The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Retail Grocers Association’s president yesterday warned that expanding the price control regime could be “the last straw” for small and medium-sized food stores, adding: “I’d like to know what the magic formula is.”

Philip Beneby told Tribune Business that extending price controls to 38 extra products, as well as further cutting existing margins on food staples such as bread, eggs and chicken, meant the industry’s profits will be further eroded just as it faces major cost hikes due to Bahamas Power & Light (BPL), the minimum wage increase, rising National Insurance Board (NIB) contributions and a multitude of other expenses.

With price-controlled items, which are sold below cost and effectively act as loss leaders, accounting for between 60-70 percent of a typical food store’s inventory, he added that some merchants may have no choice but to terminate staff or even close down their operations depending on the details surrounding the regime expansion which have yet to be announced by the Government.

Questioning what “magic formula” the Government expected retailers to employ to stay profitable amid these challenges, Mr Beneby said of the consequences following the Prime Minister’s national address: “They’re certainly not going to be good. That’s not good news for us because that’s going to create even more challenges and difficulties.

“To give the Prime Minister the benefit of the doubt, he said 38 items. The ones listed from the grocery stores’ perspective, and what the [margin] reductions are, we don’t know for sure. When it happens, it’s going to cut even more into the already-challenged profit margins for the stores.

“They are going to cut into the profit margins and, on the other hand, they are asking grocers to increase the minimum wage, which has to be paid from those profits. On the other hand, we also have BPL receiving a fuel charge increase and have to pay BPL. All of that comes from the profit margins, and with the minimum wage and salary increase that calls for an increase in NIB contributions,” he continued.

“It’s going to have a very negative impact on the business. It’s not adding up. I don’t know what the magic formula has to be, but we are chipping at the profit margin of the business yet still asking them to pay more. On top of that, businesses have to pay Business Licence fees, property taxes. The insurance industry is hinting that there’s going to be an increase in premiums coming up. It doesn’t look like it’s painting a good picture.”

Mr Beneby said the price control regime’s expansion, as well as the further cuts to existing restricted gross margins on “breadbasket” items, will result in food stores selling more products at a loss and to a greater extent. The industry operates on already-thin margins, and this is occurring at a time when it is experiencing significant cost and inflation pressures - with BPL set to exacerbate such woes for a sector that is among its leading consumers.

“The cost increase is hitting you from all sides,” the Association chief told Tribune Business. “Then the Government is taking away from your profit margins. How are you going to strike the balance? I don’t know. The thing is it has always been said that small businesses are the engine that drives the economy of any country, and if you are going to try and diminish the small businesses, what is going to happen to that engine? Eventually, it’s going to die.

“They have to be careful with their decision-making when it comes to that. The small and medium-sized businesses will definitely be impacted to the extent that you are going to have to consider lay-offs or going to have closures of businesses. I think that is the last straw.”

Mr Beneby said economies of scale will enable larger food stores to better-spread out the price control expansion and margin cuts because they have bigger inventories, whereas his Courtesy Supermarket on Carmichael Road does not enjoy the same advantage because of its smaller size. Price-controlled margins range from a low of 10 percent on eggs to 23 percent for most other breadbasket items. 

“They must have a magic formula, and I hope they give it to us,” he added of the Government. The $50 per week increase in the minimum wage, unveiled by the Prime Minister at the same time as the price control expansion, will largely impact entry-level food store staff that lack experience and training.

Warning the Government to be careful of the unintended consequences of well-intentioned policies, as it seeks to ease the cost of living crisis for the poor and most vulnerable, Mr Beneby said the proposed six-month trial period for the changes is “a long time in business” especially if companies have to “rob Peter to pay Paul” or are unable to pay their suppliers.

“I don’t know if this is the end of the conversation, or it is a conversation that has to be fleshed out more,” he added of the Prime Minister’s announcement. Mr Davis, in his national address, pledged that the Government is doing more to tackle the country’s cost of living “crisis” as he acknowledged that prices have risen “across the board faster than they have for many decades”.

Emphasising that the price control regime’s expansion is for a six-month trial period, he told Bahamians: “Tonight, I want to announce that we have added 38 new items to be subject to price controls in our country.

“We are limiting the wholesale and retail mark-up of everyday items like diapers, and food like chicken, eggs, bread, bananas, apples, oranges, broccoli, onions and potatoes. These items are being added for at least a six-month period, at which point we will review and evaluate the impact on businesses and consumers.

“We are also reducing the profit margin on price-controlled drugs, providing additional relief to Bahamians. During an inflation emergency it’s important to take the steps we can to improve affordability.”