How will the price reduction initiative affect the profit margins of listed food companies?

Fatma Salah
4 Min Read

Several listed companies operating in the food sector have decided to reduce the prices of their products in line with the Prime Minister’s decisions to launch a price reduction initiative. Domty, Oubour Land, and Juhayna have all announced reductions of between 15 and 25%. The Borsa newspaper has monitored the impact of these reductions on the profit margins of listed companies.

The Prime Minister’s initiative identified seven major commodity groups that will begin to reduce their prices by 15 to 25%. In fact, a number of these commodities have already begun the reduction process, including beans, lentils, dairy products, white cheese, pasta, sugar, cooking oil, and rice.

Ramy El-Ghazali, head of investor relations at Sixth of October Development Company (SODIC), predicted that the company’s sales would increase by 13-15% after the decision to reduce the prices of milk and cheese. He explained that this increase would offset the impact on the profit margins of the reduced products.

El-Ghazali told the Borsa that the government has approved several incentives for producers that will help them with the production process, including providing hard currency and customs exemptions. He pointed out that the current stock of raw materials is now about 3 months, after being somewhat affected in the past period.

Oubour Land Food Industries announced the start of price reductions beginning last Saturday in line with the initiative to reduce the prices of basic commodities.

A source at Juhayna Food Industries said that the company has reduced the prices of its dairy products, especially its Bakhira brand, which has the largest market share in Egypt. However, the company’s other products will offset the profit margins. He explained that the impact on profit margins will depend on the time frame.

Juhayna Food Industries announced a reduction in the prices of its Bakhira dairy products, in line with the Egyptian government’s initiative to support Egyptian citizens. The company cited Bakhira as the most consumed dairy product by Egyptian citizens.

Hossam Hamdy, consumer sector analyst at Al-Naeem Securities, said that the decision to reduce prices will affect the profit margins of companies and therefore their net profits, but only temporarily. He confirmed that the expected increase in sales could offset the impact on the margins.

He pointed out that the companies that have reduced their prices have the largest market shares, which encourages other companies to join them, increasing the number of participants in the initiative.

Domty Arab Food Industries decided to reduce the prices of all of its white cheese products in line with the state’s direction to ease the burden on citizens and provide basic commodities at reduced prices.

Mohamed El-Damati, CEO and vice chairman of Domty, emphasized the importance of the government’s move, especially at this time with the increase in demand for basic commodities during the school season. He stressed the importance of effective measures to ease the burden on citizens.

For his part, Mustafa Shafei, head of research at Arab Online Securities, said that companies’ reductions in the prices of their products do not necessarily have a negative impact. He explained that the impact depends on the percentage that the product represents of the company’s revenue, suggesting that the profit margins of listed companies will be affected only slightly.

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