“Retailers have extremely tight margin levels,” says retail and food consultant

“Everyone in the chain has the capacity to make an effort. But we must not be mistaken either. Distributors have extremely tight margin levels”explains Tuesday, February 28 on franceinfo Philippe Goetzmann, distribution and food consultant, while trade negotiations between players in the sector are due to end on Wednesday evening.

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According to this consultant, the year 2022 has been “extremely scalable” and the current context is “tense” with limited purchasing power for the French and inflation “around 14% on food products over one year, which has not been seen for 40 years”.

franceinfo: Can distributors agree to buy products that are 10% more expensive?

Philip Goetzmann: All the links in the sector are experiencing increases in their costs linked to raw materials, energy and logistics compared to a year or two years ago. Yes, it’s tense. Purchasing power has not increased to such proportions. This is why distributors are very attentive to prices in negotiations because they know very well the behavior of consumers in stores and their difficulties.

Is there any bluff on the producers’ and distributors’ side?

It is negotiation and in a negotiation there is always an element of bluff. You announce a rate knowing that you will not get it and that you will get a little less. There is therefore always a part of bluff but there is a reality, it is that the costs have increased and that the French have a tight purchasing power.

“What is different from other years is that the situation in the past year has been extremely dynamic. It started with already tense negotiations against the backdrop of the war in Ukraine which had just started and ‘a post-Covid period.

Philippe Goetzmann, distribution and food consultant

at franceinfo

There were three to four rounds of renegotiations during the year. Contrary to what is usually done, they have been reopened several times with price increases, which has led to inflation of around 14% on food products over one year, which is unprecedented for 40 years.

Can manufacturers further reduce their margins?

INSEE released figures on Tuesday morning which show that in 2022 the first quarter was extremely difficult but that the third recovered and that during the fourth the industry margin rate was the highest for a good ten years. That doesn’t mean it’s too high.

The industry needs margins to invest and to develop. In terms of corporate profitability, we are rather in a situation that is recovering. Everyone in the chain has the ability to put in effort. But don’t be mistaken either. Distributors have extremely tight margin levels. Carrefour published its results last week: 1.7% net profit while others show net results of around 15% of turnover. I do not oppose the two but ask a distributor who makes a 1 to 2% net margin to significantly lower his prices, economically but also politically, he cannot.