In 2017, the communications challenge for retailers, manufacturers and producers will be to acclimatise their customers to ever increasing prices, after a sustained period of low and reducing prices, without losing their loyalty – writes James Gurling.
The first factor dictating rising costs will be Brexit:
- Currency devaluations mean that imported ingredients are 20% more expensive.
- 120,000 of the UK’s 400,000 strong workforce come from EU countries. With no certainty as to the security of their residence and pay buying less at home than before, one in eight companies have already reported difficulties in hiring staff. The result will be higher labour costs.
- Which version of Brexit matters massively. Food and drink companies will wish to remain in the Single Market. They can live with being in a customs union. The ‘WTO cliff’ will massively increase costs, reduce consumer demand and lead to some current products no longer being commercially viable in the UK.
However... Brexit will by no means be the only source of rising costs:
- Both the National Minimum Living Wage and the Apprenticeship Levy kick in at the end of Q1.
- Many companies who successfully hedged against the impact of currency devaluation in advance of the referendum, will see those deals come to an end. Their costs will rise accordingly.
- In 2017, it will likely become increasingly evident that reformulation and serving size reduction won’t meet the Government’s future obesity targets … meaning the only options open to it are to actively consider proposals for intervention via promotion and pricing.
All this means that in 2017 international companies will consolidate around major brands – just like Coke acquiring, Innocent or Mondelez buying back its Cadbury biscuit business. Smaller brands falling off the back of the big brand consolidation will be acquired by private equity hoping to re-establish and return to market later. Family businesses will invest for the longer term adding value to existing brands, but are unlikely to innovate or risk take
On the upside, 2017 will also likely see an unprecedented number of entrepreneurs establish new brands and seek to define new markets. This will increase consumer choice and supply demand for an ever-growing range of retail outlets and specialist suppliers. Look for innovations in soft drinks, sugar free ice cream, healthy snacks and energy drinks.