Why do supermarket chains have such a huge margins?

Consumers in Serbia have to shell out more and more money for the most basic life necessities, while, at the same time, the margins of large retail chains are astronomical, so even in times of crisis, they manage to make good profits.

However, retailers claim that that is not the case and that they earned less compared to the skyrocketing business costs. Economists and representatives of consumer associations we talked to, however, have no dilemma – there is room for reducing margins and therefore prices in stores.

Milk, oil, biscuits, cocoa spread – these are some of the products that are part of the standard market offer in neighbouring Montenegro. For instance, the Moja Kravica milk costs between 150 and 155 dinars in Serbia, while the same product in Montenegro costs 1.09 euros, or slightly under 130 dinars. And we should bear in mind that supermarkets in Montenegro have higher operating costs because of import fees, transport costs and customs duties that need to be paid.

The group of wholesale and retail food stores that are a member of the Trade Association of the Serbian Chamber of Commerce claims that the average net profit rate of the retail sector in Serbia is about 2.8 percent.

Retailers also say that the average net profit is lower than the significant increase in operating expenses, which include wages, electricity, fuel, rent, maintenance and other expenses.

What is the real truth?

Although the margins of retail chains are a trade secret, so consumers cannot know what is a store’s profit from selling a litre of milk or a kilogramme of meat, experts agree that the margins are too high. Also, despite growing operating costs, retailers are still earning a tidy sum, otherwise they would have closed their doors a long time ago. Dejan Gavrilović from the Efektiva consumer association explains this on a simple example.

“If I, as an end-seller, buy a product for 100 dinars and sell it for 150, I have 50 dinars left. Let’s say that 5 dinars out of those 50 are my operating expenses. If it happens that my operating expenses jump by 100 percent, i.e. to 10 dinars, my profit will still be good, i.e. 45 dinars for that particular product,” Gavrilović adds.

If it wasn’t like that, explains Gavrilović, nobody would be in the retail business. Professor of the Faculty of Economics Ljuborag Savić, Ph.D, is of the same opinion.

“The comparison of profit and higher operating costs is not realistic. The truth is that the costs of doing business are growing, but the profit is also growing – maybe slower, but it is still growing. So, maybe the margins are a little lower, but in times of crisis like this when companies in Europe are shutting down, and the only problem that retailers have is that instead of their profit ranging from 30 to 40 percent, it will drop to between 10 and 15 percent”, says Professor Savić.

Even the National Bank of Serbia is refuting retailers’ claims. According to their data, retail margins of the group of the five largest consumer goods retail chains were higher in 2022 compared to 2019 – by as much as 36.6 percent and they are continuing to grow.

(Nova, 24.08.2023)


This post is also available in: Italiano

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