Commodity price caps eating into retailers' profits

Disgruntled retailers are complaining that the government's price caps on basic commodities are cutting their profit margins by up to 10 per cent. Although over 300 retailers across the UAE have agreed to freeze prices of selected commodities, the price caps are eating into their bottom lines as global food costs change. "The retailers have to bear the cost. It's more a burden for retailers now," said Abdul Nazer, branch manager of the Sharjah Co-operative Society in Helwan, adding that the government laws are helpful to consumers. Profit margins declined by 10 per cent as some commodity prices remain fixed but prices on the global market, from where the UAE imports its food requirements, continue to change, said Hassan Al Souqi, manager of purchasing at the Sharjah Co-operative Society. Asked how retailers should deal with squeezed profit margins, Dr Hashim Al Nuaimi, director of the Consumer Protection Department at the Ministry of Economy (MoE), said during an inspection of the co-operative yesterday: "Who said their profit margins are down?" The co-operative is forced to cut corners to cope with the situation. "It's affecting our profit margins of course, we have to do some cost-cutting in manpower and transportation," said Nazer.It is also looking for cheaper supplies. "Our own private labels are compensating our losses. They are cheaper but the same quality," said Al Souqi. The co-operative is accountable to its shareholders, but dividends will take a hit this year, said Nazer. The co-operative has seen a 25 per cent spike in sales during Ramadan compared to the same time last year due to the reduced prices and their own promotions, said Al Souqi. It spends Dh5 million in subsidising commodities, he added. The price caps will remain until the end of 2011. "There are plans for the next year as well, prices in the UAE will not rise," said Al Nuaimi, but refused to elaborate at this stage. A continuation of the price caps in the long-term will create more complications for retailers and consumers, they said."Suppliers will ask permission from the Ministry of Economy to increase prices and if this is denied then some commodities will be in short supply. If this includes basic food [items], then it will become a problem," said Nazer. From / Gulf News