We mentioned there is still pressure from retail stores to lower price in market in the contents Price Mechanism for Vegetables in Japan (Part 2), we will see why retail stores have influence on market prices however they are not present when trading.
This is very important for farmers because they receive the rest of market price after commision and cost for Oh-Oroshi and JA.
Power balance for Naka-Oroshi and supermarkets
Naka-Oroshi is wholes sale dealer in markets to supply vegetables for retail stores, so we look into the power balance between them.Supermarkets are big customers for Naka-Oroshi , 60% of their supply goes to mass retail stores, then we focus on the situation of Naka-Oroshi and supermarkets.
We analyze it following 5 key points to decide power balance then we find out Naka-Oroshi is driven to be in weaker position.
1.too many small or mid-sized Naka-Oroshi for supermarkets
You will see how many Naka-Oroshi and what sized Naka-Oroshi are in Tokyo Central market and Tokyo Ohta which is one of them. The number of Naka-Oroshi these years are stable though it is less than half comparing with 15 years ago.There are 167 Naka-Oroshi in Tokyo Ohta, however there are 3 Oh-Oroshi and less than 10 big supermarkets for them to face.
We investigate how big Naka-Oroshi’s business are, we find 64% is small-sized with less than JPY 1Bil sales and 31% is mid-sized with less than JPY 5Bil sales.
Imagine that you are a supermarket purchasing officer to buy very BIG volume from Naka-Oroshi, you have lots of options where to buy and you understand Naka-Oroshi need to compete among them to make the deal with you done anyhow.
You can be in stronger position than they are when negotiating.
Vegetables are traded in markets just like standardized commodities which are packed in each box by appearance,size and prefecture they come from.It is rather challenging for Naka-Oroshi to make differentiation or sales pitch to appeal.This standardization has been decided for the efficient distribution and display at store in long time, though it has also concealed characteristic of vegeatbles and speciality of Naka-Oroshi at the same time.
Now you have lot’s of counterpatiers to negotiate and they are selling same products, you can start your negotiation at your own pace.Unless you find any specific service, negotiation price is the only reason to decide.
Vegetables are shipped every day and it is quite difficult to hold them today for next day to sell higher price.
You know they have to sell all TODAY,which makes your position further stronger.
4.Naka-Oroshi’s financial situation is not healthy
We find more than 30% of Naka-Oroshi is insolvent.
Finally, you undestand they need to make this done as long as it makes profit regardless how much it is.You can buy vegetables at quite low price.
5.Supermarkets’ competion is also tough
Supermarkets are also competing each other and other stores to sell their goods for customers.One of big comptitors is convenience stores and supermarkets sell vegetables with lower price than they do.They can leverage their scale merit , however it is still tough.
If your department business is highly profitable,you would not be so aggressive to buy vegetables cheaply, but your situation cannnot allow it.So you need to buy vegetables as cheap as possible with strong position when negotiating price.