Report: What To Do When The Cost Of Goods Goes Up In Egypt
Consumer spending on fast-moving consumer goods (FMCG) continued to grow throughout 2018, with value increases in the double digits due to high inflation. Volume growth has started to recover from the significant earlier losses, as inflation, while still high, has eased from more than 30% two years ago, providing some relief to Egyptian consumers.
As the cost of goods continues to fluctuate, it is key for manufacturers to closely understand and establish the everyday and promoted elasticity of their products and packs to inform future pricing strategies.
There are many ways to increase margins, such as adjusting recipes, changing sourcing and changing pack configuration, but the practice of “downsizing” works best when the price of goods is high.
When manufacturers employ downsizing, they’re essentially reducing the size of a product without reducing the cost. In some cases, manufacturers may even raise the price to increase margins.
It can be dangerous to assume that downsizing is the right plan of action, however, so it’s important to start by evaluating all options to determine whether downsizing the product will be the financially beneficial decision for the company.
Key questions to ask include:
1. Do you know what the price and size elasticities are for your product?
2. Do you know what would happen if the price or size of your product changed?
This white paper focuses on downsizing: when it’s beneficial and how to do it effectively. It also provides real examples from the Egyptian FMCG market, analyzing the trends for three categories resulting from the changing consumer behaviors pre, during and post the currency devaluation.