Around the world, the news remains the same. Fuel prices are on the rise. The cost of food has risen so much that some people may struggle to keep pantries filled and stomachs full. The Middle East has seen just as much pressure as most other countries, and often more so. What will this mean for consumers who were spending at higher rates just last year as the pandemic began to wane? In many ways, retail spending will see a significant drop in spending that may create long-lasting and far-reaching consequences.
Increased Food Costs Impact Every Sector of the Industry
Fuel prices directly impact the cost of food at all levels. It costs significantly more now to transport food from manufacturers and producers to restaurants, grocery stores, and other distribution locations. That increased fuel cost is nearly always passed down to the consumer in the form of a significant uptick in prices.
Consumers no longer have the ability to absorb the increased costs either. Their only choice, then, is to reduce their spending.
Consider, for example, how diesel and petrol costs have risen in the United Kingdom. Through March, non-store retailing sales fell by 4.8% from the previous month as the price of fuel rose at an incredible rate. Food sales volume in the country dropped .02%. Any post-COVID recovery may be hampered by this uptick, brought on primarily by quickening inflation. In the U.K., inflation grew by 6.2% for the year in February and could reach 8% by spring, states the Bank of England.
Inflationary costs in the Middle East apply even more pressure. Turkey is a prime example. On April 4th, the country reported a drastic jump in inflation of 61.14%, which is a 20 year high for the country. The rapid increase is brought on directly by rising energy costs and higher commodity prices. The Russian-Ukraine conflict only makes the situation that much more challenging for consumers.
The World Bank issued warnings of rising costs. It stated that inflation grew to a 67 month high of 7.14% in March, with some countries struggling far worse than others.
The increase in fuel prices impacts everyone. It leads to fewer people visiting shops and restaurants. It means consumers go with less.
The Outcome of Higher Costs
Surging costs create difficulties for any organization, whether it is a school purchasing food products for students or companies needing to drive up costs because delivery fees are much higher. Surging costs are a big factor for every organization, and increasingly so as consumers fight harder against increasing taxation in many areas.
After being so limited in terms of access to product during the pandemic, consumers today want to buy. Consumer optimism and spending have remained strong to this point in some areas, while in others, there's a drastic drop in sales. Online sales remain high, especially as consumers look for ways to reduce costs without having to reduce what they purchase.
A Look at Economic Factors
As of now, inflation remains a critical factor in determining what is to come. There are a few clear trends present, still.
Omnichannel is critical
One factor that remains present is the need for consumers to buy in the store. During the pandemic, many industries saw an intense uptick in the use of online shopping because they could not visit local providers and needed to remain close to home. Many believed that online demand would remain and even grow in the coming years. In some cases, that has happened.
What has also happened is that consumers have gone back to shopping in person in stores. Now that the pandemic’s limitations have lifted in many areas, there’s more evidence than ever that physical stores remain a very important part of the way consumers like to shop.
There is still an important need for consumers to visit, see, touch, and interact in a shopping environment, whether they need to do so or just want the experience. That means it is more important than ever to have a comprehensive, omnichannel experience for retailers. Omnichannel is not changing and may become even more critical as consumers have to make more specialized decisions to best use their budget.
Loyalty is less present
The pandemic taught consumers around the world that they could use other brands and lower priced products when they could not get their favorite brands in hand. Supply chains really hampered consumers' ability to buy the products they were loyal to, as out-of-stock items lasted for months.
Consumers recognize this and have become less loyal to their favorite brands. They are more willing and able to make a change to a brand that’s lesser known as long as that product remains in stock. And some reports indicate that retailers who capitalize on new consumers in their shops due to this demand may keep them long term.
What Is to Come?
The economy is complex today, with more changes likely to occur in the coming months as the conflicts around the world continue to place pressure on consumer spending. It’s more important than ever that organizations facing changes now, including those within the beverage industry, take aggressive steps to manage their demand, branding, and access, especially working to fulfill orders to eliminate the risk for out-of-stock losses.
More so, consumers continue to spend but may need a bit of a more affordable price point to buy all of the products they desire. Companies that can achieve this and provide the omnichannel environment consumers demand may find themselves in a better financial position.
Ollen Group is one of the leading consumer goods and retail consulting firms in the Middle East & Africa region (MEA) offering retail design services with turnkey solutions from strategy to execution. Our retail management consultant and strategy consultants will help your through your journey.
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