Profitability only works one way

Источник: The DairyNews
The strengthening of the national currency led to the fact that food suppliers who three years ago motivated the price increase by the growth rate of Euro and dollar, were asked by retailers to reduce selling prices. However, food manufacturers disagree with this and claim that lower prices do not guarantee lower prices for the consumer.
Today, retailers ask suppliers to reduce prices. Officially, it is known that e-mails with similar offer to contractors were sent by X5, "Lenta" and "Verny". According to X5 lately dollar rate decreased from 66 to 59.5 rubles/$ (by10%) and Euro rate – from 72 to 63.5 rubles/Euro (by 12%). Note that for example, "Verny" and "X5" asked the suppliers to give an answer before March 15. Both retailers in the absence of a response reserve the right to revise the terms of cooperation this year.

According to "Kommersant", when the dollar rose to 70-80 rubles, "Verny" received a lot of letters from providers who asked to raise procurement prices, explaining that by the high foreign exchange component of production. "It is logic, if the process would have a retroactive force," - said in comments to "Kommersant" the General Director of a trade network Oleg Vysotskiy.

According to Anna Sinyavskaya, a partner of the Agency M. A. Research, the main reason for the rising prices was the devaluation of the ruble at the end of 2014, now the exchange rate has stabilized, so the retailers think it is possible to ask suppliers to reduce prices. "Also, retailers would like to increase the profit margins that, in particular, depend on the purchase price. In addition, lower prices can stimulate demand for goods of the suppliers that will agree to reduce prices," - said in comments to The DairyNews Anna Sinyavskaya.

Many retailers have noted that they prefer individual negotiations with each supplier on the prices. "We are in constant dialogue with suppliers to maintain a competitive attractiveness of the price in "Dixie." We prefer to conduct individual negotiations with each vendor to take into account the current market situation depending on the industry," – stated in the press service of "Dixie"

In "Lenta" it was announced to The DairyNews that the network is very sensitive to the price increase by suppliers.

"We are constantly analyzing the real situation on the market and the reasoning of our partners. We regularly negotiate with our suppliers to revise the purchase prices. Our main goal is to provide the best combination of price/quality for our consumers. We have often been able to find understanding with our partners. For example, at the end of 2016, we reduced prices on a large number of commodity items in the category "fresh", such as potatoes, apples, citrus and others", - noted in a press-service "Lenta".

Milk processors interviewed by The DairyNews, emphasize that over the last three years there have been many changes on the market, which affected the financial situation of enterprises. This also applies to amendments to the law “On trade”, and increasing costs of milk producers of raw milk, rising prices for packaging and the decline of consumer demand against the background of falling incomes.

"In my opinion, it (the request for lower prices – editor’s note.) is again one-way street for trading networks. To reduce the price of products is almost impossible, because to negotiate and agree – it will get worse. It may be that manufacturers will reduce prices, and the price on the shelf will not change. In our justifications, we have always proved that the share of Euro or dollar is upto 18% of the cost price. At the same time, our profitability is about 4%, and at the best companies – 8%. In trading networks, this figure is much higher. I think that in the near future food prices, including prices for dairy products, will not decrease", - said the Chairman of the Board of Directors of JSC "Tula dairy plant" Alexander Shirinkin.

Anna Sinyavskaya noted that the lower prices may stimulate demand for the supplier's products. "It is unlikely that the demand for food products will severely reduce, since they are essential goods, however, the price factor continues to play a key role in the selection of goods. For many buyers, this is a necessary measure, the real incomes of the population in 2016 decreased by 5.9%. According to Rosstat, consumer demand fell by 3.8% in 2016, including household consumption that decreased by 5%," - said the expert.

In Soyuzmoloko they believe that the change of exchange rate differences observed at present, does not impact seriously on the cost price of production. "If we are talking about the production of raw milk for processing, the majority of products are made here, on the territory of the Russian Federation; if the projects were invested, they were invested at a higher rate, if we look at the last 2-3 years. We don’t see any justifications to talk seriously about revising some of the pricing parameters in the traditional relations between producers and trade networks, and our position in that sense is quite harsh," commented Executive Director of Soyuzmoloko Artem Belov during the conference "Agribusiness: end of 2016 and the prospects for Franco-Russian cooperation".

The price of the product depends on many factors: cost of raw milk, energy, transport component (to which the problem of "Plato" was added), logistics, period of turnover and other parameters. According to some experts, a steady strengthening of the ruble and import substitution of certain goods contribute to reduce the final price. However, as market participants say, the overall market situation is not conducive to the reduction of prices. The situation could be corrected by more transparent conditions of state support and final stabilization of incomes of population and their subsequent growth.

Read full article in Russian on DairyNews.ru 
30.01.2024
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