It is not a big task to discount 20 products for a discount store, a supermarket, but especially not for a hypermarket. Not so much that every week, companies offer discounts many times that amount to customers to lure them into stores. And 10% is straight up smafu, because it doesn’t really excite the customers. The retail chains are embarking on the mandatory promotions starting in June, along the lines of the government’s communication poles (and signs), but with their own marketing techniques.
Some store chains have already indicated that they will devalue their products to a much greater extent than the government expects. Alone those smaller units mainly owned by Hungarians are in a difficult situation, which according to the law must introduce the mandatory actions, because their sales exceed HUF 1 billion, but due to the previous rise in energy prices, the most unfavorable regulatory environment for them (e.g. price caps), and the drop in retail turnover, they are already dancing on the edge of a blade. The mandatory promotion can put the last nail in the coffin for smaller stores with a more modest selection of products and who advertise few promotions anyway, so the drastic decrease in the number of stores can continue.
Supermarkets are also doing well with the wave of convenience store closures, as this excess demand ends up with those that remain afloat. Mandatory promotions can be used as another advertising trick. Some companies – as we can already see – will shout that they did not reduce the price of the selected products by 10%, but by a multiple of the amount expected by the governmentbut there may also be an example where a company will say that it is not discounting 20 products, but much more.
Nevertheless, this does not mean at all that from June there will be more and bigger promotions than before, it’s just that two of them are announcing the same promotions.
It can easily be if a store chain (for the sake of simplicity) e.g. You have discounted 100 products so far, then you will also get 100 from June, but you will only select 20 of them, so that these are necessarily discounted. You just have to make sure that there is a discount product in each selected product category. Since there is no requirement that they have to carry out another 20 devaluations on top of the previous sales, it is not at all certain that there will be more sales in the stores than before. What’s more, a store can even say – also as an advertising ploy – that it will add not 20, but 30, 40 or 50 products to the system, while not adding to the previous (in our example), 100 discounted products.
Nevertheless, just like the price cap, the mandatory sale can also “cover” the market, and in June both will definitely be with us. Today, all stores – at first this was typical only for small ones – sell markdown products at a loss, since the purchase price is already higher than the consumer price displayed on the shelves. In theory, there could be no example of this, however the government exempted stores from selling these products below purchase price. If this were not the case, there would be no price-stop products on the shelves today.
And this rule is also true for the new promotion order, so with the government’s tailwind, they can violate the rule aimed at protecting agriculture and the food industry, which prohibits too low prices.
Retailers must officially bear the loss resulting from mandatory sales, they cannot pass it on to the industry. At the same time, according to our sources, there is not really a 40-50% margin in retail. In such cases, manufacturers also typically get in on the action: although companies cannot abuse their dominance and cannot modify existing contracts, but
- the suppliers either voluntarily join the promotions and temporarily discount the transfer prices (because they want to maintain a good relationship),
- or they take their part because they don’t want to be delisted (their products taken off the shelves).
It is quite possible that during the period of mandatory promotions, purchase prices will also go down, as the larger chains can put serious pressure on them.
Today, in the case of price-fixed products, we can basically talk about dumping prices (only not the artificial pricing of foreigners, which is usually typical of dumping, but due to the government rule), which causes the destruction of product quality, the displacement of domestic products and the importation of lower quality imports for products with frozen prices, and it may well be that the next period causes de facto dumping in a wide range of products – since for many months (and increasingly) price has been the most important factor for the majority of buyers, and it seems that it is already for the government as well.
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