Consumer companies are beginning to grapple with inflationary pressures and supply problems. They have already begun to deploy their strategies to save their margins. Large companies have moved production centers to avoid bottlenecks. The smallest are beginning to gather stock. Inevitably, everything leads to a rise in prices for the final consumer.
First it was the intermediate goods of the Chinese industry, then it was the Asian suppliers of microchips, more recently textile from Vietnam or gasoline in the United Kingdom and the latest twist of the supply crisis has started to hit food. . Retail distribution is beginning to have the same problems as factories with their orders. There is not enough capacity to supply the growing demand of customers due to the shortage of certain products.
After a year and a half after the pandemic, supermarket shelves in countries such as the United States and the United Kingdom are again facing shortages. “I never imagined that we would be in this situation talking about problems in the supply chain, but it is a reality“, explains the Bloomberg Vivek Sankaran, CEO of Albertsons, a supermarket chain in the US. “On any given day there will be a shortage of product in our stores” is not an isolated complaint in the sector. It is a generalized sentiment that affects several countries.
“We’re seeing extraordinary scenes. In some supermarkets you used to see fresh seasonal food. Now you see big deodorant displays. It’s not that the nation has suddenly started to smell bad, it’s that it’s the only thing they have in sufficient quantities, so They put it on the shelves to make them look full, “the president of the UK Food and Drink Federation, Ian Wright, explained yesterday.
It rains on wet in the British Isles after fuel supply problems and the lack of workers in the hotel and transport industry. The effects of Brexit on the labor market aggravate an already critical situation, but the causes are more complex and point to the distribution chains. The Anglo-Saxon world is not the only one harmed.
“We are facing a perfect storm and there is going to be a lot of tension”
“We are facing a perfect storm and there is going to be a lot of tension”
“Energy costs, the rising cost of raw materials, the lack of chips, containers and containers” are impacting prices, acknowledges Ignacio González, president of Aecoc (Association of Manufacturers and Distributors), which covers the entire chain of value of mass consumption in Spain. He assures that “although I do not think there are supply problems, it is true that it is a threat that is there.”
“We are facing a perfect storm and there will be a lot of tension because our margins are very tight,” stressed González, who recalled, in this same sense, that there is already an increase in prices in agricultural and livestock products.
The Food and Agriculture Organization of the United Nations (FAO) has denounced “considerable increases” in the international prices of sugar, wheat, meat and vegetable oils, basic products that affect any corner of the world. planet.
The FAO staple food price index for months has been offering more than worrying data from origin. The price of sugar increased more than 53% monthly in September. The price of meat grows at an annual rate of more than 25%.
As the food chain advances, new problems appear. In France, high energy prices are creating “inflationary pressure on all costs” that will end up being passed on to customers, says Pascal Leroy, vice president of Roquette Freres, a food processing company based in northern France. And France’s top sugar producer, Tereos, warns of rising natural gas prices that raise production costs for the company “tremendously.”
Land O’Lakes, one of the largest agricultural cooperatives in the United States, has no production problems and has enough milk in its dairies. “Challenges in the supply chain remain issues such as driver shortages, labor and port congestion“says manager Yone Dewberry.
Meat producers in the US tell a similar story. Earlier this month, a pork supplier was unable to bring out products because there was no enough styrofoam traysexplains Steve Meyer, an economist with the National Council of Pork Producers. The lack of labor is also affecting production. The plants are running but not at full capacity due to a lack of workers and truckers, Meyer said. Animals are being slaughtered, but there are not enough people to handle the value-added processes such as boning, special cuts and curing processes.
These problems are moving to supermarkets, there are difficulties finding certain pieces of meat, or to Denver schools with a shortage of milk. And certain canned goods are hard to find in Chicago. “We are seeing extraordinary scenes, where before you saw fresh seasonal food, now you see large deodorant displays”, describes the scene the employer’s association of distributors in the United Kingdom. The shelves are filled with available products.
“At the beginning of the pandemic, panic buying was the cause of many of the out-of-stock situations,” explains Italia McCarthy of Dill Pickle Food Co-Op, another US small business firm. “Although the food industry was able to recover a little, the sustained nature of the pandemic, combined with the slow rate of vaccination worldwide and the recent increase caused by the delta variant, have re-emerged the problem of shortages,” he says.
In the middle of the producers and establishments are the large suppliers. The bad news is that companies are beginning to be prepared for the tension in the chain to continue over time. Large groups are asserting their size and financial muscle, to prevent their products from running out. P&G has been moving production from one factory to another in China, when it has been affected by energy consumption restrictions. The number of providers has also increased to avoid saturated routes.
Ikea It has recognized problems but its sales have not been affected thanks to the huge stock it maintains and which allows it to offer similar alternatives to its customers. For smaller companies the key is also to have a large and flexible stock. Saffron Road, a producer of frozen meals, has increased its inventory to supply its customers for four months instead of one or two months.
“There is an excess of orders to compensate for the lack of stock, leading to a more serious scenario”
Defensive strategies in the current context involve hoarding stock to withstand the supply shortage as long as possible. Saffron Road’s Adnan Durran admits that companies large and small are doing the same. “At least it will last the next six months, and it will end in widespread price increases.”
“Distributors and manufacturers are over-ordering to try to compensate for supply chain problems, and that is essentially leading to an even worse scenario,” he explains to the CNN Jonathan Savoir, CEO of Quincus, a company specializing in supplies.
Passing on the cost increase is usually the last red line for most companies. Almost the last resort when margins start to leak. Although many large companies can afford it and not lose customers. They have the ability to set prices and consumers are still willing to pay for high-end products.
Nestlé, manufacturer of chocolates, chocolates and Nescafé has revealed that the prices of its products rose 2.1% in the third quarter, which helped maintain its margin around 17.5% this year P&G, manufacturer of products of hygiene and cleaning, has announced that it will start charging more for razors and certain beauty and oral care products. Company brands tend to be more expensive than the competition. Customers choose your products by preference, not price.