Falling out: K&N’s parts ways with Metro, Makro over price row

Frozen food of K&N’s will not be available on the supermarket chain.

KARACHI:

After years of successful business relationship, the largest chain of supermarkets in Pakistan, Metro and Makro – the two have merged recently – and the leading frozen food chain, K&N’s, have ended their partnership. Interestingly, each company claims that it is the one which has ceased to work with the other.

Who refused to work with who is unclear. But one thing is certain that the two have parted ways despite a highly profitable business partnership.

K&N’s has recently run advertisements in leading newspapers, declaring that its products would no longer be available on Metro and Makro stores. On its part, the supermarket chain has also placed notices in its stores with the same message.

K&N’s claims that Metro and Makro made unacceptable demands including hike in its frozen food retail prices and higher profit margins for placing its products on the store’s shelves. These demands came after the recent marriage of the two supermarket chains, it says.

However, Metro and Makro officials reject the allegations, saying these are baseless and have nothing to do with the merger.

Talking to The Express Tribune, K&N’s CEO Khalil Sattar said the food chain was being forced to raise prices of its products, pay for forced advertisements in the supermarket and supply items at reduced rates.

“We were forced to take this decision because we could not supply products at the concessions demanded as it would hurt business interests of our 1,000 retailers spread across the country,” he said.

“If we accept their demands, we will have no choice but to increase prices of our products that will neither help the customers nor the producer,” Sattar said, adding it would only boost profit margins of the supermarket chain.

Sattar also claimed that they were asked to pay Rs5 million annually for in-house advertisements on banners which was a cause for concern for the company.

“We could have considered this demand had our sales at Metro and Makro were showing an upward trend. Our sales have increased all over the country except for Metro and Makro so why should we pay more to them,” he asked.

Replying to a question, Sattar said annual sales of K&N’s products at Metro and Makro stood at around Rs200-220 million. Sharing other statistics, he said K&N’s products enjoyed a lion’s share of 65% of total sales of frozen food at Metro and Makro.

Both the figures underscore the importance of business partnership for the two companies.

Despite the expected loss in sales, K&N’s officials believe that the company can overcome the challenge with its dedicated 70 company outlets and 1,000 retailers in different cities of the country.

Commenting on the developments, a top official of Makro described the allegations as ‘unfounded’.

Metro Cash & Carry Pakistan Head of Corporate Affairs and Company Secretary Pervaiz Akhtar said K&N’s desired to “increase prices of its products so we discontinued our business operations with them”.

He said his company annually negotiated with its 700 suppliers for 20,000 products. “It is just that our deal was not finalised with them.”

Akhtar also stressed that the issue had no link with the merger of Metro and Makro. He rejected Sattar’s claim of forced buying of indoor advertising space, saying his company could not give more space to any product without paying regular dues.

Metro Cash & Carry Pakistan and Makro-Habib both are operating five stores each in Pakistan. According to officials of the two store chains, the merger deal has already been cleared by the Competition Commission of Pakistan (CCP).

(Read: Frozen food producers vie for local market)

Published in The Express Tribune, May 22^nd, 2012.