Supermarket Discounts and Cause-Effect Relationships
“Either their prices were exorbitant or they accepted the loss”, said a valuable expert about the market discounts last week.
In the early 2000s, a retailer told me that in today’s world, it is difficult to make money by buying and selling goods because everything has now turned into a financial operation commanded through the maturity of your payables and receivables and the correct management of your assets. This spot-on comment encouraged me to share the following post on social media. “Today, when people hear the word ‘financial’, they immediately think of banking operations. But it is not like that at all.
Companies that have created an appropriate time gap between collection and payment will always have an advantage against the ever-rising inflation. This way, they can achieve profitability without a process such as “I collected my debt, put it in the bank, earned interest, and repaid my other loans late”.
However, this method of operating of supermarket chains directly causes inflation in times of financial bottleneck, especially when there are problems in the supply of essential goods and services. The pricing behaviour of producers deteriorate constantly due to the expectation of sudden rises in exchange rates, the continuous tax hikes by the government and the fact that supermarket chains have the banks keep extending their debt maturities. Therefore, each shipment becomes more expensive than the previous one.
Analysing these developments based on financial statements is something that only experienced people can do. The fact that supermarkets, having a quite complex trade and money traffic, sell products at high discounts for a certain period of time does not necessarily mean that they lose profit, nor can we conclude that they make extreme profits. However, the rent they have to pay to large warehouses where they have to operate and sell goods, the costs of digital infrastructure and human resources, and the survival model they have created against the ever-increasing cost of goods, are among the factors that cause inflation to become stickier when economies fall into recession, interest rates and inflation rise, and producers have difficulty making profit.
The operating system of supermarket chains is deeply rooted and cannot be altered easily, but the fact that they pay producers in incredibly long terms compared to the life of the goods sold puts unbearable pressure on the system. It is necessary that payment terms must absolutely be planned more rationally. Otherwise, prices will continue to skyrocket after a short period of decline.
Recently, the Canadian PM was warning supermarket chains on live television. No grocery chain would change this model that was designed during a period of low inflation and low interest rates and, most importantly, that is not against the law. They would help consumers breathe a sigh of relief by offering them short-term discounts.
