Prouza: Retail chains have slowed price growth by reducing their margins

Prouza: Retail chains have slowed price growth by reducing their margins

Prouza: Retail chains slowed price growth by reducing their margins

Illustrative photo – President of the Trade Union Tomáš Prouza (archive photo from January 18, 2017).

Prague – Retail chains slowed price growth last year by reducing their margins. Tomáš Prouza, president of the Trade and Tourism Association of the Czech Republic (SOCR), told journalists today. According to him, the rise in prices has led to a change in the behavior of consumers, who buy fewer goods more often. People are also more driven by discount events. According to the association, 62 percent of the products are now sold at events.

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Last year, according to the Czech Statistical Office (ČSÚ), retail sales fell by 3.6 percent year-on-year. According to statistics, sales for food in retail decreased by 5.1 percent last year and for non-food goods by 2.9 percent. According to Prouza, the drop in chain margins will affect the economic results of companies. He noted that traders had to deal with the rise in energy prices in the same way as other sectors, and after the end of the fixations, their energy costs increased by an average of 18 percent. He pointed out that many foods have clear rules for preservation and must be frozen or thawed both in warehouses and during transport and at the store.

At the same time, according to him, retail chains were one of the few sectors that was able to adapt to the deteriorating economic situation and increase employee wages. Last year, according to SOCR, companies in the field increased their wages between 11 and 18 percent year-on-year. According to Prouza, the increase in wages in recent years has changed the perception of work in chains, which was previously considered very poorly paid and was criticized by some politicians. “Seven to eight years ago, the turnover of people on the sales floor was around 20 percent per year, today it is below five percent,” he said.

According to Prouza, the reason behind the increase in food prices is the lack of competition between suppliers, when in some segments there are companies controlling large market shares in the order of tens of percent. According to him, this is the case, for example, with soft drinks, margarines or detergents.

Prouza also pointed to the statement of the chairman of the Office for the Protection of Economic Competition (ÚOHS), Petr Mlsna, to Seznam Zprávy, according to which, unlike other EU countries, the retail market in the Czech Republic is relatively fragmented. Prouza added that in some European markets, the three dominant chains have 60 to 70 percent of the market. He also noted that, according to estimates, roughly 22 percent of the market is controlled by Vietnamese convenience stores, which operate only externally as independent stores. “It's a coordinated business practice. They have a primary common supplier,” he said. He also pointed out that they use a unified cash register system and centralized data management. According to him, they can react very quickly to discount promotions, buy sugar at a discount in the chain, for example, and sell it in their own store.

According to Prouza, rising prices led to a change in consumer behavior, when demand for luxury foods, for example, fell more expensive meat, alcohol or exotic fruit. Previously, according to Prouza, people saved more by buying lower quality goods, now they buy smaller quantities and food waste is reduced.

According to SOCR, retail chains have 78,000 employees, annually invest between 16 and 18 billion CZK and investment the activity probably won't let up even this year, despite the difficult economic situation.