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Sacrifice or strategy? - Walla! Of money

2021-12-01T22:12:07.365Z


If in the past companies were ashamed to highlight a negative balance sheet line, retail chains this time boasted that they made less because they lay on the fence for the consumer


The welcome rise of the Competition Authority and the opening of investigations of food chains and suppliers have changed the balance of power in the retail world.

If until now senior retail chains and importers put consumers on alert and warned of a "tsunami" of rising prices, the situation today is completely different - today some companies claim they had to absorb the rising costs for the consumer and therefore their profits decreased.



Have food chains and importers begun to worry about the small citizen, or are they taking advantage of an opportunity to establish themselves as more competitive and cheaper?

More on Walla!

Decrease in Rami Levy in net profit: "We did well with the customers"

To the full article

Think long term.

Rami Levy (Photo: Flash 90, Yonatan Zindel)

"The phenomenon of manufacturers declaring that they do not raise prices even at the price of a smaller profit, is a phenomenon that can only happen in a competitive market (and is also typical of this market)," says Dr. Ran Ben Malka of the Department of Economics at Sapir Academic College. What a manufacturer does to attract consumers to him and not to the competitor is in lowering the price of the product. In the theory of competition, even the competing manufacturer will eventually also have to lower prices. In addition, in economic theory it is also known that if the competition is between many manufacturers, a manufacturer can also reach a situation of zero profit (normal profit), but given the small market in Israel and the lack of rapid entry of competing manufacturers (other new retail chains) we can guess not reach this situation ".



"In my opinion, the exit of Shufersal, Victory, Rami Levy, etc. executives with statements about price increases were not intended to coordinate price increases," says Dr. Avichai Snir of Netanya Academic College and Bar-Ilan University. "The spirit of inflation is in the air." Time, and it is very easy today for chains to see what they are doing in the competition because of the Price Transparency Law, and also because Israel is a small place. 'Price increases if they know the seller's costs have gone up. The marketers / importers / manufacturers have tried to convey to consumers that there is a justifiable reason for the price increases, so that customers do not complain when they see the price increases. In other words: they tried to roll the price increases from them to the government. A 'superior force' that creates inflation all over the world.



"" In practice, there has been media pressure on marketers, as their arguments seem unlikely. Firstly because their reports from last year show that they have nice profits (even very nice ones), and that their profits have increased last year. They had in the years before the corona. Second, because the strengthening of the shekel is supposed to moderate the increase in costs that were in the prices of transportation and raw material prices. "44% (Victory's profits by 38%), and when the shekel strengthens by 10%, it's really not clear that Shufersal and Victory have no choice but to raise prices."



One way or another, it seems that in the meantime the consumer is profiting and it is possible that the very opening of the Competition Authority's investigation has succeeded in curbing the wave of price increases in the economy.

More on Walla!

  • Decrease in Rami Levy in net profit: "We did well with the customers"

  • Sharp drop in Wilifood profits: "We have decided to absorb the increase in transport and transportation"

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The public finds it hard to believe they are losing (Photo: Reuven Castro)

Dr. Ran Ben Malka (Photo: Adva Odia Anchor, PR at Sapir College)

The financial statements period is at its peak, and despite the decline in the corona impact, the companies are showing good business results. For some, there was a natural decrease in the rate of income and profits compared to the corresponding quarter of last year, which was affected by the closure period and an increase in the level of consumption. If it was once customary to downplay the negative data, such as a decline in profit, the new "bon ton" is to highlight the decline and attribute it to the "absorption" of price increases for the benefit of the consumer.



For example, the Rami Levy chain, which ended the third quarter with a 12.5% ​​decrease in profit, wrote in its announcement that "deepening the promotions on Tishrei and going towards the consumer hurt the company's profitability in the third quarter, but the benefit with consumers - and the company's strategy ".



"It is also important to understand that Rami Levy has been cultivating the Robin Hood image of product prices from the beginning," says Dr. Ben Malka. Increase his future profit.

Consumers are saying to themselves today 'What a Rami Levy man, I will only start buying from him', and next quarter we will already see better reports for him (as part of the competitive interest).

Therefore, especially on days like these, when prices are part of the public discourse, such statements cultivate the image even more than usual. "

Actually warned against rising prices.

Zvi Williger (Photo: Elad Gutman)

Dr. Avichai Snir (Photo: Yachz)

Willy Food, which published its reports last night, also writes in its announcement that "the company's operating profit fell by about 40% compared to the corresponding quarter last year, in light of management's decision to absorb the sharp increase in sea freight and transportation - without raising product prices in retail chains." Recall that only six months ago, said company chairman Zvi Williger that there will be no rise in prices due to the rise in raw material prices and a jump in the price of transport.



Like Loilifod other companies withdrew their intentions to raise prices and inform implicitly in their - such as Diplomat, one of the importers The largest in the economy, which imports a number of popular brands to Israel such as Tide, Gillette, Starkist, Heinz and many others.



"The effect of the above events on the results of the company's activity is mainly relevant to the field of activity in Israel, and it is not significant mainly because as of the date of the report, in most products where the cost of goods includes sea freight, the company's suppliers have not raised prices." Efficiency actions in order to reduce the impact of the above events on its results.

Three weeks earlier, the owners of the company, Noam Weiman, had been questioned by the competition authority.

"The name of the game is profit maximization

"It was important for the CEOs of the marketing chains to raise prices as part of a horizontal move of the whole industry (desire to coordinate prices), they would like to increase profits immediately, but once they raise prices consumers may switch to buying in chains that did not raise prices," concludes Dr. Ben Malka, “In industries where there is less competition we will see rapid price increases due to rising world transport prices, in non-competitive industries (there is only one manufacturer or a few individual manufacturers) CEOs will not play the game of the hero who does not raise prices. "The name of the game is profit maximization, and the lack of competitiveness will allow them to do it in a much simpler way without having to give too many explanations to customers."



So will we continue to purchase at these price levels? Do not build on it. "When the manufacturers saw that there was media pressure on them, which leads to both political activity and increased activity by regulators, they realized that it was better for them to wait with the price increases," explains Dr. Snir. They will come. But they will come more slowly, and in all sorts of indirect ways. For example, I would not be surprised if there are more products whose size will shrink (this is already happening, but I guess it is not the end). Another thing they can do is reduce the number / depth of promotions. The marketers can also influence the quality of the service - the number of employees in the branch / cash register, etc. They have other different and weird ways. For this to happen less, a government move is needed to increase competition, first of all by opening up the market to imports freely, in order to reduce the power of the big manufacturers and importers. At the same time, consumers need to take care of themselves. If consumers instead of protesting just do not buy every time the price does not show them,There will be much less price increases. "

Source: walla

All business articles on 2021-12-01

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