Bank of Estonia says markups considerably higher, traders disagree
Retailers' markups have reached 26 percent, while ten years ago they added 18 percent to purchase prices to cover costs and earn profit, according to Bank of Estonia data.
Food prices rose 7.7 percent year on year in September as global price increases reached retail shelves. However, Bank of Estonia data shows that retail chains' markups have also gone up. While ten years ago retailers added 18 percent to purchase prices, the markup has now climbed to 26 percent.
"Retail markups have clearly grown. This markup covers operating costs and generates profit. What stands out in food sales is that the quantity sold hasn't increased much over the years, while operating costs have risen. That means a larger markup is needed per unit sold, which is why we're seeing higher prices," said Rasmus Kattai, head of the economic policy division at the Bank of Estonia.
Retail chains, however, disagree with claims that markups have increased.
"In grocery retail, the markup has actually decreased over the past three years. The simple reason is that the share of promotional products in consumers' shopping baskets has grown by several dozen percent. Since promotional prices are lower and markups smaller, the overall average markup in food retail has declined," said Rainer Rohtla, CEO of Coop Eesti.
"The markup hasn't increased significantly. Comparing September this year with last year, food prices at Rimi have risen by 2.6 percent. Naturally, some adjustments to markups occur, but we've tried to keep them relatively stable for food products," said Rimi Estonia CEO Kristel Mets.
Tallinna Kaubamaja Group CEO Raul Puusepp, whose company sells everything from food and clothing to cars, expressed a similar view.
"Our companies haven't seen markup growth. In fact, markups are under strong pressure due to fierce competition and the overall market situation," Puusepp said.
At the same time, Bank of Estonia data shows that profitability in the retail sector has declined as both competition and costs have increased.
"Retailers sell some products below cost to attract customers. We try to hold back price increases as much as possible and avoid passing them on to consumers, often offsetting smaller changes through reduced profit margins," Rohtla explained.
"We are losing profitability. It was already low in Estonia — around 2 percent — and we're losing even more now," Mets added.
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Editor: Marcus Turovski, Marko Tooming
