Clash of the retail titans. – Walmart vs. Amazon

Walmart Forces Suppliers to Withdraw Products on Amazon

MEXICO Reuters: Walmart in Mexico has penalized food companies that supply groceries to its rival Amazon, a pressure that has forced some firms to withdraw products online from the world’s largest retailer, knowledgeable sources said.

The tactics come as the two giants fight for supremacy in one of their most important foreign markets, currently dominated by Walmart de Mexico. The second largest economy in Latin America is the largest foreign market for Walmart Inc. by number of stores.

Last year, Walmart demanded discounts from food companies whose products were at lower prices on the Mexican Amazon.com Inc. website, sources said. Two suppliers told Reuters that they quickly removed their brands from Amazon not to jeopardize their relationship with Walmart. The companies, which sell common grocery products, said Walmart accounts for more than half of their supermarket sales in Mexico.

Walmart declined to discuss its competition with Amazon in Mexico or allegations with suppliers. The company told Reuters that it has no interference with customers with whom it can do business with its suppliers, but acknowledged that it always pushes for lower prices, particularly if competitors are giving buyers a better deal.

In a recent statement, the company said its policy is “not to subsidize losses on some products with profits on others. We can never tell anyone that they can’t sell to someone else,” Ignacio Caride, head of e-commerce at Walmart Mexico, told Reuters. “If we believe there is an opportunity to improve our prices, because we see better prices in other retailers, we will negotiate to access this,” he added.

Photo: https://www.investors.com/

Amazon declined to comment on the issue.
Walmart is the largest retailer in Mexico, with nearly 60% of supermarket sales in the country through more than 2,400 stores of Walmart, Superama, Sam’s Club and Bodega Aurrera. Its online business in Mexico is growing rapidly, but represented only 1.4% of revenue last year.

Amazon launched its Mexican website in 2015 and is now one of the country’s largest online retailers. It began selling groceries through its website in August.

Supermarket analyst Bill Bishop said Walmart wants to avoid a repeat of the experience it had in the United States, where Amazon quickly took the lead in online grocery sales. Walmart’s unit in Mexico is its second largest foreign market in sales after the United Kingdom, on a par with Canada.

“They are concerned that Amazon will grow in Mexico,” said Bishop, co-founder of retail consulting firm Brick Meets Click in Barrington, Illinois. They’re saying, “Be aware that we’re not going to let it be easy for you to grow up here,” he said.

Mexican suppliers who spoke to Reuters said they had been caught in the crossfire because although their wholesale prices were the same for both retailers, Amazon chose to sell its products to consumers at a cheaper price than Walmart.

Instead of lowering retailers’ prices to match Amazon’s, Walmart penalized them, the same sources said. Walmart adjusted its payments by the difference in retail price multiplied by the amount of stock in its inventory, a measure that cost them tens of thousands of dollars collectively, sources said.

Both commented that they began talks with Amazon soon after, in order to withdraw their products since they couldn’t afford to pay Walmart’s financial demands or risk losing their biggest customer, despite the enormous sales potential offered by Amazon’s platform. “It’s a threat and it’s extortion,” said one of the sources about Walmart’s strategy.

Emails between Amazon and one of the food companies, seen by Reuters, support the version described by the suppliers. Two other sources with knowledge of the subject and experience in e-commerce in Mexico offered similar stories.

Experts say Walmart’s pressure on its suppliers in Mexico is unlikely to have legal repercussions. Miguel Flores, a former member of the Federal Economic Competition Commission (COFECE), said a government investigation into the abuse of dominant market power would be complex, lengthy and difficult to prove.

Mexico’s competition regulator declined to comment.
Both Walmart and Amazon have been pressuring suppliers to get the lowest prices on everything from T-shirts to bicycles. And Walmart has spent a lot to catapult its shopping website, delivery system and network infrastructure to compete with Amazon. Still, Amazon is moving ahead in online food shopping. Last year it recorded $3.4 billion in U.S. grocery sales compared to $2 billion for Walmart in the same category in the U.S., according to the Boston-based research firm Edge by Ascential.

The selection of Amazon groceries in Mexico is currently limited to non-perishable products such as coffee, beer, pasta and canned vegetables. Walmart offers a broader selection, including fresh foods such as lettuce and chicken.

Walmart complained about its rival’s lower prices with several food suppliers in Mexico, including multinational firms, at the time Amazon launched its food and beverage website, said two sources in Mexico’s e-commerce industry who asked for anonymity because of the sensitivity of business relationships.

They added that some of the larger firms discovered ways to appease Walmart, such as packaging their products for Amazon in sizes different from those sold at Walmart. But many of the smaller companies lacked the knowledge they needed to negotiate, they explained.

Bishop added that Mexican suppliers feel enormous pressure to continue with Walmart, at least for now. “The dilemma is that Amazon is a fast-growing channel,” 

The Yucatan Times
Newsroom



Comments

comments

more recommended stories