Hungary's second-largest retailer Spar, incurred a loss in 2024 for the third consecutive year, weighed down by windfall taxes and state-imposed price measures that have hit its bottom line.

The Dutch-based and Austrian-owned retailer saw gross revenues rise 4.8% to HUF1.12 trillion (€2.75bn), according to CEO Gabriella Heiszler, who did not disclose net profit figures for the year. Spar's losses widened to HUF18.2bn in 2023 from HUF13bn.

Speaking to RTL in an interview, Hungarian CEO Heiszler attributed much of the financial strain to the government's retail windfall tax, which she said had cost the company HUF30bn over the past two years. The progressive revenue-based tax, initially introduced as a temporary measure after the 2022 elections, will remain in place until at least 2026, Economy Minister Marton Nagy said recently.

The retailer is also bracing for the possible extension of a government-imposed 10% cap on retail margins, introduced in mid-March as part of the government's anti-inflation measures. The regulation, which applies to some 900 essential food products, is due to expire at the end of May but could potentially prolonged, if food inflation remains elevated. Heiszler said Spar is preparing contingency plans, including renegotiating supplier contracts and adjusting marketing and staffing strategies, though she ruled out immediate layoffs.

Spar estimates the margin cap has cost it HUF1.5bn per month, severely limiting its ability to cover rents and wages. Analysts say the retailer may be forced to curb investment, reduce headcount, or leave vacancies unfilled if the measure remains in place.

The government introduced cap on markups was launched in mid-March to rein in inflation, which accelerated to 5.6% in February, with food inflation surging to 7%, two-fold the Eurozone average. Prices of some 900 products under the decree have fallen by an average of 18%, but analysts warned that to cover their losses, retailers may have passed on higher costs by raising the price of other products.

Spar said it supported efforts to reduce food prices and pledged not to compensate for the cap by raising prices elsewhere.

The company has already made steps to reduce operational costs. Last month, it migrated its online store to food delivery platform Wolt, triggering cuts at its e-commerce unit, where 60% of the 133 employees were reassigned internally.

Spar operates 652 outlets across Hungary, including 282 supermarkets, 36 Interspar hypermarkets, and 305 franchise stores. The franchise arm alone generated HUF166bn in turnover last year, and the company plans to open 35 new stores, mainly in smaller towns and rural areas.

Spar also operates multiple food production facilities in Hungary, including a meat plant in central Hungary, which would rank as the country’s second-largest if it operated independently with annual net turnover of HUF65bn.

With more than 17,000 employees in 2024, Spar remains one of Hungary’s largest private employers. Approximately 90% of the food products it sells are locally sourced, and its 4,500 private-label items account for a third of total turnover.

The Austrian-owned group has long been at odds with the Orban government. Spar was the only major retailer to legally challenge Hungary’s 2022 price cap regime, winning a landmark case at the European Court of Justice last September. The court ruled that Hungary’s price controls and stockpiling requirements, introduced just ahead of the 2022 general election, violated EU competition law.

Spar has also accused the government of using fiscal and regulatory pressure to force it out of the market. Group CEO Hans Reisch said last year the company was preparing to withdraw assets from Hungary over fears of politically motivated expropriation. Reisch claimed Prime Minister Viktor Orbán had made a reduction in the windfall tax conditional on transferring ownership to one of his relatives.

An April 2024 report by Vsquare revealed that Kremlin-linked oligarch Megdet Rahimkulov and Viktor Orbán’s son-in-law each made separate, government-backed approaches to acquire stakes in the retailer in 2023. While senior officials threatened legal action against the retailer, no proceedings have yet been filed.