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Economists and consumer advocates are skeptical of supermarket price increases, some of which are unjustified. Retail chains are also complaining about the manufacturer’s demands. correct?
Even with the recent decline in inflation for the second time in a row – inflation in this country is still very high. This is mainly because of food: According to the Federal Statistical Office, the price of milk in April was almost 35% higher than in the same month last year. Consumers have to pay about 21 percent for the bread. Sugar, jam and honey each rose around 20%.
According to a study by Allianz, food prices accounted for more than 40% of inflation in Germany this year. Insurance companies justify extreme increases with high energy and operating costs for manufacturers and dealers. But: more than a third of the price increase “cannot be explained by historical dynamics, producers and energy prices”. “So profit-taking is evident,” the economist concluded.
Expensive canola oil – even if there is no shortage
Accusations of so-called “greedy inflation” are not new. The Ifo Institute reported last year that some companies – including retailers – have apparently taken advantage of widespread price increases to stretch profits. In other words, they are said to have raised prices more than the cost increases can explain. The North Rhine-Westphalia Consumer Advisory Center also emphasized that some food price increases are “neither reasonable nor understandable”.
“During our market check, we analyzed 20 food staples and we found price differences of up to 400% sometimes between almost identical products – such as long-grain rice or butter,” explains Frank Waskow, food expert at the Consumers Association.center tagesschau.de. Such a price range does not exist in normal times, it is worth noting that the market has changed. For example, the price of canola oil has been as high for weeks and months as the price of sunflower oil, although there is no shortage in comparison. The price trend of sugar is also unreasonable.
The balance sheet does not provide clear evidence
Carsten Kortum, head of trade courses at the Cooperative State University of Baden-Württemberg (DHBW), is skeptical of the allegations. “Certainly, the cost increase is passed on – almost 100%, depending on the retailer and the scope,” he said in an interview tagesschau.de. Dealers didn’t give up profits, but they didn’t rip off consumers either. “I don’t see any profit-price spirals or excess profits in the business data for dealers or manufacturers,” the trade expert said. Profit margins at Edeka, Rewe or Lidl, as well as Nestlé or Danone, have not grown excessively, and have even fallen over the past year.
Consulting firm Oliver Wyman analyzed 70 of the largest European companies in the sector for Handelsblatt. Earnings before interest, taxes, depreciation and amortization (Ebitda) as a percentage of sales for the large consumer goods maker edged up to 19.8 percent from 19.3 percent. Dealer margins improved only marginally, at 6.4 percent instead of 6.3 percent. As a result, high costs of raw materials, agricultural products, or energy have not had a noticeable impact on the company’s balance sheet. However, the study did not provide clear evidence of “greedy inflation”.
Consumer advocate Waskow also admitted that he could not fully prove his hypothesis: “We usually only have the average price of the item. In order to automatically record the price of all items at the checkout, there needs to be a corresponding legal basis.” However, based on the evidence, he believes that Deadweight effects exist, at least in individual cases. Federal cartel offices and politicians will have to take a closer look at this development. “It’s not about casting general skepticism across the industry. It’s about the psychology of the market,” Waskow said. If a company feels that the authorities have more control, it will be more cautious in raising prices.
Price war between trade and industry
However, there have also been criticisms from the industry. Edeka boss Markus Mosa said recently: “We lost our operating profit because we were unwilling to pass on the manufacturer’s price increases to customers at this level.” His company and Rewe are now demanding Their suppliers raised their quotations for new purchases within a week in view of the drop in raw material prices.
“Traders try to shift the responsibility onto the manufacturers through targeted PR efforts,” explains René Schumann, managing director of the Negotiation Consulting Group, which advises food manufacturers on price negotiations. But the strategy didn’t work. “We’re finding that manufacturers are still not intimidated by their demands and pushing them through.” Bargaining power has clearly shifted to larger suppliers. The level and frequency of price demand is not always directly proportional to actual cost developments, Schuman said.
According to the consultant, price negotiations in the industry are often “suddenly escalated” at the moment: “Negotiations quickly come to a point: accepting stop deliveries or higher price claims. So far, retailers have allowed removals, but now Notice that the shelves are getting thinner.” Trade expert Kotum also observed this: “The price conflict between trade and industry has reached a fever pitch.” this level.
Looking for a price drop soon?
Still, Kortum said, the game continued well. “Retailers can understand cost developments relatively well because they usually also have extensive private label business,” the expert said. Thus, he is also able to assess price demand and can ask for a reduction in price in renegotiations. With the current drop in producer and energy prices, Kortum expects prices in supermarkets to drop soon: “Prices always change over time, not from day to day.” This was last seen with milk prices falling .
Lidl boss Christian Härtnagel also recently gave consumers hope. “Where we see the market for raw materials easing up, we pass that on to our customers and lower prices,” he told “Handelsblatt”. On the other hand, the authors of the Allianz study expect prices to stagnate for now. Experience shows that price increases that have already been implemented are rarely undone. Furthermore, according to food expert Waskow, some price increases have been hidden due to changes in pack sizes: “Unfortunately, not all consumers look at the decisive price per kilogram or per liter.”
Also, high quality ingredients are sometimes swapped out for cheaper ones – not adequately labeled. In general, Waskow advises customers to shop for fresh, seasonal groceries, which have been cheaper in recent months. Plus, private label is still much cheaper than branded products.