Only 4 % of brand manufacturers manages to fully pass on cost increases for energy, raw materials, packaging and transport to “reluctant” supermarkets. As aresult, they put a brake on production, investment, recruitment and innovation.
Sequence of crises
56 % of European brand manufacturers saw energy costs rise by at least 30 % this year, and for a quarter the increase was as much as 60 %. But higher energy tariffs are not the only cost factor brand manufacturers are struggling with: 36 % of companies saw packaging costs rise by more than 30 %, and transport and logistics costs also went up 30 % for many. For 43 % of manufacturers, raw materials became more than 30 % more expensive.
A survey conducted by the European brand association AIM among 664 large and smaller manufacturers of consumer products in the food and beverage, household and personal care industries reveal that the succession of crises over the past three years, with the pandemic, the war in Ukraine and the ensuing energy crisis and cost inflation, means that three quarters of companies are now experiencing difficulties in obtaining raw materials.
In the squeeze
Manufacturers are in a squeeze because they occupy a central position in the value chain, says AIM: upstream you have the suppliers of ingredients, components and packaging raising their prices, downstream retailers refusing to absorb their share of cost increases. Only 4 % of the companies surveyed manage to pass on increased costs in full to retailers, which means that a whopping 96 % had to absorb unplanned cost increases. Only one third were able to pass on up to 50 % of increased costs.
27 % of manufacturers have faced delistings this year, or were threatened with them during price negotiations. Yet international retailers often raise their consumer prices to levels higher than what was mutually negotiated, suppliers claim.
Cutting investments
The outright refusal of retailers to take on some of the extra costs is causing difficulties, AIM warns. “All of us are concerned for consumers’ purchasing power, but we are also worried about the impact of cost inflation on operations within the supply chain itself”, AIM director Michelle Gibbons stated.
42 % of the companies surveyed reduced planned investments in 2022, 32 % cut research and development, 23 % had to cut its workforce. Three quarters are considering further reductions in production if no solution is found to share the increased costs.
