Until September, Portuguese households spent 7,981 million euros on supermarket purchases, an increase of 7.7% compared to the same period in 2021. In total, there were 567 million euros more, with special emphasis on the 10% growth in groceries, 9% in dairy products, 5% in frozen products and 14% in non-alcoholic drinks. Significant is the growth of distribution brands, which are already worth almost 40%, meaning that for every 10 items purchased there are four of the so-called “white brands”. In food, this share is already approaching 50%.
For the Portuguese Association of Distribution Companies, the accumulated sales growth of 7.7% since the beginning of the year is “deceptive”, in that “the entire distribution chain is polluted by inflation and the increase of factors of production”. Gonçalo Lobo Xavier, director general of APED, assures that there are already “significant declines” in the consumption of more expensive basic commodities, such as fish or beef, registering losses of 10 to 15%, and the demand for promotions is growing, already above a share of 50%. “There are clear signs of a downturn, with consumers looking for cheaper items and jumping from chain to chain in search of deals,” he emphasizes.
The prospects are not good. “Food retail is a volume business and average margins are still around 2 to 3%, but on some products there are already margins close to 1% or even 0% because cost growth is such that if they don’t meet all of them consumers, retailers are crushing their margins”, emphasizes Gonçalo Lobo Xavier, for whom inflation growth in Portugal is lower than in other countries “exactly because of these crushing margins”.
However, he warns that if cost pressures continue there is a “high risk” that prices will escalate. “Consumers want products at the lowest price on the shelf and are not aware of these macroeconomic variables. But it is important to understand that if these pressures in the value chain continue, we will have even more complicated times in the coming months because the situation becomes untenable,” he assures.
October, November and December are “very important” months for the sector. “We are preparing for a Christmas of withdrawal, but we are trying to adapt so that we can have a recovery in sales in food retail, which has not been brilliant this year and this is an extremely important period. What encouragement for people and let the last quarter be a little more positive than the previous one,” emphasizes Gonçalo Lobo Xavier.
Shopping less
It is important to keep in mind that data from Nielsen shows that total sales of consumer goods were in line with or even lower than the same period at the beginning of the year, after a huge boom following the invasion of Ukraine. They went from an increase of 3.8% in March to 10.4% in May and 14.1% in August. In September the growth was 13.2%. “You’re already starting to feel the price increase, but despite everything, it’s much lower than if people bought exactly the same thing as a year ago,” says Centromarca’s director general.
In addition to making more price-oriented choices, consumers’ routines are changing, shopping more often but bringing fewer items with them, causing hypermarkets to “lose a little gas” and smaller supermarkets to gain market share. A “natural” reaction, says Pedro Pimentel, because when it comes to buying few things, to have “less temptations when buying”, consumers prefer the convenience store.
But it is the nearly three percentage point growth in the market share of retail brands, which are growing three times faster than manufacturer brands (22.9% vs. 7.8% in September), that worries Centromarca the most. “The most immediate reason is that people with less money are looking for cheaper products and the truth is that the “white brands” are, but there is also a very clear recipe effect, even from Deco and other entities saying that the intelligent attitude is to buy a distribution brand, as well as the growing impact of inter-chain competition that also does a lot through these brands,” says Pedro Pimentel.
The scenario for manufacturer brands is one of “complete loss” because neither the economic context nor the war between the chains helps. But in the long run, it is the retail chains themselves that can also suffer from this, the official warns. “It would be good if the chains that notice that the brands of manufacturers are important in their range also confirm themselves for this differentiation, so that the brands can be part of the solution and not part of the problem,” says Pedro Pimentel. He recalls that “the business model of the so-called more conventional chains is based on the mix of manufacturer brands, which provide much greater profitability for the retailer than private labels”.
Ilídia Pinto is a journalist for Dinheiro Vivo
Source: DN
