A few weeks away from the beginning of the golden age for wholesale distribution, the sector is confronted with the increasing loss of purchasing power of consumers. Both food and specialty retail are facing tough challenges, with the continued rise in inflation and the consequent loss of liquidity for the Portuguese, leaving them running out of time to breathe after the pandemic crisis. Gonçalo Lobo Xavier, Director General of the Portuguese Association of Distribution Companies (APED), admits that “the country is preparing for a very complex year” in terms of consumption and that it is necessary to ensure the competitiveness of companies.
“We are witnessing a very serious problem of loss of purchasing power, which will reduce the budget of the Portuguese,” said Pedro Pimentel, director general of Centromarca (an association that represents branded product companies). According to him, “from now on, consumers will start to feel that the crisis is getting worse”, with the start of the lessons and the rise in house rates. “It’s a very poisonous broth,” he emphasizes. This is going to be “a very critical period and you see that in companies”.
In this context of high inflation, wage moderation, rising credit rates and a tough fiscal policy for households and businesses, the government is grappling with the National Budget (OE) for 2023. The document, which will be known in less than a month – delivery will take place on October 10 – , it will be able to respond to a number of concerns from businesses and families and even import solutions that have already been implemented in other European countries to mitigate the effects of the rise in the cost of living.
This is a debate that the annual Dinheiro Vivo conference, which will take place on September 20 at the CCB in Lisbon, will anticipate, focusing on the topic of Covid, war, inflation: how to adjust taxes to the OE2023.
For now, Gonçalo Lobo Xavier remembers that, similar to what happened during the pandemic, the challenges of food and specialty retail are different. Supermarkets and hypermarkets are now struggling with the consequences of inflation. “The food value chain is under tremendous pressure from rising production costs” and the challenge for large distribution, which is “becoming more complex, is to have products at a balanced price and to reward suppliers”.
The solution is not easy, taking into account that the margin of this activity is very low, between 2 and 3%. Despite all these difficulties, the food sector in Portugal is so competitive that “consumers continue to benefit from the products on the shelf and a huge variety”. Prices are rising, but “competition is causing them to rise gradually,” he emphasizes.
In the specialized retail trade (including fashion stores, electronics, household appliances) the story is different. In this activity, “slaughtered during the pandemic (the closures the units were forced into, with the respective consequences for the company), another event occurs which complicates the lives of the operators, as the economy recovered”. In addition to the shortage of supply and the increase in transport prices, there is a loss of liquidity for the consumer.
“In your rationality, [os consumidores] they will favor essential goods over higher value purchases such as appliances,” the head of APED recalls. “We are concerned about these growing challenges that will negatively impact business operations,” he also emphasizes.
One of the answers that the sector will focus on is to strengthen the strategy of rationalizing energy consumption, which has been in place for more than ten years. “Distribution is a matter of efficiency throughout the value chain and we will continue to invest in more sustainable and cheaper energy,” he adds.
But APED also expects the government to give the sector room in the OE for 2023 “to breathe in light of the tax obligations it has to meet”. According to Gonçalo Lobo Xavier, “There are tax issues from the IRS and IRC and others, such as autonomous taxation, that affect the [sua] operation and that softening it can make it]more competitive”.
Pedro Pimentel warns that “brands are expecting a very bad semester at the very least,” with consumers buying less, opting for cheaper products and major distribution brands.
In addition, he recalls, inflation may even fall in 2023, but prices will not reach 2019 levels. And the companies he represents face the challenge of costs, the deterioration of energy prices and logistics. In his opinion, wholesalers will invest in operational savings, namely in the reduction of assortments, which is “terrible for brands”.
For the official, the OE could alleviate some of these industries with energy policies and also with the reduction of the IRC to increase competitiveness. As for households, it suggests a cut in IRS rates at the lowest levels and a drop to 4% of products currently taxed at 6%.
Sónia Santos Pereira is a journalist for Dinheiro Vivo
Source: DN
