Tuesday, April 16, 2024

THE BIG INTERVIEW: Neilands’ take on prices

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In this week’s Big Interview, David Neilands, chairman of the Food Group of the Barbados Chamber of Commerce and Industry, addresses the hot button issue of the high cost of living.
Neilands, who is managing director of Super Centre, strongly defends the retail sector against recent criticisms that it has been indiscriminately jacking up prices. He spoke to Editor-in-Chief Kaymar Jordan.
 Q: Is there or is there not price gouging in Barbados?
Neilands: I can’t categorically say there is or there isn’t and of course the word price gouging has probably been overused because it is not necessarily a term that is the correct one in the case of retailing. Gouging is supposed to be something that happens during a hurricane when people are trying to find supplies that are in short supply and prices are artificially escalated.
Different prices exist in markets every day from one retailer to the next in terms of the choices that people make. If you go to a gourmet shop that is selling high-end quality, then you are going to pay more than you pay at the average retailer and you may pay less at a discount retailer who has a lot less product to sell than say a larger retailer.
Sometimes we talk about the different prices that are in vogue in different locations but when people are selling different merchandise, there is a different cost for the item. If you are selling something that is frozen or fresh, then you have the concern of perishability so mark-ups vary between a can and an item of produce or dairy for instance.
So shopping and retailing is about people determining what they can buy within their budget and about retailers being able to offer a broad range of brands that come from different locations at different prices.
Going back ten or 20 years we used to buy a lot of products from Trinidad and Trinidad is not manufacturing at the same level it was say in the ’80s, because it became too expensive for them to do it so that has changed a lot of momentum in terms of the price of goods. We are now drawing a lot more from further away – from the US, from the UK, from Latin America.
Q: So you are saying that there are a variety of factors – some external, some domestic – influencing price changes in Barbados?
Neilands: Absolutely. But the biggest influence of all is the first cost of goods, which is what we are facing now. We are beginning to understand that a number of commodities like cheese and corned beef, rice, potatoes and certain beef cuts and so on are all beginning to change in price given what is happening on the international market. It is a matter of understanding who you deal with, who you are buying from.
People in Government have said: ‘Are we sourcing from the right places?’ It is a reasonable question, but we tend to source in business in Barbados from a lot of reputable brands and manufacturers that people have enjoyed over the years and with that comes a fair amount of protection. It also comes with a little bit of hope that the manufacturers are buying from sources that make products more affordable.
That is true up to a point, but when you have shortages and other players in the market like the Chinese (whose economy is moving at lightning speed) and the Russians (whose problem is one of harvest and winter), all of those things are going to affect the price on the world market and our problem is that we are at the end of the boat trip.
Q: So this is what you mean when you suggest the days of cheap food are over?
Neilands: That was what international people said in 2008, but we have always been accustomed to paying more in Barbados because we have to freight it here, pay to get it here and then pay the duties on top of that to sell it. In the past that was easier when the first cost of food from international markets was cheaper. Now that is beginning to climb and as it climbs and then we add on the freight, the duties and the VAT, obviously all those stages are turning out to be the problem in terms of the price at the end of the day.
Q: Let’s take a simple item like tuna for example; explain the cost structure for us.
Neilands: Well in the case of tuna which has only got a five per cent duty, then obviously it is not the duty. It is actually the first cost and in the example we have used, if it lands and it is $1.35 and it sells at $2.51, then clearly that is half the cost of the item. All those other costs of handling and shipping and everything else is in the middle.
As you then move up the categories to different duty structures and there are higher duties applied, then obviously that adds even further to the cost of the goods to the point that when you are at 100 per cent duty, the cost of the duties going to Government is the single biggest component of all.
If we have 100 per cent duty on an item, is it because we are trying to protect a similar item that is produced here, or is it that we are not really protecting anything in the market?
In the case of the diabetic jam for example, it is a jam but the fact is we don’t produce it here. Unfortunately all the jams that are imported get lumped into the same duty structure and my argument would be, let us look at it, let us break it down. Let us determine if we can have different duties on different products, for example health products.
Q: So you think the current duty structure is unfair and needs to be reviewed?
Neilands: I think the Government has used something that is a balance from Brussels or wherever the duty structure is arrived at, but I think there are different interpretations made by different governments for protection reasons. I think we need to review it, yes.
We happen to know for example that there is a growing market for people who want gluten-free products. I believe that those duties are restrictive for people in that category because those products already start expensive. To remove gluten from bread is a technical thing so it means that the first cost of those items is always higher to begin with anyway.
If we then add duties on top of those, whatever they are, then you are putting it out of the reach of a lot of people who really cannot eat any substitute and we are not really protecting anything.
Q: You’ve touched on the supply side and Government. Let’s deal now with your end – the retail side. The concern is that on top of the high duties and taxes, retailers like you still apply your mark-up and are therefore contributing in a major way to the high cost of living.
Neilands: Well, our mark-up is around three per cent, which means that it is three cents in a dollar and that’s the profit that is made after all the costs are covered. The supermarket industry is labour intensive so the single largest cost for us is labour, which is about 49 per cent of our total cost and in Barbados it is about 12 per cent of sales. Those sort of numbers equate with North America, so while it may be true to say that someone in the US is earning a higher dollar figure than say someone in Barbados in the supermarket industry, the percentage as it relates to sales is the same; so I don’t think supermarkets or wholesalers are really taking advantage of the consumer in mark-ups.
We have had similar mark-ups from way back to the introduction of VAT in 1997, which is 14 years ago, and I would suggest that the trade has changed its mark-ups very little or at all since that time.
Q: But given the current economic situation, shouldn’t supermarkets lower their mark-ups?
Neilands: At the end of the day, a business is endeavouring to make a profit, which should be acceptable to anybody. Out of that profit those returns go to shareholders, they also go into reinvesting in the business and for different people that will be dealt with differently.
Q: Still, is it really reasonable to expect three cents in every dollar at a time like this?
Neilands: When you compare the supermarket industry with the banking industry or the insurance industry, the three cents in a dollar is nothing at all compared to what they will make and we are a labour intensive industry.
Q: But surely you can avoid the banks, but we can’t really avoid the supermarkets because we have to eat?
Neilands: Well, that’s true (chuckle). But to get back to the real issue, if I was to take a tin of evaporated milk and talk about a 15 per cent mark-up, which is a 13 per cent margin, and I was to put in all the costs that exist for the business, at the end of day we actually lose money on a can of milk.
It is a factor in the business that we are running. Does it mean that we then turn around and put a higher mark-up on a lot of other things to cover for the milk? No.
Q: You are certain you don’t?
Neilands: No. Because the Government introduced VAT and adds on two-and-a-half per cent, nobody is sitting here with a typewriter saying: ‘We got to make back two-and-a-half per cent, let’s hike up everything two-and-a-half per cent.’ It doesn’t work that way. That is not how businesses operate because they are in competition. Nobody thinks about the fact that when people put items on special for example that it is a cost.
Q: What about the fact that there are these interlocking directorships? Some argue that you and other members of your Food Group have banded together in the form of a virtual monopoly and that this too is affecting prices.
Neilands: The truth is that we buy from 500 or 600 suppliers in Barbados; some small farmers with a tree, to farmers with 50 acres. We buy from every manufacturer and distributor in Barbados and if you are talking about that, I think that is a mute point. I don’t think there is any connection anywhere that is denying anybody anything that they can’t get from another retailer at the same price or close to it, so I don’t think that argument holds water.
Q: What is the bottom line here, can Barbadian consumers realistically expect any lowering of prices any time soon?
Neilands: A lot of the answer lies in how can we get product from markets that are closer to us where the freight would be less and therefore the first cost that we have to pay would be less as well. So I don’t think there will be any short term lowering of prices.
However, I still believe that the Bajan consumer has a choice in most of the supermarkets and from most of the distributors that is the envy of the rest of the Caribbean. If we are going to talk about how come things are cheaper in other regional markets, I think we are going to have to do a lot more diagnostic checks than what have been done.
But if you want your Kelloggs cornflakes and the price of wheat has gone through the roof, you may have to look for an alternative. I think the alternatives are available and everybody needs to cut their cloth to suit their incomes.

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