum 10 percent limit may apply to the entire volume of supplies of a particular agent to the network. At the same time, for certain types of products, the discount may be more than 10%. FAS intends to ensure that for each product item the volume discount is no more than 10%. And she warned that “the court will put the final point in this dispute.”
Andrey Kashevarov warned market participants against using schemes prohibited by law. “If the FAS finds a discount of more than 10% in the agreement, then both parties will be punished, despite their mutual agreement with the terms of the agreement,” warned the FAS representative. In his opinion, such a position will help create fair competition conditions for all suppliers.
Another painful question was raised by a representative of the Magnit retail chain. From the interest shown in this topic, it can be understood that the problem is very relevant for the Kopeyka network. We are talking about the possible recognition as illegal of transactions for the acquisition or construction of new retail facilities in regions where the retail chain controls about 25% of the retail turnover of food products. For example, a chain has 24% of the grocery market in a certain municipality. The law does not prohibit her from acquiring land for the construction of another retail facility. But even the approval of urban planning documentation to begin construction of a store will require at least seven months. It will take some time to build the facility. And by the time the new store is launched, the price of which can reach several tens of millions of rubles, it may turn out that, according to new Rosstat monitoring data, the chain’s share in this region has increased to 26%. The commissioning of a new facility becomes illegal. In such conditions, no investor will make such risky investments.
A representative of the Ministry of Industry and Trade agreed that there was a problem here. Even the investor whose facility is being launched in stages may fall under the restriction. The latest phase may be considered illegal if, after the launch of the previous one, the network went beyond 25% of the market. Oleg Sazanov suggested that we consider submitting some options for its solution to a government working group chaired by First Deputy Prime Minister Viktor Zubkov.
The FAS does not see a problem in this situation. “On the eve of the entry into force of the law, some retail chains invested large amounts of money in the acquisition of sites for construction in those territories where their share was already close to critical. In some cases, these areas do not have a designated purpose for retail purposes. Such companies may have problems,” admitted Andrei Kashevarov. - But investments are always risks. For investors, a complete monopoly is best. Risk management is your job."
Nevertheless, he also admitted that the FAS already has a whole list of necessary amendments based on the results of the first year of the law “On Trade”, which can be proposed to the public in the fall and their discussion in the State Duma can begin.