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Major retailers agree to cut mark-ups on basic products

The largest Russian retailers have sent their proposals to limit food prices to the Federal Antimonopoly Service (FAS). Thus, Tander JSC (Magnit and Dixy) and X5 Retail Group (Pyaterochka, Perekrestok and Chizhik) are ready to limit the maximum mark-up level to 10%, and the Bristol retail chain – by 10%. 15%. According to experts, this level of mark-up is “absolutely minimal” and will not even cover the costs of selling these goods.

Back in 2021, the FAS held a number of meetings with the largest retail chains. Then the antimonopoly department suggested that retailers work out mechanisms for responsible pricing, which would imply obligations to reduce prices for socially significant food products. In particular, it was a question of limiting markups on certain items within each of the categories of such goods and ensuring their availability in stores. “Based on the results of the meetings, three retailers sent their proposals to the service on commodity items, for which each of them is ready to limit trade margins,” the FAS press service noted.

The particular goods are determined by the networks themselves. X5 Retail Group noted that the restrictions will affect more than 20 socially important goods, including borsch set vegetables, pasta, bread and buckwheat.

“The list includes goods with a minimum purchase price, regardless of weight, grade and packaging. The amount of the margin will be determined by the market method – depending on supply and demand in the market: the minimum level of the margin is not limited, and its upper limit cannot exceed 10%.” , – noted in the company, stressing that the list of positions will be updated monthly, and the costs of promotion and other costs (rent, logistics, utility bills and staff salaries) will be covered by the retail chain at its own expense.

Magnit said that the limitation of the margin will affect 200 commodity items from 25 categories that make up the basic food basket of the buyer – vermicelli, borsch set vegetables, bread, milk, butter, buckwheat and others. According to the company itself, the share of goods that fall under the voluntary limitation of the mark-up may amount to 30-40% of the turnover of socially important goods in Magnit in monetary terms.

According to Igor Karavaev, Chairman of the Presidium of the Association of Retail Companies (AKORT), the chains will cover all the costs associated with the sale of goods. “The limited mark-up will not cover them. Thus, these goods will be sold without income or even at a loss,” he told Rossiyskaya Gazeta. The representative of AKORT added that limiting the mark-up will help provide support to the poor and contain the rise in prices. At the same time, the most important condition was that the decision made does not violate the established market mechanisms, the expert emphasized.

The 10% mark-up on socially significant goods is “absolutely minimal”, Mikhail Burmistrov, general director of INFOLine-Analytics, confirmed to RG: “In fact, the chains will not earn anything on this product.” He recalled that the largest retailers and last year freeze markups on a number of socially important goods. “Given the strong inflationary processes, this is an expected measure. The largest retail chains, due to the scale of their business, optimization of supply chains, and the development of portfolios of their own brands, can afford to keep a margin. Plus, this creates additional opportunities for them in terms of customer traffic,” he explained.

Elena Kiseleva, an analyst at the Institute for Comprehensive Strategic Studies, also recalled high inflation: according to preliminary estimates, at the end of 2021 it amounted to 8.4%. “Forecasts for 2022 remain disappointing. In particular, First Deputy Prime Minister Andrei Belousov recently announced that in 2022, especially in the second half of the year, the world will face the third” inflationary wave “associated with rising food prices nutrition “, – said the analyst.

There is no need to expect additional pressure on the terms of deals for suppliers from the chains, Burmistrov believes: we are talking about low-margin goods, the mark-up for which is already very low, and many food products are purchased on the basis of tender procedures or at exchange prices.

Irina Akimova, member of the General Council of the Association of Antimonopoly Experts, partner of BGP Litigation, believes that other networks can join the initiative of the “Big Three” retailers. At the same time, it is not worth waiting for the spread of such markups to the entire trade. “The fixation of the minimum markup, with a greater degree of probability, should not negatively affect the financial performance of large retailers, while for retailers occupying the niche of small or medium-sized businesses, such a policy can become disastrous and provoke financial losses,” the expert explained.

Akimova also noted the role of the FAS in regulating prices, recalling the anti-cartel checks that the service began in the summer due to massive consumer complaints. “It is unlikely that in the absence of close attention to retailers from the antimonopoly body, retail chains would voluntarily initiate the process of fixing the margin, complicating relations with product suppliers. the nature of cooperation with authorities in order to avoid potential risks of violating antimonopoly legislation and repeated inspections in the future, “the analyst said.

According to the deputy head of the Ministry of Industry and Trade Viktor Yevtukhov, now the average mark-up of large retail chains for basic goods is no more than 15-16%. “Of course, there are goods with a higher margin, but these are not essential goods, they are not included in the social basket. We are talking about anchor goods, which buyers often come for,” the official said on the air of the Russia 24 TV channel.

The FAS previously noted that the service analyzes weekly retail margins in the largest federal and regional retail chains. Special attention is paid to chains that occupy a dominant position (market share is more than 35%) in a particular municipality.

According to INFOLine, in 2020 X5 Retail Group ranked first in terms of its share in the food market – 12.64%. Retail chain Magnit (excluding Dixy) was in second place with a share of 8.66%. Mercury Retail Group (Bristol, Krasnoe and White and until 2021 Dixy) rounded out the top three retailers – 6.6%.

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