Business

The unstoppable rise in the shopping basket anticipates an uncertain horizon for supermarkets in 2023: “Either they are efficient and sell private labels, or some will not make it to the end of the year”

With the start of 2023 just around the corner, supermarkets are already preparing for the challenges they will have to deal with next year. Gone is a 2022 marked by inflation and the energy crisis, which has left a rise in prices that has not been seen for more than 4 decades.

“The current economic situation defined by the rise in the prices of raw materials and energy has had a huge impact on the agri-food supply chain, so it is urgent to take measures to reduce the consequences of this cost crisis. in the first months of next year “, explains Ignacio García Magarzo, general director of ASEDAS. “Overcoming this situation would be our main challenge.”

This leaves on the table the question of whether next year they will reap the profitability of yesteryear . “This is something quite difficult to predict, because there are indications that it is going to be a difficult year at the economic level for society ,” Jorge Anduix, head of business development at Inprofit told Business Insider Spain . 

This is something that can be repeated in the coming year, since, although the price of food continues to grow, —the shopping basket has risen by 15.3% despite the fact that inflation has moderated to 6.8 % — Supermarket chains are not going to get big profits because the costs of electricity, gas and the raw materials themselves continue to rise. 

Something that also underlines from ASEDAS. “The reality is that the margins of food distribution, which are usually between 1% and 3%, are suffering a lot with the economic situation that we have been dragging on since the last quarter of 2021.”

In fact, it is nothing new. Mercadona closed 2021 with record sales. The chain led by Juan Roig exceeded 27,800 million euros in turnover, but its profits were 680 million euros, 6.4% less than in 2020.

As Ana Jiménez, director of the UOC’s digital marketing master’s degree, explained to Business Insider Spain , it will not be a positive year for supermarket chains because “their costs, such as electricity or the cost of product creation, will increase In addition, the demand is contracted in certain products, that is, the customer will continue buying, but they will buy cheaper products or even change their buying behavior and there will be certain products that will stop being bought”. 

In Spain there is one food establishment for every 1,887 inhabitants, this means that “companies have to narrow their margins as much as possible to be able to compete, because the consumer only has to cross the street to have other options where to make their purchases if they are looking for better prices”, points out García Magarzo.

That is why the experts consulted by Business Insider Spain consider that all supermarket chains are going to have to readjust their prices . In addition, they consider that the shopping baskets will also change, lowering the average ticket. ” Surely the annual turnover of supermarkets is also going to drop “, highlights Jorge Anduix. 

“Obviously, it is a sector that will never have a big drop because we have a bad habit of eating and in the end you end up buying. But it is true that from now on, surely in 2023 you will look at the price much more and compare much more “, Add.

In addition, this readjustment will also affect chains that have higher prices and are considered premium. “Demand is contracting even in those families that have higher incomes. So these premium chains will have to modify their strategy and, therefore, it will also have some effect on profits ,” says Ana Jiménez. 

This contraction in demand and caution in the face of the economic crisis they are going through, derived from inflation and the rise in energy prices, will reduce interest in expanding throughout the territory by opening new stores. “There are too many variable socioeconomic factors to continue with such a strong expansion,” says Anduix.

Back to basics and private label

In order to lower prices, but without losing quality, supermarkets are going to have to bet on their own brand in order to be economically efficient. Something in which Mercadona is the queen with Hacendado at the helm and that other chains, such as Carrefour and Lidl, have been working on for some time. 

“They will have to start tweaking the assortments and adapting them more to what the customer needs in 2023, who will have less purchasing power,” explains Alejandro Alegret, professor at EAE Business School and author of the report ‘ Distribution brands: buying habits’ , brand equity and sustainability ‘. “But the assortment can be tweaked up to a certain point, from there they will have to use private labels to complement it at a lower price but with acceptable quality.”

Something that Ana Jiménez also considers will be a great challenge for supermarkets in 2023. “The supermarkets themselves are finding that the prices of their products and production costs for them are also increasing and obviously the customers, even if they make a purchase of basic products , they also cut back on the purchase of certain products”. 

In addition, these brands also serve to retain customers . “Distributor brands are one more variable in the strategy of attracting consumers through a quality/price combination that makes them very competitive, which is why they are an important asset in the current economic scenario”, highlights Ignacio García Magarzo.

The challenge of retaining customers and strengthening the online channel without lowering prices

This commitment to private label is going to be crucial for supermarkets if they want to make a profit . “Either you are efficient and you sell private label, or during 2023 I don’t know if it will reach the end of the year ,” says Alejandro Alegret.

This situation will unleash greater competition. This is something that all the experts consulted by Business Insider Spain agree on . However, Alegret also qualifies that “the challenge is basically not to enter into unbridled price competition that leads them to end up losing money, because in the end the rates from the providers are rising.”

Spain has one of the most competitive food distribution sectors in Europe. This is due to its low concentration and the enormous offer available to consumers. Something that reflects the market share data. According to Kantar , Mercadona, Carrefour and Lidl, the 3 main chains, hold close to 45% of the market.

“I don’t think there will be an entry of new chains because it is a very consolidated sector, that is, the different chains already have their different typologies well established. I don’t think competition will increase ,” says Ana Jiménez. 

What the expert does consider is that the war for customer loyalty can intensify, whether with cards or promotions or a war to lower prices. 

Another of the challenges that supermarkets will have next year is to advance in their digitization. According to Alejandro Alegret, “digital media will be used to complement the omnichannel strategy .” The digital part of supermarket chains has 2 functions: positioning and sales communication. 

Until now, the online sales of the chains represent a fairly low percentage of the total income of all the companies, which is why this digital strategy is used exclusively to support and reinforce offline sales. 

But why is it important then? “In the end we need to be constantly reminded,” Alegret points out. “From there it serves to communicate offers, promotions, etc.”. 

In addition, Jorge Anduix points out that companies like Amazon have become part of the direct competition of supermarkets because they are promoting online sales of food and beverages. ” They are going to have a lot of competition at the ecommerce or marketplace level , there they are going to have a significant barrier.” 

In addition, he points out that this is something that companies had realized years ago, which is why “the main Spanish chains are also betting on creating their own online sales platforms.” Although this is something that will still take a long time. That is why in 2023 they are going to try to strengthen this channel. 

But digitization is not just for online sales. Inprofit’s business development manager points out that the digital transformation will also be implemented and extended to the physical point of sale . “In other words, offer digital and technological solutions to the user who is at this physical point for a better shopping experience.” All this will be accompanied by a greater commitment to neuromarketing . This is something that we have seen for years in establishments in, for example, Alcampo.

A “historic salary increase” and the lack of support from the Government worries the sector

In addition to the rise in production and energy costs, there is an increase in personnel costs . The collective agreement of the National Association of Large Distribution Companies — which brings together companies such as El Corte Inglés, Carrefour or Alcampo — and which affects more than 234,000 employees expires on December 31. 

For this reason, the unions have already advanced that they will go to negotiations with “historic” claims , after 2 years in which salaries have risen 1%, despite the inflationary spiral. In fact, Fetico, the majority union in Anged, will demand a salary increase of 4.225% during each of the four years of the agreement, which would represent an increase of 18% in the period . 

For its part, CCOO has announced its intention to fight for a salary increase of at least 18% in 4 years. The intention of the main unions is for the category of professionals to go from earning 15,480 euros gross this year to between 18,266 and 18,500 euros in 2026 , that is, about 3,000 euros more per year.

Neither Mercadona, DIA nor Lidl are part of Anged . However, the 3 supermarkets have already reached an agreement to raise the salaries of their employees. 

In the case of Mercadona, the salary increase is 6.5% and affects its more than 93,000 employees. In this way, the base salary signed in the agreement increases to 1,425 euros gross per month, 87 more than last year.

For its part, DIA has agreed to a historic salary increase of between 8% and 12% of the salary of its employees in stores and warehouses in Spain until 2024. 

In addition, two special additional extraordinary bonuses will be activated for the full validity of the agreement. The first affects workers who have a fixed annual salary equal to or less than 23,847 euros, who will receive an extraordinary bonus of 350 euros, while the second is linked to a certain level of results in 2024.

For its part, Lidl signed an agreement with the CCOO and UGT in July to increase the salary of its staff by at least 16.5% until 2025 . In addition, a clause was included to review these figures linked to the CPI to “guarantee purchasing power at all times” and which contemplated a maximum salary increase of 19% in the four years of the agreement.

The sector’s situation is delicate, as García Margazo points out. “The main measures that we demand from our sector refer to the need to access energy prices at sustainable costs, have safe transport and guarantee access to raw materials.”

In addition, he adds that “we are asking for the legal recognition of the sector as essential to provide the population with access to food even in the most adverse circumstances. Food distribution, and the chain as a whole, has demonstrated its commitment to society and their resilience, but the current situation is so complex that we need help from public administrations”.

However, from the Government they are still not clear about the steps they are going to take to try to alleviate the situation in the sector.

On the one hand, there is talk of an extraordinary tax on the profit margins of large supermarkets , which Yolanda Díaz’s team is working on and which they want to negotiate with the PSOE. 

This idea is based on a tax present in Portugal where the 33% tax on extraordinary profits to supermarkets is in the final phase of its processing.

However, the sector considers that the situation in Spain is very different. “There, if there is talk of extraordinary benefits due to price policies in manufacturer brands, there is a social debate with consumers and the Government has been sensitive on this matter, but objectively here there are no extraordinary benefits, we have a very important rise in costs, and that is making medium-sized companies this year for the first time lose-loss .”

In fact, the sector calculates that this measure would eat up the profit of Mercadona, Carrefour, Lidl, Eroski and Alcampo together. The profit of the 6 main supermarket chains together is 1,376 million . Therefore, the tax that the Minister of Labor wants to make effective would mean that all these companies would end up in the red.

On the other hand, there is the anti-crisis measure that Unidas Podemos has proposed to the PSOE. The intention is to deploy in 2023 an aid check of between 250 and 500 euros paid only once, to benefit eight million inhabitants. This check would be paid for with the tax on the distributors’ profits, at the same time that it would have “a dissuasive effect so that these chains do not raise prices.”

The total of this check would cost between 1,400 and 2,400 million euros, depending on the amount of the check and the number of households among which it is distributed. These figures are much higher than what would be collected.

On plan, a rather complicated 2023 is expected for supermarket chains. In addition to the problems that this year is dragging, they will have to improve their strategies if they want to maintain their small economic margins. 

Smith

Tricare west is a global news publication that tells the stories you want to know.

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