Small shops lose out in UAE price freeze

Small supermarkets could see profits dramatically reduced as they sign up to the Government's price fixing campaign - with video and price compare.

ABU DHABI // Small shops that join the Government's new price-freeze campaign said yesterday they faced a 30 per cent drop in profits from selling some products at a loss.

Shopping List: Are you paying too much at the tills?

Last Updated: May 30, 2011

Check-out check Here are 80 sample goods from Carrefour and Al Ain Co-op the prices of which have been fixed under the government scheme. Click here to compare

The alternative was to opt out of the scheme and lose customers to competitors that cut their prices.

The campaign, announced last week by the Ministry of Economy, freezes the prices of 400 basic commodities at 70 outlets until the end of the year. Big stores that have signed up include Lulu, Spinneys, Carrefour and the Co-operative.

Small shopkeepers say large operators can compensate by using their purchasing power to force down the prices they pay to suppliers, and increasing the prices of luxury goods not covered by the scheme, but they do not have those options.

Fathima, a convenience store with 15 outlets in Abu Dhabi, has agreed to sell rice, flour, pasta, oil, salt and biscuits at the cost price it pays suppliers, cutting prices on 20 products that make up about 30 per cent of sales. "Our customers are the lowest class, they need these essential commodities," said Fazal Valiyaveetil, the purchasing manager. "We must volunteer for the scheme to help the common people, the labourers."

Mr Valiyaveetil says once the costs of logistics, packaging and distribution are taken in to account, the company will be losing money on these products. "Our profits might fall more than 30 per cent," he said.

Abela, which operates three stores in Abu Dhabi, said the price-freeze campaign was unfeasible for smaller retailers because the cost of goods was fixed by manufacturers.

David Derrick, the company's retail general manager, said Abela could not sign up to the scheme because it did not have the flexibility to cut prices or sell at cost price without a fall in profits. "Our retail prices are driven by the distributors," he said.

Although basic commodities will be cheaper at Abela's larger competitors, Mr Derrick said: "We would not expect this to affect us, we have a very loyal customer base. To be honest I think they would prefer it if the Government capped the increase in rents or school fees, rather than the price of a bag of flour."