Dubai: Value added tax (VAT) will force retailers to continue in to next year with the strict regime of promotions that has already come to define 2017 for many.
That is according to the chief executive of French retailer Bayara, who has been driving a programme of change that has seen the seller of dried fruits and nuts grow to nearly Dh500 million in annual sales.
With some concerned that VAT will lead to inflation and a rising cost of living, Jean Marc Lourau, who has led the company since 2001, is unmoved.
“I’m not afraid [of inflation]. For the simple reason that for a year, to sustain the economy here, everybody in the market did a lot of promotions. You can see in the market that the level of promotion has never been so high,” said Lourau in an interview with Gulf News.
Despite the high levels of promotions, Lourau said that Bayara, which sells dried fruits and nuts to supermarkets, hotels, and airlines, still managed to grow by 10 per cent this year. For perspective, the company has said that its sales from promotions have doubled in 2017.
Retailers say they have been pressured this year by rising rents, higher costs, and lower consumption.
With the introduction of a 5 per cent VAT from January 1, these promotions and discounts are set to continue in to 2018, according to Lourau.
On whether Bayara would seek to absorb some of the additional 5 per cent through promotions, Lourau said: “You will see the creativity of the market from January 1. I am sure that people have plans for that, to avoid their turnover crashing, and to keep the right balance between their margins and the customer consumption. This is very important.”
“We will do more promotions so that customers aren’t completely shocked by the new price on the shelves,” he added.
The tax will apply to all goods and services, including food staples, with a handful of exceptions, including education and public transport.
“It will probably take one year to just bring our price to the new level which is imposed by the VAT,” Lourau said.
In terms of anticipating the price increase in ahead of January 1, the chief executive said that this was impossible, given the level of promotions the company had already implemented in 2017.
“We couldn’t afford to increase our prices,” he said.
As for Bayara’s exact strategy for dealing with VAT, Lourau said next year would be a mix of discounts, and gradual price increases.
“I’m planning the promotional activity of next year [to] be the right balance between 2016 and 2017. It will be less [promotional], I feel. Not at the beginning of the year, but at the end of the year. By the time we stabilise the VAT, which will take six months probably, the rest of the year will be probably the year of recovery,” he said.
On regional variations, Lourau noted that price sensitivity would be different throughout the country. “When you have a poor level of purchase, 5 per cent is more important than when you’re a rich guy and you don’t care,” he said.
Ultimately, he said, the market would come back to normal soon.
“We will not be like Saudi Arabia anymore, running promotions to survive. We will become a normal market soon.”
Generally speaking, Lourau said that he was optimistic about VAT.
“VAT is interesting, because it was invented in France in 1954. I was born with VAT, so for me it’s not a miracle to introduce VAT,” he said.
Today, a sizeable portion of France’s state budget comes from VAT, according to Lourau.
“Our school is free because of VAT, our health care is free because of VAT, our retirement plan, our employment plan, all of these plans are almost free because of VAT,” he said.
“So VAT is a part of our life, with 20 per cent, in France.”
The senior executive noted the positive contribution that VAT will make to the UAE federal budget, where it is expected to add nearly 5 per cent to government revenues, if it raises the Dh7-10 billion that the state forecasts.
As a result, the chief executive sees VAT as a “very good thing for the country. That’s the main message.”