Somebody has to pay for cheap beer

August 3rd, 2012 by Philip Brasor & Masako Tsubuku

Aeon’s beer case: Does this look cheap to you?

Late last month, the Fair Trade Commission issued a warning to three liquor wholesalers whom the commission suspected of violating the Antimonopoly Law by selling beer to the supermarket chain Aeon at below cost. It was the first time the FTC ever made such a warning about dumping for alcoholic beverages, and while the media is reporting that the commission apparently does not have enough evidence to prove a clear violation of the law, the FTC has made an exception and issued the warning anyway, which would seem to indicate that it strongly believes some hanky-panky is going on.

The main reason for the warning in this instance is to protect smaller liquor retailers located near Aeon outlets who can’t hope to compete with such low prices. In fact, a closer reading of the coverage would seem to indicate that it is really Aeon who is bending the rules to its advantage rather than the three wholesalers — Mitsubishi Shokuhin, Nihon Shurui Hanbai, Itochu Shokuhin — but in any case the warning was mainly directed at them. Nevertheless, Aeon decided that the adverse publicity attached to the warning was serious enough for it to hold a press conference on July 23. A representative stated that the company made no such demand to the three suppliers to sell them beer at below cost.

Apparently, the FTC was suspicious of dumping as long ago as 2005, when it heard that 10 brands of beer and happoshu (malt liquor) were being sold to Aeon at prices that were below the price they paid to the manufacturers, even with ancillary costs like transportation factored in. Aeon would then add its own margin and, supposedly, still undersell competitors. For instance, the wholesaler would buy a case of beer from a manufacturer for ¥3,800 and then sell it to Aeon for ¥3,700. The wholesaler would supposedly make up for the beer loss by carrying out a business practice known in Japan as arari-mikusu, which means jacking up the prices of other alcoholic beverages they sold to Aeon. Consumers would pay more for these products than they normally would. Such a practice violates National Tax Agency guidelines for fair trade.

But the wholesaler doesn’t necessarily take a big hit from the dumping practice. Beer is by far the biggest selling item among alcoholic beverages, and if the wholesaler sells above a certain volume, the manufacturer may give it a rebate that more than makes up for the loss. For instance, it will receive a rebate of ¥200 per case, which means it actually makes ¥100 from the deal, since it lost ¥100 selling it to the retailer. However, in 2005, the four major breweries started slowly phasing out the rebate system, and it is believed the three wholesalers tried to raise their prices. Aeon told them if they did, the supermarket would find other suppliers. The FTC reportedly investigated Aeon for abuse of commercial dominance (yuetsu-teki chii), meaning that Aeon was taking unfair advantage of its huge size. In any case, Aeon did not respond to the wholesalers’ demand, saying that it couldn’t justify a price increase to customers based on the end of the rebate system. So prices remained the same, even as transportation and other costs increased.

We checked the beer prices at our nearest Aeon and compared them to prices at other retailers in the vicinity. In almost every case Aeon’s beer was more expensive. In fact, one discount store was selling six-packs of 350-ml Kirin Ichiban-shibori for ¥50 less than Aeon. So if Aeon actually is buying beer at below cost, it must be making a killing. Then again, all these retailers are  either supermarkets or big discount stores. There are no small liquor stores anywhere in the area.

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