Aside from the fact that local distributors have to scramble to meet sales targets set by multinationals who compel them to sell their products at a minimum price, distributors are also pressured to market these products more aggressively. Remember, with vertical price restraints, multinationals, such as Nestle, set a low price for their products without factoring in the actual distribution costs of their distributors or retailers. Distributors work harder to sell these products to show consumers that, hey, it may be cheap or cheaper, but it’s still good quality. Impressions are everything.
Unfortunately, distributors are usually stretched to the limit since the margin for profit is so minimal when vertical price restraints are imposed. What could potentially happen, and is no doubt happening, is that distributors have to cut down costs at the expense of quality, particularly quality of service. Picture how transportation companies still insist of having old, broken-down buses plying EDSA with drivers racing each other from stop to stop to get more passengers. In the same way, quality is compromised for products distributed, precisely because distributors, in bearing the costs alone, do not have the means to provide anything better or to actually follow through on the consumer impression of the product. In the end, quite obviously, it is the Filipino end users who suffers or is short-changed.
Can you really blame the distributor? Remember, these are usually and typically Filipino SMEs who have to cater to the whims and are practically compelled to follow the pricing schemes set up by companies like Nestle.
In other countries, there are already factors and determinants used by courts to determine whether a vertical agreement is reasonable or not. What we have here is simply the fact that we adhere to the Rule of Reason. But as to how we can determine what is reasonable or not – Philippine law is almost entirely silent. This is why the recent call to pass tougher and more comprehensive anti-trust regulations must be prioritized by our legislators. Only the government now can step up to protect SMEs and consumers from certain practices that companies like Nestle have been getting away with for years.