The energy crisis directly affects the functioning of the trade sector

Friday, 10 February, 2023 Food From Poland 40/2023
Last year, the trade sector faced new challenges, many of which will also remain in 2023. The issues coming to the fore include treating trade as a priority sector in energy supply, as well as providing access to resources ensuring uninterrupted operation of small stores, wholesalers and distribution centres alike.
It is necessary to take actions intended to provide tens of thousands of Polish micro-, small and medium enterprises with access to energy and thermal resources, at prices making it possible to purchase these resources without a risk of bankruptcy or a threat of loss of profitability that is already often hovering around the level of 1% or lower today.

In response to the industry’s appeals, an energy price limit has been introduced; this is a very good measure but it does not solve all problems. It will give some relief to the trade but will not bring any major slowdown of the growth of prices, since the limit only covers small and medium enterprises. Let us keep in mind that, apart from stores, the trade sector is comprised by wholesalers, distribution centres – the entire logistic systems. Sometimes, these are large companies, enormous cold stores consuming immense amounts of electricity, and the cost of the goods is also contingent on the costs of power to be paid by these larger entities.

From the consumer’s viewpoint, there is also a concern that exclusion of large establishments from this solution will increase the disparity in prices offered to discount stores and small shops. If prices of goods grow and large chains benefit even more from their negotiation capabilities, manufacturers will wish to make up somewhere for their expenses, such as the energy-related ones: they will probably translate such expenses to further growth of prices for smaller stores.

The lack of freezing of corporate gas prices is a similar problem

Another grave hazard to trade companies in the year to come is no gas price freezing for enterprises. The parliamentary act guaranteeing maximum energy prices for SMEs solves a part of the problem – though not all of it: lack of such support to large companies will also translate to growth of prices through growth of expenses, such as operating costs of distribution centres and logistics – but the absence of a similar safeguard for gas prices will hit all entrepreneurs hard. In such a situation, one should expect a considerable increase of heating costs and more (also applicable, among others, to the bakery sector). In such situations, the plea by Adam Abramowicz, the spokesman of SMEs, for the gas price regulations to also cover the sector of small and medium enterprises, is fully justified and worthy of support. Without such support, we will watch a significant deterioration of profitability of small and medium enterprises which will be burdened with a whole range of new expenses since the New Year, including the gas price growth mentioned above or increased wages. In the current situation, the increase of costs may significantly worsen the profitability of enterprises, leading to bankruptcies in extreme cases, as well as to growth of retail prices. The Polish Chamber of Commerce has appealed for months to treat trade as an energy-intensive sector and spoken of its strategic significance to the economy – which could have been distinctly felt during the pandemic.

The rate of shoplifting is on the rise

In the trade industry’s opinion, a considerable problem is the increase of the threshold for the offence of theft from PLN 500 to PLN 800, which is absolutely unacceptable. In fact, this is a nod towards thieves, met with a very negative public perception, not just in the trade environment – especially in view of the economic crisis affecting most Polish people. The increase of this threshold strikes a blow to honest entrepreneurs. Even the previous amount of PLN 500 had been considered grossly excessive, and the change to PLN 800 means consent to and encouragement for theft. Each year, every small store loses several dozen thousand zlotys’ worth of goods due to shoplifting: an equivalent of several to nearly twenty pallets. The increase of the threshold puts new products at the list of goods stolen without the threat of trial and raises the crime threshold by 60%.

According to research by Crime&tech and Checkpoint Systems, the food industry is the most exposed to theft in Poland (accounting for 50.4% of all robberies). The percentage of losses for Polish retail trade companies amounts to as much as 1.5% of the turnover. It is also worth mentioning the share of offenses affecting the sector of DIY stores (5.6%) and fuel stations (2.6%). Retailers record an above-average level of losses, as well as more cases of robbery and shoplifting in the winter season, caused by attractively packaged Christmas products, shorter daylight hours, a possibility to hide the stolen goods under clothing, higher personnel rotation, and a greater number of customers. However, due to such factors as the continuing high level of inflation, translating into increasingly hard economic situation of the Polish people, experts predict that the number of thefts will be just as high in the following months of 2023.

According to the current regulations, most cases of shoplifting are minor offenses threatened by a penalty of a fine. We are fully aware that a register of theft perpetrators has been introduced, yet we disapprove of this change, as the register alone will not solve all problems. It is obvious these changes will cause the losses incurred by stores to grow several times, while thieves’ profits will increase.

Maintenance of the zero VAT on foods will be favourable to trade.

On the other hand, the maintained 0% VAT for food for the following six months is certainly a good thing. However, one should definitely not overestimate its effect on both the inflation level and the purchasing power of consumers. Pursuant to our assessments from early 2022, the effect of reduction of the VAT for food was nullified as early as March by the increased inflation. With such an enormous inflation, this is but one cost element, incapable of structural change of the economic situation.

A satisfactory compromise concerning the deposit return scheme project

From the viewpoint of trade, an important matter was the works on the draft deposit return scheme in Poland, entailing a difficult dialogue. The change we had expected was removal of single-use glass from the draft deposit return scheme, of which we have already been speaking for a long time – stores are incapable of storing single-use glass packaging; moreover, collection thereof in Poland has already reached a high level (around 70%), so introduction of this component into the deposit return scheme and forcing stores to conduct it would be neither rational nor necessary and would additionally hamper the functioning of trade establishments, especially the smaller ones.

A step in a good direction is the increase of the minimum area of stores to which the deposit return scheme will be mandatory, from 100 to 200 m2. We have called for setting this threshold at 500 m2. Therefore, we hope there still is room for discussion here, since our position results from our knowledge of practical functioning of the industry and its limitations, and we do not postulate this value at random.

We are glad the postulates of the industry have been taken into consideration, especially concerning the single-use glass packages, and we hope for further dialogue, so as to make the system friendly to the environment, the trade, and the customers.

Regarding the deposit return scheme, another important thing is that it should take account of the peculiarity of the trade structure in our country. From the viewpoint of a local store, most important are the principles of package collection by operators of the system – in particular, the minimum collection frequency. This is particularly important for small town or village stores. Operators should be obliged to collect several times per week, so as not to make the local stores excessively burdened with storage of packages.

Implementation of the Omnibus Directive

Another change on the Polish market is the new mode of organization of price information, intended to prevent artificial increases. Since 1 January 2023, regulations concerning the implementation of the Omnibus Directive, aimed at increased protection of consumer rights in online trade, have come into force. Consequently, the current manner of price presentation has changed. It also affects price tags at trade establishments and traditional advertising folders, and it complicates the marketing communication.

Donations need to be exempt from tax

We point out an everyday problem to many Polish people in need, benefitting from permanent or temporary aid provided by charity organizations and entrepreneurs willing to help them. Polish VAT regulations require a donor transferring products to a public benefit organization to pay VAT on such donations. The only charity-related VAT exemption applies to easily perishable foods and certain IT equipment, as well as a narrow scope of coronavirus prevention products – such a catalogue of articles is but a small part of what is needed. Unfortunately, this makes utilization of unsold items cheaper than giving them to those in need. These regulations surely need to be changed so that Polish entrepreneurs could have an economically viable option to donate to people in need.

Photo: AdobeStock

tagi: food market , sales , trade , consumer , FMCG , wholesale , retail , food products , news , new products , food industry , retail chains , grocery stores , Poland ,