Global Distribution: Monopsony

Takeshi Nishida
Senior Managing Consultant

May 13, 2009 (Wednesday)

“Monopsony,” an old term referring to a “buyer monopoly,” has become a keyword in discussion on the recent globalization of the distribution industry.

Reports of acquisitions regularly fill media headlines in Japan, while recent news on the distribution industry, such as restructuring in both the convenient and department store industries, is also abundant. As the makers of consumer goods, manufacturers react most sensitively to such news. This is because the emergence of powerful buyers (= downstream) would begin to transfer added-value (= profit) downstream, as seen in Europe and the US. An example of this is NBs (national brands) losing share to PBs (private brands). In Europe, food products are increasingly dominated by PBs: the top five British retailers command over 80% of the share, and the overall PB share reaches 45%. Manufacturers end up with a smaller slice (added-value), and have no choice but to increase their dependence on retailers because of lower advertising funds. This makes retailers even more powerful.

Such outright buyer monopolies are not seen in Japan. However, the full-fledged entry of foreign capital (Wal-Mart still claims it is “experimenting” in the Japanese market), and increased vertical integration centered on large companies countering such entry indicate potential for strong oligopolistic tendencies. Consumer good manufacturers are therefore under pressure to forget success experiences from existing marketing know-how and structures, and construct scenarios for how to develop the products and services that consumers want to prevent defeat in the “battle of scale” brought on by monopsonies. Construction and utilization of information infrastructure that connects directly with consumers and other such activity will form the core of survival strategies in the future.