The distribution enters the profit margin recovery phase, but warns: "Profitability will still suffer in 2024"

“During the first half of the year there was the most significant drop in margins that I have seen in my professional life so as not to pass on all the increase in costs to clients, and that means sacrificing profitability”. With these forceful words, the CEO of Makro Spain, David Martínez Fontano, tries to contextualize the hard blow that inflation has caused to the income statements of distribution companies and how the sector has acted as a containment dam to avoid a disaster. greater in the economy and in the pockets of the Spanish. Now, with the end of the year just around the corner, companies are beginning to glimpse a recovery scenario in 2024. Of course, not free of threats, in a context of persistent inflationary spiral, loss of consumer purchasing power and uncertainties about the economic policy deployed by a possible new Government.

The Observatory of Business Margins – the profit inspector launched by the Ministry of Economic Affairs together with the Tax Agency and the Bank of Spain to detect extraordinary profits – highlights the rebound in margins in the food chain, which reached suffer a 25% collapse due to not transferring the increase in energy costs to final prices between the second quarter of 2021 and the fourth quarter of 2022. From that moment on, the lowering of energy and raw materials prices has allowed a certain recovery in the sector.

Specifically, the latest quarterly report indicates that in the agricultural subsector margins are already above pre-pandemic levels, “with high volatility linked to the nature of the sector”. For its part, the margin on sales of the agri-food industry, which fell sharply during the energy crisis, shows a greater rebound, although it is still below pre-pandemic levels.. Meanwhile, commerce has been the subsector with the greatest margin stability within the food chain and has already managed to reverse the fall, although it continues to lag behind the peak at the beginning of 2021.

With these data on the table, within the framework of the 38th Aecoc Consumer Congress, the CEO of Makro drew a still complex scenario for 2024. Although he was optimistic about Christmas in the hospitality sector and regarding the evolution of distribution throughout the year, he warned that “profitability will still suffer in 2024”. “Whoever wants to recover takes a lot of risks,” he said.. In his opinion, companies have “the lungs to continue holding on with tight profitability”. “You have to be patient,” he recommended.

Changes in consumer habits

For his part, the president of Aecoc, Javier Campo, recalled during his speech on the opening day of the congress that the average profit margin of large distributors in Spain was 2.8% in 2022 and that it has been reduced in the current inflation period. Given this situation, he advocated recovering margins, although he stressed that the sector will have to continue “fighting inflation and consumer habits that have changed due to the loss of purchasing power.”

In this sense, Campo highlighted that consumers have gone from the most expensive protein such as meat or fish to a cheaper one such as chicken, and have changed the manufacturer's brand for that of the distribution. In fact, he highlighted that this is the first time in history that Spain has positioned itself as the country in Europe where the white label has had the most weight, above Germany and England.. “I understand that this change, which has been very abrupt, will continue to grow, but not at that rate,” he predicted.

However, the highest representative of the large consumer association warned that, in the current context of high prices, the main concern of companies is the drop in volume purchases.. “The savings rate reached maximum levels during the pandemic and, today, is back to pre-covid levels, over 7%. This, added to consumers' caution about inflation, generates uncertainty about consumption,” he said.

Outcry against the PSOE-Sumar pact

As a backdrop, the programmatic agreement reached between the PSOE and Sumar for an eventual new coalition government legislature, which includes measures that toughen taxation and reduce labor flexibility. An anti-business package that fell like a bomb among the sector's executives gathered this week in Zaragoza. If businessmen from sectors such as banking or energy charged against the tax section, in the field of distribution, the labor program is especially worrying, especially the reduction it proposes for the work day to 37.5 hours. .

The outcry against the labor powder keg on which the document signed by Pedro Sánchez and Yolanda Díaz pivots was palpable. The general feeling in the groups – and in public statements – was that the reforms advanced in the text will skyrocket costs for companies (up to 10% due to the reduction of working hours, according to the employers' associations) and “will destroy the competitiveness of the economy.” Spanish”, according to Campó, who also warned about the “foreseeable fiscal adjustment” that will come from next year and criticized the greater tax pressure that Spanish companies endure compared to other countries in the European environment.