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Due to high inflation in Slovakia, food prices have recently come into the spotlight. But how do retail chains behave when food prices are set, and how do customers react? Government analysts have come to clear conclusions. Chains that raise prices excessively lose market share. Slovaks seem to be rational in their purchasing behavior, preferring networks where they can buy more advantageously.
Raising prices too quickly means losing customers. It seems that this equation is valid in Slovakia. Analysts have concluded that Institute of Strategic and Analytical Studies According to calculations by the Institute of Food and Agriculture (ISA), an analytical unit of the Slovak government office, the largest food chains must choose between gross margin and market share. “In the medium term, no one will be able to improve both parameters simultaneously,” warn In his latest analysis.
ISA analysts backed up their conclusions with concrete data. In 2022, they grew Sales The five largest players in the market, namely Kaufland, Billa, Lidl, Tesco and Coop Jednota, grew by more than 11% year-on-year. Lidl and Kaufland achieved above-average growth. “However, both chains are reducing profits. The first one increased by 1.3 percentage points (pb), the second by 1.4 pb. The decrease is 4.7%, or 4.9%. There have been similar developments in previous years,” The institute warned.
Do you respond to price increases by changing the store you shop at?
According to ISA’s findings from 2017 to 2022, Commercial chain They protect each other and their customers when it comes to food prices. “Anyone who raises prices too high will lose customers and market share.” Add analysts.
Even in 2017-2018, Tesco had the largest market share. Lidl was in second place and gradually increased sales at the expense of its competitors until it topped the market with a growth of 3.9 percentage points. But at the same time, it reduced profitability.
Lidl’s gross profit margin was 27% in 2017 and 26.6% in 2022. “At first glance the difference doesn’t seem huge, but Tesco’s profit margin increased by 2.2 percentage points at the same time, from 23.8% to 26.1%. However, its market share fell by 4.8 percentage points.” ISA Analyst Report.
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