What impact could the margin freeze have? Will there be enough money to pay employees’ wages?

What is a margin freeze and why is it being introduced?

According to the prime minister’s announcement, for all foodstuffs where the retail margin has “run away”, prices must be reduced so that the consumer price exceeds the purchase price by no more than 10 percent. The measure aims to bring down food inflation, which rose to 7.1 percent year-on-year in February and is expected to reach 9-10 percent in March. The government hopes that the margin freeze will reduce inflation to 7-8 percent by April.

The regulation primarily affects large chains: stores with a turnover of less than one billion forints are exempt from the measure.

What margin have stores been operating with so far?

A 10 percent margin is extremely low for retail chains. According to G7 calculations, large food chains have been operating with an average margin of 30-35 percent so far. However, this is not pure profit, as they have to cover wage costs, logistics, taxes, rent and other operating costs.

Half of the six largest food chains were still not profitable: 6-11 percent of total revenue is spent on wages and contributions, the special industry tax takes away 4-5 percent, and rental fees and logistics costs account for another 2-3 percent. If the margin drops to 10 percent, it will not be easy for many chains to even manage their personnel costs.

Which products have had the highest margins so far?

According to Viktor Orbán, the margin on eggs was 40 percent, while it was over 80 percent for butter and sour cream. Minister of National Economy Márton Nagy also mentioned other examples:

Dairy products: 70-80 percent margin on cow’s milk curd and yogurt, 60-80 percent on UHT milk.
Meat and meat products: 20 percent margin for chicken drumsticks, 20 percent for parmesan, and over 40 percent for pork fat.
Private label products: These typically have lower margins, below 10 percent.

However, there is no public data in official databases on the exact margins of the products highlighted by the government. Although the Institute of Agricultural Economics (AKI) prepares detailed reports on prices, there are no publicly available figures on the margins of eggs, yogurt, sour cream, and parmesan.