Profits hit as price increases passed on

ALMOST half of consumer products companies have experienced a significant impact on their profitability as they look to pass on raw material price increases to already cash strapped consumers.

That’s according to a new survey of consumer products companies by business advisory firm Deloitte, which found that 44% said they were feeling the consequences of higher agricultural commodity prices.
Rising costs are primarily due to the impact of challenging weather patterns on harvests, the research found.
 
With consumer confidence likely to remain fragile over the next 12 months, renegotiating both existing supplier terms (38%) and prices with customers (34%) were identified as two of the business strategy priorities most commonly adopted in order to manage commodity volatility.
 
Andy Coticelli, consumer business partner at Deloitte in Yorkshire, said: “Trading conditions remain tough for the consumer products sector. However, key players are developing tactics to relieve pressured profit margins.

“Many acknowledge the danger of continued heavy discounting on longer term growth strategies and recognise the importance of delivering quality and value at key price points, particularly at a time when consumers have a heightened awareness about the provenance of goods.
 
“One of the most prevalent trends highlighted was the way in which consumer product companies are looking to engage more directly with consumers, with some companies looking to sell directly to customers and thereby circumnavigate retailers. Social media is a key tool in helping businesses to implement this strategy, providing an outlet for companies to deal directly with their target market.”
 
Furthermore, as companies look to combat the impact of rising prices, merger and acquisition (M&A) opportunities are considered another key driver for growth.

Pessimism regarding the outlook for European M&A activity in the sector has dropped from 32% to 17% over the last six months, the survey found.