Margin is very much not profit

By: Trademagazin Date: 2025. 03. 17. 13:46

The government announced that it would introduce a margin cap on 30 food product groups from March 17, 2025, after food inflation reached 7.1 percent in February. The decision was not entirely unexpected, as it was already raised at the end of February that the possibility of margin restrictions existed if retail chains did not start voluntarily reducing prices. Negotiations with large supermarket chains (Lidl, Aldi, Penny, Tesco, Auchan, Spar) did not lead to any results, so the government set a 10 percent margin cap in a decree, Telex points out.

What is margin, and how is it different from profit? Margin is the difference between the purchase price and the selling price, but it is not the same as profit. Retailers use the margin to cover their operating costs, such as wages, energy costs and taxes. The government, however, often confuses the two concepts, suggesting that high margins equal pure profits.

In Hungarian retail, most companies operate with minimal profits. In the sector, a profit rate of 1–3 percent is considered good, while many companies make a loss.

Which companies are affected by the margin freeze? According to the regulation, the margin freeze only affects companies whose main activity is “food-related mixed retail” and whose net sales in 2023 exceeded 1 billion forints. This affects approximately 200 companies. Inspections are carried out by government agencies responsible for consumer protection, and violators can be fined between 500,000 and 5 million forints.

Do only retailers apply margins? No. All actors in the supply chain (producers, processors, wholesalers) apply margins before the food reaches the stores. However, the government is focusing exclusively on retailers, while other actors in the supply chain, such as food processors, are also applying significant margins.