You can already feel the VAT zero in families’ pockets and while it represents a drop of only 6% on a specific basket of 46 essential foods – and therefore with limited impact on the total bill – it generates a “different dynamic in the consumer goods market. Baskets leave supermarkets fuller and the average price paid falls. But not alone. Families are taking the opportunity to treat themselves by buying more non-zero-tax items, such as beer, fresh seafood, pastries, and laundry and home products.
“Although everyone says it doesn’t feel bad [o IVA zero]the data shows that it exists and that it has a more positive expectation effect that influences consumption, with people achieving some improvement in their quality of life,” said Centromarca’s director general.
The data comes from the research Shopper Insights by Kantar Portugal, analyzed by Centromarca, according to which Portuguese families went shopping more often in the first six months of the year, but compared fewer things, although they left more money in the supermarket with each purchase. In other words, purchase frequency increased 5.4% year over year, but the volume of each purchase was 10.1% lower, even though the bill was 3.7% higher.
But it is only by analyzing the data quarterly – we should not forget that the VAT exemption for a basket of 26 foods considered “essential” came into effect on April 18 – is it better to understand how VAT-zero consumption of households: the stabilization of prices led to a 1.4% reduction in the number of trips to the supermarket between April and June, compared to the previous three months, with the Portuguese adding 4.1% more items to their baskets , although they only had to pay 2.1% more for the purchases they make.
“With the fall in prices of the most essential goods, the Portuguese can now buy more products outside this basket,” says Marta Santos, director of customers & analytics from Kantar Portugal. Proof of this is the fact that the volume per transaction “grows much faster” outside the zero VAT basket than inside it. The survey data shows that the Portuguese bought 1% more items from the zero VAT basket in the second quarter, but spent an average of 4% less. On the other hand, purchases of products not covered by the zero VAT rate increased by 6% in volume and by 2.8% in average value.
The most benefited categories are beers, detergents and household cleaning products, as well as fresh seafood and baked goods.
diverted savings
“The effect of zero VAT takes place on several levels. It has a direct impact on the affected products, but it was felt, by drag, on all other products on sale in supermarkets. That is, it reduced some and avoided the increase of others and that makes consumers feel more mentally inclined to buy,” says Centromarca’s general manager. Pedro Pimentel adds: “No matter how small the savings are, it is already starting to feel that they are not diverted to the same products, but to others, which means that people take advantage of this to buy better food, with more or better quality, or possibly both”.
And because Kantar’s studies are based on purchases made by a panel of Portuguese households, not food sales, this effect can’t even be attributed to tourism.
For Centromarca’s manager, this data shows that the government was “very smart” in the way it introduced zero VAT in Portugal, drawing on the Spanish experience, which implemented the tax cut at a time when inflation continued to rise, making it effect was nullified. “In Portugal, it is applied in the counter-cycle, at a time when it is relatively easy to get results, not only because inflation should start to fall compared to the same period last year, but also because the reduction in energy costs felt at the price level of food,” he says.
Impact on brands
The Kantar study also shows that zero VAT has “encouraged” manufacturers’ brands within this product basket, but not all categories benefit in the same way. Brands are gaining market share again in milk and vegetable drinks, rice, oil and canned tuna. On the other hand, olive oil, yoghurt, butter and pasta cannot benefit from the lower price.
“In the case of canned tuna, we see that with the 0% VAT measure, the buyer returned to stronger manufacturer brands, which with the reduction of hole of the price for the distribution brands, thus gaining market share,” the study explains. In olive oil, the increase in prices led consumers to polarize the segments in which they purchase this product, with the “reducing of the price gap between distribution brands and manufacturers within extra virgin olive oil, leading to a recapture of space for brands from stronger manufacturers, capturing buyers compared to the previous quarter.”
Ilídia Pinto is a journalist for Dinheiro Vivo
Source: DN
