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Saturday, December 3, 2022

All about Golob’s disgrace with an inventory of food prices

By: Jože Biščak

By comparing the prices of food at different retailers, Robert Golob’s government only “discovered” what every consumer already knows: that the prices of food in different stores are different. This “Columbian” discovery cost the net taxpayer dearly.

“It is one of the most easily earned money of all the easily earned public contracts to date,” Finance journalist Petra Sovdat wrote on the Twitter social network. The company April 8 will receive almost 60,000 euros (together with the annex for public procurement) for a list of food prices at six different retailers by the spring of next year. It is not only a matter of the fact that the completely childish listing of prices and conversion into the cheapest consumer basket is completely unnecessary, but also of methodological errors, as the registrars compared incomparable products with each other.

How it started…

In the spring, when inflation skyrocketed, Robert Golob and the government pointed the finger at retailers as the main culprits for raising the prices of basic necessities. That is why he made a populist promise to make a very clear display of food prices at various retailers. “Where the prices for the food basket are low and where the margins are obviously astronomical,” the Prime Minister said at the time.

Later, someone apparently told him that this was impossible because the traders would have to provide him with the information themselves. The margin is the difference between the purchase and sale price. But the purchase price is not the one that the trader pays (for example to the farmer for potatoes), but the price to which manipulative, administrative, and transport costs, logistics, possible customs duties, and other taxes in this chain must be added. In this way, we slowly get the selling price, and VAT must be added to it to get the final retail price paid by the consumer (buyer). The margin is therefore the merchant’s markup on the purchase price, which covers the above-mentioned costs. Margin is often confused with rebate, which is the merchant’s share of the purchase price. A rebate is a matter of agreement between the supplier and the retailer, usually a rebate is offered by the supplier to ensure the sale of the product to the retailer.

What Golob did not say is that the biggest part of the retail price of the product we buy from the store is not the costs incurred by the manufacturer (supplier) and the retailer, but the various taxes, surcharges, duties, and contributions. This is what causes higher prices, lower quality, and low wages for shopkeepers.

and how it continued

When the government realised that its intention to reveal the margins for each product would do nothing (it could only do this if it had a precise insight into the price formation of each product separately), it published a tender for a simple inventory of the prices of basic foods at various retailers. The company April 8 was selected. The results were presented last week by the Minister of Agriculture, Forestry and Food, Irena Šinko. And people had something to see.

Even a cursory glance at the Naša super hrana website, where the results are published, shows that incomparable products have been compared. There has already been a major methodological slippage in the very foundation, which shows that the registrars and analysts approached the matter charlatanically. “This unfortunate monitoring of prices will end in some sort of lawsuit, because in the part of comparing the incomparable, disregarding quality, origin, disregarding different rating systems, benefit systems of individual traders, some traders are being directly harmed,” wrote Tilen Majnardi, economist and marketing expert. A similar opinion was shared by everyone who knows at least a little about market research.

Apparently, even the registrars themselves are aware of the sloppiness in the census, otherwise they would not have written on the website that “both the contractor and the client do not assume responsibility for any damage that may occur to any natural or legal person as a result of using the website” of the food census. This is an “all-time-low”, commented marketing veteran Božidar Novak on social networks.

Methodological shortcomings

For more than a hundred years, market researchers have been trying to discover a reliable and universal method for comparing prices. To this day, they have not found it, they are only approximations and more or less reliable approaches. Among the methods, two stand out, which are the most useful, but also have a whole series of methodological reservations: the total value of the selected basket and the price index. The government (or the company April 8) resorted to the first method, which is supposed to be the most understandable for consumers: what is the value (expressed in money) of the selected basic foods in the basket. This method has some conditions that are not easy to achieve.

The first (and main) condition is that the same product from the same manufacturer must be compared. For example, if we decide to compare the price of Mlinotest’s pasta (750 grams), it is necessary to search for this product at all retailers and make a comparison. Well, the registrars found this product in three stores (three did not have this product) and the price was off by 2 cents.

This is one of the disadvantages: the offer of competitors is not always necessarily the same. It is quite possible that dealer A has a product in his offer, but dealer B does not. In order to overcome this, they resort to similar products, where comparison is again impossible, as the products can be sold under the brand name of a specific retailer (you cannot get TUŠ flour in Spar, you cannot get Spar flour in Mercator).

How to assemble a basket

Another problem is how to make expensive and cheap products participate equally in the basket. In the government’s comparison, the difference in price is also more than 1 to 20. This can have a significant impact on the total final price of basic foods in the basket, especially when you compare different producers of expensive products (meat), where the difference (nominal value) is significantly greater than for cheaper products. The government’s comparison did what should not have happened: it compared high-quality products from one retailer to low-quality products from another retailer.

The third challenge is the “eternal” N. It is true that the government compared six traders with each other, but only in Ljubljana. This means that the price comparison has “useful” value (if any) only for residents of the capital, because the prices of the same retailer for the same product in Ljubljana can be different compared to Murska Sobota or Koper. They may even differ between stores of the same merchant in the capital.

Will they stop the inventory of prices?

Traders have already pointed out (and complained about) these shortcomings of the price list. The Chamber of Commerce of Slovenia (TZS) has even called on the Ministry of Agriculture to temporarily suspend the project to compare the prices of basic foodstuffs. The question is whether the stubborn government will heed it. Namely, they insist that the registrars considered the cheapest product from a certain retailer in the recalculation of the basic food basket. But even that does not last. If they were to consider the cheapest, they should also consider promotions, discounts, and merchant loyalty cards, because this is exactly the reason why a certain product is cheaper in one store rather than another.

“It is about soft regulation, that is, monitoring the prices of basic foods,” said Agriculture Minister Šinko. “Comparison of food prices at retailers is really not a soft regulation of the costliness, well, except for those who will cash out 58,000 euros on this account, because there it can really moderate the costliness,” said economist Matej Lahovnik.

It is obvious that Robert Golob is preparing for something more sinister – that the government will intervene in the market with regulations (setting a maximum price for a certain product, reminiscent of a centrally planned economy). Although he should know that the best “medicine” for achieving low prices is a large offer and fierce competition between dealers.

Merchants’ responses

The research covered prices at six retailers in Slovenia: Mercator, Spar, Tuš and Engrotuš, Hofer, Lidl and Eurospin. According to the government’s calculation, Eurospin’s basket was the cheapest, and Tuš’s was the most expensive (list of the cheapest products in stores). Traders have already responded to the published results in the media.

Tuš: “It is practically impossible to establish a methodology that would allow correct price comparison between traders.”

Mercator: “Regular prices are listed, and the differences are (…) minimal. Mercator’s loyal customers (…) save extra by collecting points.”

Eurospin: “It should be necessary to compare comparable products.”

Lidl: “It is crucial that the product price analysis is prepared transparently and accurately.”

Spar: “The list does not take into account the various discounts and campaigns offered by retailers on certain days.”

Hofer: “There are many irregularities in the census. (…) By stating the wrong prices or highlighting the prices of incomparable products, it does not provide the customer with the right information.”

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