While the white brands gain ground to those of manufacturers in these times of coronavirus and skyrocketing inflation (people want to buy cheaper), the big chains supermarkets they assure that their costs have doubled and electricity is already their main expense. That is why supermarkets have started a battle to lower VAT on food and basic products “with the sole purpose of counteracting this rise in prices,” explain businessmen in the sector. Asedas, the association that represents ‘supermarkets’ such as Lidl, Mercadona, Consum, Dia or Save More, demands that the Government cut the aforementioned indirect tax on food products given the inflation situation and so that consumption does not collapse. The general director of Consum, Juan Luis Durich, recently recalled it: “Our service is essential. It would be reasonable for the consumer to lower VAT and, therefore, reduce the price of food.”
The VAT on food in Spain varies between the reduced rate (10%) and the super-reduced rate (4%). Most products are subject to 10%, except for those that are considered essential such as milk, eggs, fruits and vegetables, bread or legumes, which are taxed at the lowest rate.
The distribution chains maintain that given the highest inflation rates recorded in the last three decades (in March at 9.8% and April at 8.4%, according to INE data), urgent measures are necessary to stop the increases of prices. And it is that, in the first quarter of the year, family consumption sank 3.7%, confirm the INE data. And the situation could get worse.
Ignacio García Magarzo, general director of Asedas, warns that “consumers are already looking for cheaper products due to high inflation” and explains that supermarkets have perceived buying behavior changes during the last few weeks. In the case of Consum, the rise has affected 4,000 products out of about 15,000, including, for example, oil. Its price has increased by 35%, although according to Durich there are other products that have dropped.
The situation fully worries all companies in the sector. The associations that represent the entire chain of value of mass consumption and hospitality (Aces, Aecoc, Anged, Asedas, Fiab and Marcas de Restauración) and third sector organizations (World Vision) have at least something to celebrate: the approval, in the Congress of Deputies, of final provision 3 of the Law on Waste and Contaminated Soil, which modifies article 91 of Law 37/1992 on value added tax. This change in regulations allows for a 0% VAT to be applied to donations of products to non-profit entities. Be that as it may, the measure is insufficient, although the elimination of VAT applied to donations of food and non-food products places Spain in the same path of countries of the European Union such as Belgium, France, Germany, Greece, Hungary, Italy or Poland, and involves progress in reducing waste generation and creating a circular economy model. In addition, the modification, according to the aforementioned associations, will prevent many companies, especially smaller ones, from having to give up donating goods because it is economically burdensome, since in the current situation donations are taxed with VAT that is not recovered later.
The shopping cart
What is clear is that shopping is 10.1% more expensive today than a year ago. This is certified by the National Institute of Statistics. A figure that also exceeds the country’s general inflation by almost two points. The report provided this week by Efeagro reveals that there are foods in the basic basket that have become more expensive by up to 48.4% in one year, as is the case with oils, while eggs have risen by 21.6%. There are foods in the basic basket that have become more expensive by up to 48.4% in one year.
It is a situation that “will continue over time because the factors that affect this rise -increase in energy costs, raw materials, as well as climate change and its impact on agriculture- will not disappear “, explains the IRI consultant, José Luis Estruch.
“It will continue over time because the factors that affect this rise -increase in energy costs, raw materials, as well as climate change and its impact on agriculture- will not disappear.” In that sense, the manufacturers continue to adjust margins and without passing on all the increase in costs to the consumer. Therefore, manufacturers are “forced to work with price increases, containment of investments in innovation, for example and, therefore, brand impoverishment and greater sales in short assortment in distribution brand with a more adjusted price”, summarizes .
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Thus, the private label, traditionally much more powerful in Spain than in other markets, is gaining space. The latest IRI study with the data accumulated to March shows that 55.3% of food purchases are made in private label products, a record that has grown by 6.5% in value in twelve months.
55.3% of food purchases are made with distributor-branded products, a record that has grown by 6.5% in value in twelve months. For beverages, although the private label has grown by 2.7% in one year, the manufacturer’s brand continues to command more than 70% of the market share. It seems that consumers want to buy cheaper.