The costs of manufacturers are growing, but the business does not always have the opportunity to shift them to consumers.
The fall in real incomes due to the restrictions imposed to combat the COVID-19 pandemic led to an increase in the consumption of products and goods of the low price segment – from an average of 16.9% to 17.7% in May 2020. At the same time, the share of premium price segment goods decreased from 35.8% on average for the year to 34.4% in May, Kommersant writes with reference to a Nielsen study.
Most of all, consumers began to save on meat, fruit juices, water, tea, pasta, etc. For example, if the average low price segment accounted for 18.7% of annual pasta sales, then from April 27 to May 24 the figure reached 22, 8%. In the mayonnaise category, the share of the low price segment over the same period increased from 7.3% to 9.5%, in sales of bulk chocolate candies – from 14% to 15.7%. The premium share in the pasta category at the same time decreased from 37.1% to 33.7%, in chocolate candies – from 30.8% to 28.7%.
The representative of Auchan retailer confirmed to Kommersant that more and more customers are switching to low and medium price segments, and demand for goods of their own brands (STM) is also growing. The company believes that this trend will continue. In Magnit, sales of products under its brand have been growing by about 20% since the beginning of the year, most of the STM assortment is in the “first price” segment. This is due not only to changes in purchasing behavior, but also to the optimization of the STM portfolio, the retailer said.
The shocks caused by a pandemic affect all elements of the agro-industrial complex. For example, a fall in incomes coupled with food price volatility forces households to abandon expensive fruits and vegetables, meat and dairy products in favor of cereals, root crops and tuberous vegetables, according to a presentation by Agroexport “COVID-19 and global agricultural markets”. A deterioration in the quality of the diet (but not its calorie content) in the long term may aggravate the problem of unbalanced nutrition and obesity, analysts say. In their opinion, in order to cope with the crisis, close interaction with consumers is necessary to adapt the assortment of food products, business models and processes to the changing needs of customers. It is also necessary to adapt strategies for the promotion and distribution of products for online sales, development of innovations, including in food products, etc.
For thirty years, Russian consumers have learned to count money, and especially actively – in the last five years, when the situation in the economy was difficult, says Ivan Nikolaev, Executive Director of Aton Investment Company. “Incomes are not growing, they are decreasing and will decrease, while living is becoming more expensive”, he adds. To cope with this situation, manufacturers need, firstly, to work on operational efficiency and not to shift the rising costs to customers. Secondly, you need to develop your brand and build a dialogue with the consumer. “If earlier it was believed that the main thing was to get on the shelf, and she would already sell everything, now it’s not quite right. And if your product is not for sale, then they should not take their place in the window”, he said. If the business does not comply with these conditions, then it may simply not survive the next two years, Nikolaev said.
Several factors will influence the further development of events. The first is a slowdown in world trade: falling demand puts pressure on everyone. According to Nikolaev, what is happening now in the economy is similar to the recession scenario, which is likely to last more than one year. The second factor is oil: low prices for it not only do not allow replenishing the National Wealth Fund, but they can also make the budget less surplus.
Restrictive measures are gradually being lifted around the world, which means that the business will begin to increase momentum, but its restoration will take at least a year, Nikolaev continues. But it is difficult to expect an increase in food demand, he says. This is due to the fact that at the end of the first and beginning of the second quarter, people accumulated huge reserves, and not only grocery ones. “And what will happen in the third quarter is a big question,” he argues.
Another important factor is the crop, and not only in Russia. For example, in the countries of Europe there was a little snowy winter. “It is still difficult to say what the prices of food will be, but probably high. Perhaps even food embargoes for export will be introduced”, Nikolaev admits. And if there is no good harvest this year, food inflation will rise, and shifting costs to poorer consumers is quite problematic, he concludes.