How are FMCG companies managing inflation?#UAE | 28 June, 2022
Even the best FMCG companies in Dubai are not immune towards inflationary trends. The FMCG industry is rattled by inflation worldwide and it is not just the United Arab Emirates (UAE) or Dubai in particular. The FMCG sector is facing a scenario where several costs are going up and this is putting future product pricing plans in disarray globally. Leading FMCG companies in Dubai are still adopting a wait-and-watch approach in order to understand how long-term inflation is going to impact their costs and operations, before chalking out pricing increases or any other pricing strategies at the moment.
Most of them are anticipating 5-6% growth in overall costs over a period of 12 months while forecasting further growth in production and labor expenses as well. However, a sizable percentage of FMCG companies are still holding onto their prices, without any plans to hike the same in the near future. However, close to half of businesses in this space are planning price growth in the next few months. Most companies are still working out the effects of inflation over the next few months as mentioned.
Many FMCG companies are looking to proactively plan and implement price hikes, using inflationary trends as a base for projecting cost increases, taking sufficient time to keep revising pricing and coming up with well-explained new price roll-outs and customer communication. The UAE has inflation below the global average levels although it has gone up over the last one year. B2B companies are more inclined towards price hikes while B2C players are looking at innovatively applying price strategies.
Some strategies adopted by FMCG companies
Many FMCG companies in the United Arab Emirates (UAE) have adopted strategies like new net price goals, enabling them to plan in advance for such hikes without suddenly hiking prices. They are also looking at WTP or willingness to pay trends of customers. This will help them create price differentiation patterns throughout their line-ups of products and other solutions. This will also help them understand the quantum of price changes that is acceptable in future scenarios.
FMCG players are also coming up with customer-focused blueprints, particularly for pricing strategies without resorting to flat pricing measures. Companies are differentiating price levels and also mapping out psychological barriers of customers along with recognizing the impact of prices on various consumer categories along with product frequencies. They are also planning how to communicate with consumers and stakeholders throughout the entire value chain regarding price hikes and how to ensure that they are absorbed more seamlessly. Continually tracking inflationary trends and resultant cost increases is the biggest strategy adopted by FMCG companies at present.
Many of them are also getting into localized supply chains for lowering cost increases in the future. Localized supply chains will help FMCG companies lower the impact of future cost increases while also resorting to automation and other digital technologies to carry the momentum forward. With more localization of supply chains, more efficient warehousing and logistics management, and category and consumer-specific pricing strategies, the ride ahead could be smoother for FMCG players and the industry in general.