The Retail Association has issued a statement regarding the ongoing public debate on food prices.
According to the statement, international experience clearly demonstrates that it is the efficiency of the supply chain, not retail margins, that determines the price consumers ultimately pay.
“In European countries, Germany among them, where the overwhelming majority of the market is served by organised retail, logistics are maximally centralised: products travel directly from the producer to the network’s distribution warehouses and are then delivered to individual stores through the network’s own optimised internal logistics system. This is precisely why there are virtually no redundant intermediary links in the distribution chain that would otherwise inflate prices. Distribution companies there function primarily as carriers, nothing more.
The Georgian model is still transforming. Today, it is common for a single retail outlet to receive deliveries from multiple suppliers, each arriving by separate transport. This means more logistical operations, more fuel, more time, and ultimately higher costs, which are passed on to the consumer through the product price.
It is also important to clarify the matter of cashback arrangements.
Cashback is one component of the overall margin and mark-up, agreed upon from the outset in the commercial terms negotiated between the supplier and the retail network. It is not an additional charge, nor a sum added on top of the price at a later stage. These funds are used primarily for promotions, temporary discounts, product visibility, and other activities that ultimately serve the consumer’s interest.
It is equally important to note that the average total margin of supermarkets in Georgia is lower than the European average. When discussing how prices are formed, it is therefore essential to consider the full picture rather than isolating individual elements. Research data shows that organised supermarkets together account for approximately 40% of the retail market. The remaining 60% is served by neighbourhood shops and other types of retail outlets. It is also well established that distribution within this segment makes little or no use of cashback and retro-bonus schemes. And yet products in unbranded neighbourhood shops are frequently more expensive than in organised retail networks, including discounters.
This fact alone demonstrates that cashback and retro-bonuses cannot be considered the primary driver of price increases. A far more significant factor is the efficiency of the supply chain itself. As noted above, the presence of additional intermediary links in distribution, where inefficient and costly processes inflate mark-ups, plays a substantial role in final price formation.
The Retail Association and its members have expressed their willingness to consider the abolition of cashback and retro-bonus arrangements, provided that any corresponding reduction is reflected in the supplier’s pricing.
However, such partial measures alone will not, in themselves, lead to a significant reduction in prices unless they are accompanied by a fundamental transformation of the supply system and a shift towards the logistical model employed by countries—Germany included—that the government has repeatedly cited as a benchmark. Two of the Association’s member companies already possess the infrastructural foundations to begin this transformation on a phased basis. The coordinated and consistent engagement of both the business community and state institutions will be critical to making it happen.
The development of domestic production also deserves particular attention. One of the most important preconditions for reducing prices in this country is the growth of local production and a reduction in the economy’s dependence on imports. This would allow us to cushion the impact of international inflation and exchange rate fluctuations — both for businesses and for the prices consumers ultimately pay. A significant portion of Retail Association member companies already actively supports local production in line with their own internal policies, particularly in the areas of agriculture and farm produce.
The presence of Georgian-made products on retail shelves is, moreover, closely linked to consumer demand. Organised retail holds detailed data on which categories attract high demand and where local production has the greatest growth potential. In a number of product lines, the market is today predominantly dependent on imports precisely because domestic production is not represented in sufficient volume. The retail sector stands ready to share this data and analysis with the relevant government agencies, so that support programmes can become more targeted, more practical, and more genuinely focused on developing those products where growth in domestic production could have a meaningful and positive impact on prices.
The retail sector is working intensively to develop models that will improve the supply chain and have a positive effect on final prices. In the near future, the Association will present to the public and the relevant authorities specific, economically sound, and practical proposals. Our goal is real, lasting change, change that reduces inefficiency within the supply chain and, in doing so, delivers better outcomes for consumers, businesses, and the economy as a whole,” the statement reads.
