Lebanese supermarket industry reeling from political turmoil
Like every other sector in Lebanon, the supermarket industry is reeling under the severe economic slowdown which is mainly attributed to political instability and a deteriorating security situation in the country and neighboring Syria, a leading businessman and supermarket owner said Tuesday.
Nabil Fahed, head of the syndicate of supermarket owners, told The Daily Star that the sector is seeing increased pressure due to lower consumer confidence and a feared recession as a result of newly proposed taxation in the 2012 draft budget. Fahed, who is also vice president of the Chamber of Commerce, Industry and Agriculture in Beirut, said miscalculated government decisions such as the recent overblown wage hike for private sector employees have added to the woes of Lebanese businessmen.
In February, the government raised the minimum wage to LL675,000 from LL500,000. It also gave salary increases of up to LL300,000 for people earning more than LL1.5 million a month. The increase in product prices didn't offset additional costs incurred by supermarkets due to the wage hike and soaring fuel prices, which raised distribution costs incurred by importers and consequently the cost of goods sold, Fahed said.
Fahed argued that the government approved an overblown wage hike of 33 percent compared to an inflation rate of 17 percent for the period ranging from 2008 to 2011, according to the Central Administration of Statistics. Fahed added that inflation was subdued due to increased competition that is putting pressure on profit margins amid additional costs incurred by supermarkets.
The Consumer Price Index issued by the Central Administration of Statistics indicated that inflation in the prices of consumer goods increased by 3.5 percent in April 2012, compared to same month last year. Food and non-alcoholic beverages rose 6.3 percent year-on-year.
The Economy Ministry have defended the government's decision to raise wages, saying it will have a positive impact on the economy in the long term, driving more consumer spending and fueling growth. However, Fahed warned that if Lebanon fails to expand the size of its economy, businesses would be incapable of combating the deteriorating economic situation and mass layoffs would follow.
The supermarket industry, which grew at annual rate of 12 to 15 percent over the past four years, according to Fahed, employs thousands of people in Lebanon and generates tens of thousands of job opportunities in related industries including mass retailers, as well as import and distribution agencies.
Fahed criticized the Finance Ministry's newly proposed taxes, arguing that it would strangle economic activity and weaken people's purchasing power at a time when Lebanon is need of measures to boost growth.
The Finance Ministry has proposed a 2-percent hike on both VAT and interest-revenue taxes and a new 15-percent tax on profits made through real estate transactions.
Besides complaining about domestic instability and miscalculated government policies, Fahed said the ongoing Syrian crisis has negatively impacted the sector.
While the crisis has no direct impact on local supermarkets from an operational point of view, Fahed said a decreasing number of Arab tourists, particularly those traveling by land from Jordan, Syria and Iraq is resulting in a drop in sales. However, despite the economic slowdown and increased pressure on margins, already established supermarket chains are showing confidence by investing in new sites across the country.
Fahed justified the continued interest in the sector to the fact that for the upcoming period the grocery market is still unsaturated. He says supermarkets and hypermarkets control 60 to 65 percent of the market share while the remaining 35 to 40 percent is still controlled by small grocery stores.