Is Lidl making food cheaper in Latvia?
The recent opening of the first branches of the German discount supermarket chain Lidl in Latvia was big news in the national press. However, a debate is raging over whether the new stores can actually bring about the expected reduction in food prices. Commentators also point to undesirable side effects.
Minimum quotas for domestic goods needed
Romāns Meļņiks, editor-in-chief of Dienas Bizness, says the move will bring both a welcome increase in competition and disadvantages for the domestic economy:
“Essential goods are now accessible to buyers at much lower prices. However, the money paid for goods is going to farmers and producers in other countries, and it is foreigners who are raking in the profits. A chain like this, that trades in imported goods, is like a big money hoover. Of course you can say the same of other big food retail chains - and almost all non-food chains - as well as foreign investment in retail in general. All that means, however, is that for this kind of investment the state must stipulate that a certain proportion of the goods on offer must be of local origin.”
Price wars without a lasting impact
Neatkarīgā doesn't believe that the new chain will lower prices in the long term:
“There is already a high density of stores in Latvia, but the number of customers is low and and shrinking by the day. Rather than putting more pressure on prices, a new player will only reduce sales - and thus profits, making it difficult for outlets to achieve a reasonable profit margin on sales volumes. ... Given the severe labour shortage, the new jobs might increase the wage level of employees in the industry. However, this will increase costs without lowering the price of goods. Even if there are some price wars in the short term, prices will soon return to the usual 'normal' level.”