Maxima Corporation

Sep 11, 2023

Content will continue after the ad Advertising When a newspaper with supermarket promotions lands in your mailbox, the manufacturer has paid an average of 400 euros for the space for their product. If you hear the voice of actor Artūrs Skrastiņš saying before the “Elvi” store closes: “Drink X reminds you that it is the last time to buy it, because there are 15 minutes left until the store closes,” it will cost the manufacturer 340 euros for two weeks. Placing the product at the checkout in one large “Maxima” store for two weeks costs 200 euros. On the other hand, a product on a pallet with an advertising poster in one “TOP!” in the online store will cost from 60 to 180 euros per month, according to the advertising cost booklets of the companies, which are at the disposal of “Re:Baltica”/”Delfi”. These marketing costs should also be added to the price of a packet of cottage cheese on the store shelf. The discount given for the product’s participation in the campaign must be added to the manufacturer’s additional costs. In addition to this, there is also the so-called “volume discount”, which the manufacturer pays extra if the promotion sells out more than planned. There is also a “logistics bonus” – the manufacturer pays extra to the supermarket network for the delivery of the goods from the logistics center to each store. Source: Data from the Central Union of Dairy Farmers of Latvia. The 36% store markup section includes both merchant costs (labor, store maintenance, etc.) and profit. VAT is 21% and is calculated from the price of the delivery of the goods. In this case, 17% represents the proportion of VAT on the total product price paid by the buyer. This practice of “discounts” and “bonuses” varies between store chains. In recent years, producers of “Rimi” have paid extra only for advertising. “Maxima” has both a “volume discount” and a “logistics bonus”. Promotions are a good way to sell a product in large quantities. The sales representative of a large food company explained to us that for their products “Maxima” and “Rimi” most of the turnover was made directly by promotions. “”Hot prices”, “Mammoth days” – this is where the real trade is, there is the real turnover and profit.” Speaking to a number of manufacturers, opinions differ on the stock. Large companies whose products have a long shelf life are positive. It is much more difficult for small, niche product manufacturers, for whom 400 euros for an advertisement in a newspaper and the discount given in the promotion sometimes force them to return the product at cost price. They look at promotions as a voluntary forced measure – if there are no promotions and the manufacturer does not pay for advertising, the product will not be bought and it will disappear from store shelves. Content will continue after the ad Advertising Product placement fee in Elvi and Maxima advertising newspapers. Source: Elvi and Maxima marketing estimates 2023. From our conversations with at least ten producers of various sizes, it appears that the difference between the full price and the promotional price is borne by them, not by the supermarkets. The supermarkets disagree, saying the promotions “are the result of mutual cooperation”. Both “Rimi” and “Maxima” indicate that they cover the price difference in the promotions they organize and the amounts are in millions of euros. When we asked how much of all shares are covered by ourselves and how much by producers, we did not get an answer. It is hard to say. Another manifestation of the power of the supermarkets is the fact that the sales forecast of Rimi and Maxima shares made by the store is binding only on the manufacturers and not on the supermarket itself. In nature, this means that the supermarket records, for example, a ton of cottage cheese in the forecast, but the day before delivery announces that it will only take half. Or vice versa – half a ton is predicted, but a ton is requested at the last moment. If the manufacturer does not have that much, a penalty must be paid for the undelivered amount. This is especially painful for manufacturers whose products have a short shelf life. “Those forecasts didn’t give us anything. The company is small, there wasn’t much space in the warehouse. If we send a forecast for 3,000 units and we don’t know if they will be picked up in the first or second week, where will we put the produced that is not picked up?” – remembers the representative of the company where the product was handmade with a short shelf life. “Please note that the estimate is not an order of “MAXIMA Latvija” SIA, therefore it does not create an obligation for “MAXIMA Latvija” SIA to accept the amount of goods specified in the estimate, nor does it release the supplier from the obligation to fulfill orders that exceed the amount of goods specified in the estimate.” We draw your attention to the fact that the above-mentioned information is of a recommendatory nature, SIA “Rimi Latvia” is not obliged to purchase all the planned quantities indicated in the appendix. Source: Excerpts from the announcement sent by “Rimi” and “Maxima” to manufacturers during promotions. When asked about this practice, “Rimi” and “Maxima” explain that this reservation in the contracts is to be able to provide buyers with what was promised during the promotion. Usually by taking the entire projected item. Punishing only if the manufacturer fails to deliver without warning. “If there is an emergency – the equipment is broken and they won’t be able to do it [preci] ensure – then fines are not applied,” says Beseris from “Maxima”. “What need do we have to spoil the relationship with the supplier? And then what?” – the head of “Rimi Latvija” Turlais. “Regularly,” when asked if his company was fined for undelivered goods, answers the medium-sized manufacturer and shows us a contractual penalty issued by one of the supermarkets mentioned in the article in July of this year. As a good example, he praises “LIDL”, which indicates the planned purchase amount a week in advance and takes everything. When asked if this was general practice, LIDL told us that they were “trying”. “Working with supermarkets was like working with nitroglycerin. At any moment, something could explode,” recalls a sales representative for a large food company. It was especially difficult when it was necessary to raise the price of the product. “I went to meet with supermarket managers. We agreed on which day who would raise the prices. Always one of the two did not raise them. There were scandals, mistrust.” At the same time, there was also stress for store employees, who have to fulfill the plan. A leading employee of a supermarket once asked him if there was any vacancy. “Knowing how she “tortured” me, I thought she was doing her job perfectly. It was a surprise to me at the time,” recalls the company’s representative. He left this position a year ago, unable to handle the stress. In the talks with “Re:Baltica”/”Delfi”, some producers admit that they are partly to blame for the situation, because they accept what is happening. Are too fragmented to be equal partners in negotiations with supermarkets. “I am a fool. A fool, because I calculate and agree that you will take what I earn,” – this is how harsh is a manufacturer of a niche product whose product has a 75% markup in a leading supermarket. “This, in my opinion, is not so much about the ‘bad supermarkets’, but about ourselves. We have not been brave, but we have bent our backs and submitted to such uncompromising training.” At the same time, he believes that it is not fair that he can put a 10% markup on his product, and the supermarket – 75%. “It’s not a win-win.” A cottage cheese producer says the same anonymously. If he himself earns 2-6% from his cottage cheese, but the store charges almost five times more, it is not fair. However, he also agrees that it is partly their own fault – cottage cheese producers are too small. Only the big ones can dictate the rules to supermarkets. One of the few who dares to speak with his own name is “Long Chips” producer Laimonis Radziņš. He believes: if the store is able to sell the product even with a 1000% markup, then no one can deny it. However, the fact that the trading networks do not publicly tell the truth about the markup makes entrepreneurs angry. The oil produced by the company has a 200% markup in Latvian stores, he is more reticent about the chips, but says that “it is enough, they are neither 20 nor 30%”. “We are a dwarf country, purchasing power is low and trade also needs to live, but we don’t need to blow ducks,” he said in a previously published interview with “Delphi”. There are entrepreneurs who rebel. In Latvia, no garlic grower sells his products anymore. His client was one of the two “big ones”. Garlic was allowed to be supplied to this chain only through a wholesaler, who charged one euro per kilogram for his service. The supermarket requested that the garlic be packaged in cardboard boxes of five kilograms each, and only took medium and large heads. This meant additional manual work, because when packaging with the machine, some smaller head always fell in. If the store notices a discrepancy – an immediate penalty. The garlic grower found an outlet in other countries, including Estonia. Ironically, the same supermarket chain buys his garlic without an intermediary, in large packages and in any size. This is one of five articles, read below: Is ‘Rimi’ a rhyme? Does Latvia have the most expensive food in the Baltics? Who earns?