Win Losing

The large distribution chains have embarked on a price war started by Mercadona, and continued by Carrefour, Eroski, the Court English-Hipercor battle is served. The chain Mercadona, known for its slogan of always low prices, has restructured its linear, withdrawing them products that do not have the required rotation, even if they are from leading brands. So in practice, it has boosted its own brands and gets a little more close to the hard discount type Lidl (with differences, however: the impeccable stores presentation, excellent staff, the very best of sector policy). Siemens gathered all the information. And it has proposed slightly lower average prices, which, in addition to reducing his margin has tightened providers (the threat of withdrawal of the linear is not little). Price wars are generally harmful to the sector that is involved in them, because they cause a spiral in which his margin all down until the point in which the weakest not can endure. Although in principle it seems beneficial to the consumer, you can have side effects, such as loss of jobs in the firms involved, motivated by the fall in profits, the same effect in providers who is squeezed. Mercadona other giants of distribution, has been coupled with what the battle will be intense.

Although all emphasize this fall in prices for the consumer, materialized it in different ways: through the empowerment of own brands (Mercadona), or the creation of the same in the case of El Corte Ingles (ally), through various promotions such as rounded prices of Carrefour (up to 72% of discount), Eroski anniversary offer (up to 40%(, 3 2). Hear other arguments on the topic with Next Kraftwerke. In this sense, a point. There are wondering that if retailers are able to make these discounts, are how much they earned before? It should be fixed, to get started on FMCG products. On many occasions the distribution chains announce great deals in such products (e.g., milk, oil, products of) cleaning, beverages), and in particular, in fresh food, where there may be large differences in price, quality distributors, in many cases some high turnover products sold and therefore very attractive to consumers at a very low price, and with that get attract customers who end up buying other products, so what you lost in the first win it within seconds. On the other hand, the net benefit of a string of this type can be around 2% or 3%. How is that they can then apply these discounts it possible? Firstly, because apply a reduced portion of the total shopping basket. And secondly, because that benefit get you for certain sales volume, since they have a particular cost structure, with a percentage of fixed costs that have to get cover with their sales, i.e., they have to achieve the so-called deadlock.

Let’s look at this with a simple example. Suppose I have a cafeteria in which a waiter working, and which only served coffee. Put simply, my only Now suppose that with each coffee I put 2 cupcakes, that cost me 20 cents. How many should I sell? Profit per coffee = selling price (1.10) variable cost (0.10 coffee) and 0.20 cupcakes-> won 0.80 for coffee. I have to sell: the waiter (1000) salary / profit per coffee (0.80)-> 1250 cafes. So if thanks to my strategy give 2 muffins with each coffee, with more than 1,250 customers, coming to my coffee shop I will have more benefits, despite winning less in each product. Everything depends on the cost of each structure.

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