Spain: Grocery retailers are not making a killing
During the coronavirus outbreak, supermarket chains have boosted their sales but not their profits. Their business have suffered due to increased costs because of logistics, security measures and the margin reduction.
DIA has just announced that its sales registered “a significant increase” in March. It is the first retailer to publicly acknowledge that the pandemic has booster its turnover. The days before and after the lockdown led to an unprecedented explosion in sales. As industry sources explain, fears of shortages led to the same turnover at times in a single day as in several weeks prior to the crisis. In recent days, retailers have increased their sales by 10-20%, through what is called “the new reality”: a fall to less than half of the visits to stores and a significant increase in the average amount spent by visit.
According to data published by Kantar, the average bill has shot up from 16 to 23 euros from the beginning of the year to March, while, in the week of 22 to 29 March, the number of acts of purchase per week has fallen from 82 to 67 million.
However, contrary to what one might think, this dizzying increase in sales is not leading to profits for companies. “The supermarket business is being affected these days. To such an extent that all companies are recalculating their profit forecasts downwards”, the same sources add.
How can selling more end up earning the same or less money?
The reason is very simple, retailers have seen their margins cut and their costs skyrocketed. The reduction of the former has to do with the type of purchases that Spaniards are now making. Although consumers are gradually moving to buy more impulse and premium products, their preference, especially at the beginning of the lockdown, has been to buy basic stuffs to stay at home with fewer visits to the supermarket. And these products are the ones which leave the least margins.
Costs have skyrocketed for four reasons: logistics, protection, surveillance and bonuses. In response to the flood of purchases in the first days, companies had to double their transport and logistics costs.
In addition, they have had to face extra costs, such as hiring more security guards to regulate store capacity. Other extra expenses have been allocated to the purchase of PPEs for their employees. Chains have also seen their costs increase with the bonuses they have paid their staff for reacting in an “exemplary” manner, as well as for the increase of new people in the warehouses.
Source: La Razón