Hungarian stores at risk of mass closure

We can temporarily rejoice in the discounted products due to the introduction of mandatory promotions. However, the new promotional phase starting today may bring the death knell for smaller stores, according to experts.

It is hardly likely that mandatory promotions will have a beneficial effect. Those with knowledge about economics expect two things to happen mainly. On the one hand, this measure won’t stop the inflation, as it just causes further chaos in retail. On the other hand, it could cause smaller stores to close down, writes Pénzcentrum.

Mandatory promotions

A few weeks ago, the government announced that weekly mandatory promotions must be introduced for basic food items in stores. Domestic stores must categorise basic food items into 20 categories and advertise mandatory weekly promotions for these items. At least one product from each category has to be be discounted by a minimum of 10 percent compared to the lowest price in the past 30 days. However, the promotions cannot affect price-controlled products.

The measure comes into effect today, on 1 June. Small stores are not expected to participate in it, as the requirement only applies to stores that had revenues of HUF 1 billion or more in 2022. This means that large retail chains and discount stores are expected to offer major promotions in accordance with the regulation. However, according to the experts, this will further seal the fate of stores in smaller settlements and villages.

Will the measure curb inflation?

Sándor Sütő, the CEO of Eger és Vidéke Coop Zrt., told Pénzcentrum that the group of companies under his leadership is making significant efforts to comply with the regulation.

“It is not possible to select a specific product for mandatory promotions as the products and types of goods differ, and it is not possible to advertise uniform promotions even if the regulation requires it. We need to find a solution for this,”

Sütő said.

He further added that in his opinion, mandatory promotions will not be able to curb inflation. According to him, there have been so many interventions in the economy, especially in the retail sector, that it is yet impossible to assess the effects of mandatory promotions.

“There is chaos in retail, and to top it off, people think that stores deliberately increase prices elsewhere due to price controls. I believe that mandatory promotions will have no impact on inflation,” he stated.

Are store closures coming?

According to agricultural economist György Raskó, the closure of small stores in rural areas has already begun. This was originally due to the microcrisis caused by COVID-19, but this trend is likely to continue with the introduction of mandatory promotions.

“Discount and large stores will benefit, but the small ones won’t. Besides not being required to participate according to the law, they lack the necessary IT and resource capabilities, and their utility costs have also significantly increased,”

he said.

György added that the closure of small stores has already begun, and this process will continue.

Source: Pénzcentrum