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European brand manufacturers are unable to fully pass on their cost increases to retailers, who are nevertheless raising consumer prices. Rather, they invest in promotions to keep their products accessible.
Higher costs absorbed
72 % of European brand manufacturers are still facing supply problems, forcing them to scale back or adjust production, the European brand association AIM says in its annual barometer of 900 consumer goods industry manufacturers in 28 countries in Europe. That percentage is only 3 % lower than last year.
In addition, the impact of cost inflation remains high: 99 % of companies faced some form of inflation in the past twelve months and more than half of them saw an inflation of more than 50 %. They had to absorb much of these higher costs themselves: less than half of manufacturers were able to pass on 60 % or more of their higher production costs to retailers. 22 % absorbed more than 80 % of the higher costs, and could therefore pass on less than 20 % of the increase.
Investing in promotions
Yet 96 % of manufacturers say retailers have increased the consumer price of their products. 28 % say the consumer price for their products has increased more than the rate increase to retailers.
Manufacturers do not set retail prices – retailers do – but they continue to support households by absorbing higher costs and with promotions, says Michelle Gibbons, director general of AIM: “That is an important mechanism we have as manufacturers – we pay for, and deliver, promotions to retailers so that households under pressure can continue to enjoy the brands they love”.
26 % of branded manufacturers surveyed saw sales decline last year, 55 % saw profits shrink and 42 % lost market share. As a result, these companies are forced to put a brake on employment and investment.
