Shops adrift at the sea of costs

Retail sector under pressure

According to both the Hungarian Competition Authority (GVH) and the Central Statistical Office (KSH), the increase in transfer prices of the food industry has played a key role in the elevation of the consumer prices of foodstuffs, and the retail sector has been forced to follow suit. There was a time when the increase rate in domestic food industry transfer prices was above 50% (excluding spirits and tobacco products). However, it is also true that the costs of both producers and food processing firms grew; still, in 2022 the rate of increase in food processing industry transfer prices was always higher than the rise in consumer food retail prices.

Tax burden and price freeze

It is unclear why the retail sector has been picked to be one of the sectors where extra profits are taxed, by the government raising retail taxes. In 2021 the sector’s retail tax contribution was HUF 79bn, by 2022 this jumped to HUF 177bn, and for 2023 the state budget plans with HUF 205bn. This is a huge burden on retailers.

The price freeze is also very bad grocery retailers; the “temporary” price freeze is in force until 30 June, following several extensions. Food retailers have lost more than HUF 400bn in sales since the price freeze was introduced. Since the new rules came into effect on 15 October 2021, the sourcing price has been higher than the consumer price in shops, forcing retailers to suffer a brutal loss on these products.

Autumn might bring a U-turn

2023 very much seems to be yet another difficult year. A 0.9% year-on-year decline in gross domestic product in the first quarter, plus a 9.2% drop in retail sales over the same period make for a very challenging economic start. Inflation is expected to moderate to single digits by the end of the year, but it will take more to lure shoppers back to the shops. It isn’t likely that retailers will experience a trend reversal before the autumn, when a moderate growth may start.