Andrej Grubišić: There is no correlation between inflation growth and trade margins

There is no correlation between inflation growth and gross profit margins among Croatian traders. Simply put, inflation did not rise because traders, having not done so, raised their margins. Moreover, for some traders, net profit margins are now even lower than they were before the pandemic. This is one of the conclusions from a very detailed and extensive study ‘Financial Analysis of Retail in Croatia’ conducted by the consulting firm Grubišić&Partners in collaboration with HUP, which was presented today at HUP by Andrej Grubišić.

The analysis, which has not been conducted for the retail sector in Croatia for a long time, encompasses all financial performance indicators for the 30 largest retail chains in the country, some of which operate nationally while others are regionally represented. Their indicators were analyzed over five years, concluding with the year 2021, but it also includes many more recent data.

When it comes to margins, the analysis shows that trade gross margins in 2022 were at approximately the same level as they were before the Covid epidemic. For nationally represented retail chains, gross margins are at a level of 26 to 27 percent, while chains that are present only in certain regions average 20 to 21 percent. Interestingly, regional traders with lower gross margins achieve a higher dividend for owners than nationally present chains, which Grubišić explains by stating that regional traders invest much less in reinvesting profits than national chains.

Kaufland with the highest margin

Of course, not all traders have the same margin. For example, Konzum and Eurospin had margins below the industry average in all observed years, Lidl was at the industry average, Spar and Plodine recorded slightly higher than average margins during that time, while Kaufland had significantly higher than average margins. However, what is common to all chains, both those mentioned and all others, is that this year all business indicators are growing approximately in line with inflation growth, except for wage costs, which are rising much more. This particularly applies to regional traders, where the average salary per employee has risen to 930 euros gross, which is at the level that national chains had five years ago. National chains, on the other hand, have increased the average gross salary to 1,200 euros per employee this year.

– Inflation is a monetary problem and the only remedy that can curb it is a restrictive monetary policy – claims Grubišić, supporting this with the data that in the past ten years, GDP in Croatia has increased by 50 percent, while at the same time, the money supply has increased by 260 percent. The fact that money printing did not immediately reflect on retail food prices in stores happened because the excess money was first directed to the real estate business and securities, and only then did inflation begin to show in the real sector.

Hrvoje Stojić, chief economist of HUP, predicts that the annual inflation growth will drop to 4.5 percent by the end of this year. – In countries that do not have strong food production, prices are formed abroad. Recently, there has been a more pronounced decline in food prices in the euro area, which will gradually reflect on food prices in Croatia – explains Stojić, who believes that in the next four years, the inflation rate in Croatia will be above the euro area average. The reason for this is service prices, which are still lower in Croatia than in the euro area.