Persistent upheaval in the global economy has had a significant impact on the European consumer goods industry, according to a survey of manufacturers in the food/beverages, homecare and personal care consumer goods sectors by AIM, the European Brands Association.
The study found that supply chain disruption and cost inflation were among the main factors putting pressure on manufacturers, particularly small and medium-sized enterprises (SMEs). The survey of 664 manufacturers confirmed that cost inflation had been driven by higher energy costs, with 56% of the surveyed companies saying that their energy costs had risen by at least 30%. Over a quarter of the companies (27%) stated that they had to absorb energy cost increases of 60%. However, other costs have also multiplied, with 36% of companies experiencing over 30% cost inflation in packaging. Transport and logistics also soared by over 30% for some in the industry.
“Whilst the focus of cost inflation is on energy, the survey shows it is beyond energy, with cost inflation on raw materials, packaging, transport and logistics also a challenge”, said Michelle Gibbons, Director General of AIM.
“It shows that 96% of consumer goods manufacturers have had to absorb unplanned costs in 2022, which has inevitably had an impact on production, as well as planned investments for this year.”
The study notes that the succession of crises over the past two years, including the global pandemic, the war in Ukraine, and energy and cost inflation, has led to increased challenges in ensuring that the necessary raw materials and ingredients reach production sites. 75% of the companies surveyed said they had experienced challenges to source commodities and raw materials.
Consumer goods manufacturers have been particularly hit by supply chain disruptions and cost inflation because they are at the centre of the value chain, working upstream with suppliers to source raw materials, components, and packaging, as well as downstream with retailers and distributors to ultimately ensure supply for consumers. Confronted with increased and unexpected costs, manufacturers have been negotiating with retailers to pass these costs into their pricing. However, only 4% of companies were found to have been able to pass on the full cost of inflation, leaving 96% absorbing unplanned costs in 2022.
The study states that distributors’ refusal to help absorb some of the additional costs has led to difficulties, particularly because retail markets are concentrated, and manufacturers often rely on just a few large retailers. In this context, some manufacturers who fail to agree on passing on cost inflation are reducing production to avoid insolvency. The survey also reveals that some international retailers are increasing consumer prices beyond what is negotiated at a wholesale level with manufacturers.
“All of us are concerned for consumers’ purchasing power, but we are also worried about the impact of cost inflation on operations within the supply chain itself. The reality of supply chain disruption has forced an increasing number of manufacturers to make tough economic decisions, including lowering production, reducing investments, and cutting workforce, with some doing so to avoid insolvency”, said Gibbons.
“As Europe’s leaders meet to discuss the EU’s competitiveness, we look for strong leadership to ensure that supply chains are fair and effective for all, and that all are working towards constructive solutions in Europe’s recovery.”
The AIM study concludes that supply chain disruptions and increased costs have significantly changed the landscape for producing consumer goods, as companies have had to reduce investment and employment. In 2022, 32% of the companies surveyed said they have reduced their planned investment, while 23% of them have reduced their workforce. The lowering of resources is expected to have a lasting impact on the sector: 76% of manufacturers plan further reductions in production if they cannot find some way of sharing the cost burden.
DOWNLOAD THE FULL RESULTS OF THE AIM SURVEY
NAM Implications:
- This AIM study implies that retail will become even more concentrated…
- …leaving suppliers the only option to develop omnichannel routes to consumers…
- …in order to dilute buying power of the retail mults.
- Meanwhile, SME suppliers that fail to develop in this way will become liable to takeover as the supply side attempts to concentrate in order to survive.
- Awaiting Government intervention requires big lungs…
