Profit margin has always been low in modern retail with most companies relatively constant at 2% to 3%. Grocery retail is one of the businesses with the lowest profit margins, while fashion retail for instance sees 10% to 15% profit margins.
Grocery retailers usually make money from other types of products than the staple foods they sell, but staple foods generate most of their sales.
“Retailers have very high sales but the profit margin is very low, at 2.5% to 5%. We sell a lot at low prices. That is the secret,” Andreea Mihai, marketing manager of Carrefour Romania, said during a conference recently organized by Ziarul Financiar. Price is very important to consumers who want to get as much possible for their money.
Out of the ten modern retail networks only one achieved a higher than 5% profit margin, while two were in the red. Cora managed to cut losses from almost RON40 million to almost RON6 million, while sales were relatively flat. The second in the red was Auchan, which returned to losses after having made net profit in 2015 for the first time in several years.
Kaufland, the local retail leader, on the other hand, remained the most profitable grocery retailer. Its profit margin dropped to less than 7%, however, as net profit was relatively flat, while the sales went up 5.6% last year, the slowest rate in 11 years.
About half of the modern grocery retailers in Romania saw a decline in profit margin – Kaufland, Carrefour and Selgros, while Auchan slipped into the red. On the other hand, Lidl, Profi, Mega Image, Metro Cash & Carry and Penny Market saw an increase thereof.
Nine of the ten grocery retail chains posted growth in sales last year and the only one to see a decline was Metro Cash & Carry, less than RON4.4 billion, dropping out of the euro billionaire club after more than a decade.
Growth in sales was driven by the consumer spending increase, by fiscal relaxation steps that are still producing effects and expansion.
As consumer spending growth might slow down this year, networks will rely mostly on expansion, having announced plans to open more than 300 stores in 2017. Modern retail currently numbers about 2,000 supermarkets, hypermarkets, convenience stores, cash & carry and discount stores. (EUR1=RON4.5673)
(English version by Loredana Fratila-Cristescu)