Caixin
Oct 26, 2021 08:45 PM
BUSINESS

Walmart Denies Pressuring Its Chinese Suppliers Into Forced Exclusivity

A Carrefour store in Shanghai on Saturday. Photo: VCG
A Carrefour store in Shanghai on Saturday. Photo: VCG

Walmart Inc.’s members-only chain in China has denied claims of anti-competitive conduct, saying an internal investigation found it had not barred its suppliers from working with other similar stores, a practice rife in Chinese retail that has come under increasing regulatory ire since last year.

“We immediately launched a self-inspection, but so far, we haven’t discovered any such issues,” Sam’s Club said (link in Chinese) on its Weibo account on Monday, after Carrefour China Holding Ltd. and Alibaba’s Hema supermarket chain both accused the U.S. retail giant of “forced exclusivity.”

Carrefour China alleged in a Friday Weibo post (link in Chinese) that an unnamed competitor was forcing suppliers to cease cooperation with the first branch of Carrefour’s membership-only store, which opened on Oct. 22. “Some suppliers even bought back their products on the very first opening day due to the pressure,” the note read.

The competitor mentioned in the post is Sam’s Club, a Carrefour China source confirmed on Monday.

Sam’s Club was the first to introduce the members-only model, in which customers pay a fee to access cheaper products in bulk, to China in 1996. U.S. peer Costco Wholesale Corp. opened its first such store in the country later in 2019.

A Carrefour supplier told Caixin that the chain shares many suppliers with Sam’s Club, as there are few in the Chinese market able to provide the kind of bulk packages on sale at members-only supermarkets.

Hema’s suppliers have also come under pressure from demands for “forced exclusivity” from the chain’s competitors, Cai Ronghong, the general manager of Hema X Member Store, told Caixin, without naming names. A source close to the matter told Caixin that Sam’s Club is the source of this pressure.

Since last year, the authorities have sought to rein in anti-competitive practices, especially in the internet sector. Besides new regulations focusing on monopolistic practices in the internet sector, Chinese lawmakers are currently making major revisions to the Anti-Monopoly Law for the first time in 13 years to give it more teeth.

The authorities have also stepped up their punishments for antirust violations, laying a record 18.2 billion yuan fine on Alibaba Group Holding Ltd. in April. In October, Meituan was slapped with a 3.44 billion yuan fine. Both of those punishments came after the companies’ rivals complained about their anticompetitive actions.

Du Guangpu, a lawyer from Jingsh Law Firm, said that whether or not this practice is judged to be illegal is based on factors like the entity’s market dominance, its reasons for making this demand, and its effect on competition, among others.

Carrefour China has reported Sam’s Club’s actions to the authorities, but the chain’s position in a supermarket niche means it may be difficult to determine if these actions constitute anticompetitive behavior, a source from the retail chain told Caixin. If the members-only market is not considered to be separate from the broader grocery market, Sam’s Club can’t be seen as a dominant player.

This is far from the first allegation of monopolizing behavior made against Walmart, which has long come under fire for its practices in its home U.S. market. According to a 2019 report from the non-profit Institute for Local Self-Reliance, Walmart has a roughly one-quarter share of the U.S. grocery market, but in one in 10 metropolitan areas it has a share of over 50%.

The members-only model is Carrefour’s latest attempt to revive its flagging business. The French-founded firm, once China’s largest foreign retail chain, sold an 80% controlling interest to Chinese electronics appliance retailer Suning.com (002024.SZ) in June 2019. In 2020, Carrefour China posted an annual pre-tax profit for the first time in eight years, after struggling with sinking sales and increased competition.

Contact reporter Manyun Zou (manyunzou@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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