Walmart Mexico is punishing food suppliers selling groceries on Amazon - Business Insider

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Walmart's Mexico unit has punished food suppliers that also sell groceries to Amazon, causing some to pull their products from Amazon's marketplace, four people familiar with the matter told Reuters.

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Two suppliers that spoke with Reuters said their wholesale prices were the same for both Amazon and Walmart, but that Amazon chose to sell at a lower cost to consumers.

Walmart then cut their payments by the retail price difference multiplied by the amount of stock in its inventory, costing them tens of thousands of dollars collectively and causing them to drop their products from Amazon, the sellers said.

Walmart declined to discuss its competition with Amazon in Mexico or the suppliers' allegations, telling Reuters that it doesn't dictate what companies vendors can do business with while acknowledging that it always presses for the lowest prices, particularly if competitors are offering a better deal.

Here's what it means:Walmart's size in Mexico may give it the leverage to steer suppliers away from other retailers for the time being.

Walmart is Mexico's largest retailer, making it a critically important customer that suppliers likely can't afford to lose. Walmart is reportedly responsible for a resounding 60% of Mexico's supermarket sales, meaning that its wholesalers can hardly afford to stop selling to it.

Therefore, Walmart is in a good position to discourage sellers from working with other marketplaces, hampering Amazon's progress into the market.

And experts cited by Reuters believe that this pressure exerted by Walmart isn't likely to have legal repercussions, as a government probe into whether the retailer is abusing dominant market power would be complex and hard to prove, according to Miguel Flores, a former member of Mexico's competition commission.

The bigger picture: The retailer should take care not to alienate suppliers, or a competitor, particularly Amazon, could lure them away with a more tolerant disposition in the future.

If the competitive supermarket landscape shifts in the future, alienated suppliers may choose to work with other retailers. For wholesalers, being punished by Walmart because a different retailer they work with decided to sell their products at a lower price point — something they had no control over — is likely a bitter pill to swallow.

And while Walmart's dominant position at this time gives it the clout to get away with that practice, if Amazon or a different retailer establishes a more competitive position in Mexico in the long term, it may be able to draw suppliers easily by taking a more tolerant tone with them.

This would be particularly dangerous in Amazon's case, as the e-tailer's huge proficiency in e-commerce will already give it a strong opportunity in Mexico's e-commerce market — worth 17.6 billion at last reporting— that an extra advantage will only magnify.

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