Hungarian retailers sound alarm over government' margin cap plans
According to the OKSZ, the aim of the margin cap is to reduce inflation in theory, but in practice it is an intervention in pricing that reduces the profits of the traders concerned or increases the losses they have already suffered, thereby putting their operations at risk.
If traders make losses, they cannot invest, develop or even survive.
Márton Nagy also suggested that the government could extend the margin cap and not phase it out on 31 May as promised. The OKSZ believes that this runs completely counter to the logic of the market economy and will ruin the functioning of the domestic retail sector for many years to come.
Why the toiletries?
The OKSZ is convinced that a freeze on food prices will not help to reduce inflation in the long term, but the inclusion of household and cleaning products in the margin cap is not justified in the short term either.
Price increases for toiletries have been minimal over the past year,
with household goods currently dragging down inflation.
The weight of this product group in the consumer basket is 2-3%, compared to 25-30% for food, which means that any significant price reduction would not have a significant impact on inflation. In contrast to food, the brands in this product group are predominantly owned by global multinationals,
with private labels accounting for only 20-25%.
While food retailers are engaged in a lively dialogue with mostly domestic suppliers, there are limited opportunities for this in this product area, according to OKSZ.
A lot of loss-making businesses
Some of Hungary's retail chains were already loss-making before the measure was introduced, while others were making modest profits. Even with the promised phase-out at the end of May, the margin cap on food will delay investment in efficiency improvements by retailers for at least a year, which could have a knock-on effect on prices, employment and ultimately consumer service.
This is not a negative reaction by retailers to the constant attacks on the sector, but a market reality from which no one can escape,
they pointed out.
Keeping inflation under control is in the fundamental interest of all market participants, but this requires identifying and addressing the causes and economic factors behind price increases at the supply chain level, leaving businesses free to make decisions based on market logic.
30% mark-up on toiletries?
In a recent Facebook video, Márton Nagy said the government wanted to extend the margin cap from select food products to household goods and toiletries. These products also have a significant impact on inflation, he said, adding that these have played an important role in recent price rises.
There are mark-ups of up to 30% and more,
he stressed, adding that the products that would be included in the margin cap measure are detergents, dishwashing products, shower gels, baby care products and nappies.
On another occasion he pondered why the margin cap could not be made permanent.
Background
The margin cap was announced by Prime Minister Viktor Orbán last month. The new regulation came into force on 17 March and will be phased out on 31 May (unless the cabinet decides to keep in it place that is).
The most important point is that the margin cannot exceed the average margin applied in the month of January 2025 and cannot be higher than 10%.
The regulation applies to stores with revenue of over HUF 1 billion in 2023. If a product was not sold in a particular shop or online platform in January 2025, the margin will follow the average margin of the last month, up to a maximum of 10%.
The share of private label products must not exceed the total volume sold in January and February 2025. If a retailer has not marketed the product in January and February 2025, the last monthly share will be taken into account.
The regulation also lists the products concerned:
- chicken breast
- chicken leg
- chicken rump
- chicken wing
- whole chicken
- turkey breast
- pork leg
- pork loin
- pork ribs
- pork collar
- pork fat
- cold cuts
- UHT cow milk 1.5% fat content
- UHT cow milk 2.8% fat content
- ESL cow milk 1.5% fat content
- ESL cow milk 2.8% fat content
- Butter
- Sour cream
- yoghurt
- fruit yoghurt
- Trappist cheese
- cow's milk cottage cheese
- margarine
- sunflower seed oil and rapeseed oil
- fine wheat flour BL 55
- hard wheat flour BFF 55
- granulated sugar (white sugar)
- garlic
- edible potatoes, except new potatoes
- Fresh eggs, in shell, of fowls of the species Gallus domesticus (excl. eggs for hatching, fertilised)
For meat, this includes fresh, chilled, frozen, on the bone, with skin on, filleted, cut, sliced or minced, unwrapped and wrapped. For all the products concerned, the margin cap is also to be in place for the lactose-free versions.
The Regulation requires the above products to be made available on an ongoing basis at the level of the average daily volume sold in 2024. Traders who start selling these products after the Regulation has come into force may use data from another of their shops to determine the margin and proration. The chosen outlet must be notified to the National Authority for Trade and Consumer Protection at least three days before the start of sales.
Fines and penalties
The consumer protection authority checks compliance with the rules ex officio and can impose various fines in the event of infringements.
In the event of a mark-up violation, a fine of HUF 5 million per product category will be imposed.
If the proportion of private label products exceeds the prescribed limit, the level of the fine is as follows:
- HUF 500,000 for an overrun of up to 10 percentage points,
- HUF 1 million for an overrun of between 10 and 50 percentage points,
- HUF 2 million for an overrun of more than 50 percentage points.
In case of stock shortage, the amount of the fine is as follows:
- HUF 500,000 for a shortage not exceeding 10%
- HUF 1 million for a shortage between 10% and 50%
- HUF 2 million if the shortage exceeds 50%, or if the service to customers is not guaranteed.
In case of a serious infringement, the business or online platform may be suspended for a minimum of one day and a maximum of six months. In cases of special appreciation, the authority may also apply a warning.
The trader is exempted from the fine if they prove that the infringement was committed for reasons outside their control.
In the event of a repeat offence, the fine is doubled and may be imposed several times a day.
If the trader fails to comply with the information obligation, they will be fined HUF 1 million.
Cover image (for illustration purposes only): Portfolio
