How long do supermarkets last? “Albert Heijn is the grain of sand in the whole machine.”

Costs are rising and there is hardly any possibility of raising prices too much: Already meager margins are being eroded in our department store chains. How long can they continue this? What are the winning supermarkets? And why are food prices rising here to a much lower degree than in neighboring countries? Experts answer Pierre-Alexander Billet and Tom Simons.

Colruyt has already lost nearly 9 percent of its stock value since last Tuesday. The immediate cause: lower profit warnings and accompanying heavy prices from US retail giants Walmart and Target. And it has been down for months for market leader Halle, after a profit warning in mid-December. Ahold Delhaize, the parent company of Delhaize and Albert Heijn, among others, recently announced that it would implement additional cost savings in “challenging markets” such as Belgium.

cost inflation

The truth is that our retailers struggle with high cost inflation, which is becoming increasingly difficult for them to pass on to consumers. A somewhat exceptional situation in Europe, according to retail expert Pierre Alexandre Bellet, teacher of retail management (Solvay Business School) and CEO of trade magazine Gondola. “In Belgium, food prices in supermarkets have increased by only 1.8 percent this year, in Germany it was 2.7 percent, and in the Netherlands up to 6.4 percent.” Since the market leader is the “follower at lowest,” we have an atypical market here, the retail expert knows. “Colruyt would never raise itself if the rest of us didn’t.”

“Albert Heijn (AH) is the grain of sand in the whole machine: with very, very low prices or aggressive promotions on certain products, it prevents competition from raising the price too much. And so the market leader continues to sell at very low prices.” As a result, according to Billiet, the price difference with other countries has become much lower. “Some items even got cheaper. Example: a box of Red Bull costs 1.32 euros in the Netherlands, and here is 1.09 euros. Some AH stores are now cheaper here than in the Netherlands.”

edge

Are our stores in trouble now? “If the margin in the technology or energy sector goes from 40 to 39 percent, that Peanuts† But in the supermarket segment, where operating margins are very low† The drop from 4 to 3 per cent is massive, says Tom Simons, financial economist at KBC. “If it is tampered with, it will be released in no time There is nothing left.”

Colroit, Carrefour and Delhees are currently taking the hardest hits. Billett: “With the lowest price guarantee like DNA, Colruyt can’t raise prices all at once. Because of price pressure, its margin is fast eroding. That’s while it has not yet regained the market share it lost to smaller neighborhood stores during the Corona crisis. It is now struggling with share Less market and lower margin.”

Delhaize, which positions itself a bit higher, has more margin space. It also has an international giant behind it, Ahold Delhaize. However, CEO Frans Muller recently said while announcing the quarterly figures, “Cost savings are now more important than ever in order to offer customers the most competitive rates, without sacrificing investments in growth.”

However, Carrefour shares the malaise that supermarkets are experiencing. Moreover, Belgium remains a burden on trade unions: little flexibility, exorbitant labor costs and heavy social responsibility. Furthermore, Carrefour does not have the same buffer as Colruyt or Delhaize.

Big Discount Winners

Big discounters Aldi and Lidl are both big winners, gaining more market share now that consumers are more “watch the little ones” and seek refuge in cheap products and private labels. Simmons: “They’re also used to operating at very low margins, to fight for 0.1 percent margin.”

Albert Hein roughly falls between the two groups. “A large portion of AH stores in Belgium are incurring losses or operating with margins of risk,” says Billett. “They can also afford it, further bolstered also by the Ahold group in which they do not weigh so heavily. In the meantime, they are disrupting the entire Flemish market.”

From price to stock problem

This is also reflected in the stock market, while supermarkets, and thus the entire consumer sector, are usually a defensive investment option, with little risk for the investor? This is also the case in 80% of cases. We are now in the remaining 20 percent “Crisis after crisis after crisis,” Simons says. Usually the consumer is a stable driver, but if he is consuming less or differently, as is the case now, profitability will be quickly jeopardized. You can now also see that in the gallery.”

According to Simmons, deciding whether supermarkets should pass on the additional costs, and thus raise prices, is a “boards decision.” Suppose Colruyt decides to go for an operating margin of 1 percent, then it will gain customers, but not satisfy shareholders. Because, as Walmart and Target have shown, small margins don’t appeal to shareholders.”

For Billet, this situation is “absolutely untenable” anyway. “The thing that is still very weak is that the price problem is gradually turning into a stock problem.” If our prices rise insufficiently, our market will no longer be interesting to major international producers, who can no longer or do not want to produce at these prices. “Take it from me: All the major food companies are asking themselves how far they can go at these absolute minimum margins. I recently heard someone from a global player say: “Food is going to be the new oil — subject to speculation and expected to be more expensive around the world.” The world.” That’s right. Where the price does not rise, there is a structural problem. Where it rises very strongly, it is economic.”

A supermarket can’t (almost) go bankrupt

What if all of this also means that supermarkets will end up in bad sheets financially? “No, that doesn’t make them stumble,” Billett emphasizes. “Colruyt has its reserves and above all very strong Leadership† Ahold Delhaize generated an operating profit of €829 million in the first quarter, mainly due to a large number of activities in the United States, where it generates significant profits.”

No debt problems, Simontes is also firm. “The supermarket can hardly go bankrupt. It operates on the reverse business model: the case of apples sold for cash in the store is only paid to the supplier after a month. Their viability is not a problem at all.”