“Precarious time” as inflation and supply chain issues push consumers to make tough decisions

18 Feb 2022 --- Brands in premium nutrition categories will have to work even harder to retain their customers as companies and consumers alike are feeling the onslaught of the supply chain crisis and inflation, a UK and US survey has revealed. NutritionInsight speaks to key players on how the effects are being felt across industry.

“We are entering a very challenging time in the consumer goods industry in general. Many shoppers already have to make tough decisions about whether they can really afford a product that perhaps appears not to be strictly essential,” says Richard Clarke, managing director, Ingredient Communications.

“We hear a lot about consumers having to choose between eating or heating their homes. This is a very real dilemma for millions of people and means that this is a precarious time for nutrition brands.” 

Nutrition and food companies are currently grappling with supply chain disruptions and inflation which have sent world food prices peaking at a ten-year high.

Price hikes have been felt by 94% of 1,000 UK and US consumers that noticed their food shopping bills had gone up in the last quarter of 2021, according to a survey commissioned by Ingredient Communications and carried out by Survey Goo.

Supply chain issues
Consumers are feeling the price hikes, leading them to make tough choices over where they will spend their money. A total of 79% of respondents state they believe supply chain problems such as driver shortages were to blame for the price increases. Increasing costs of production, delays due to container shortages, capacity constraints in harbors, raw material shortages and labor shortages have all hit simultaneously, causing industry to look for alternatives where possible. 

“Market-wide supply chain and logistics disruption in 2021 led to some initial cost pressures for everyone, but we were well-positioned to navigate this because of our global presence and local solutions,” a DSM spokesperson states.

“Later in the year, we saw additional inflationary pressures, especially with sharply rising energy prices. We always keep a sharp eye on managing costs, but we have been able to have constructive conversations to agree to pass these increases on, appreciating we are only a small part of the overall costs our customers face.” 

Industry feels the pinch
The latest financial statements by companies such as Kerry, DSM and Natural Alternatives International have reported they have felt the impact of the supply chain crisis on their operations, coupled with inflation pressures. 

Nuno Silva, finance manager at Allmicroalgae says inflation has not yet significantly impacted operations and finance. “It has been mostly on energy, some raw materials and construction materials. So far, we have absorbed those costs.”

The price change has been felt on some nutritive mediums and reagents, he adds. The company’s future strategy is to reduce dependency on natural gas, which has also contributed to increasing energy costs. 

Price immunity for supplements?
According to the survey, where nutrition categories are concerned, there was greater resistance to cost increase where the base price of products tends to be higher. For instance, respondents said they would stop buying vitamin supplements once the price rose by an average of 35%. 

The corresponding pinch point was 17% for protein powder, 23% for probiotics, 26% for dietary supplements, 28% for omega 3 fish oil supplements and 18% for infant formula. 

“For basic goods, even a large percentage price increase might still only be a matter of cents or pennies. By contrast, a small percentage increase in the cost of a premium nutrition product might be measured in dollars or pounds,” Clarke adds. 

Consumers were seen to be more immune to price increases for low-cost staple goods. Milk (dairy) was the least price-sensitive category which could increase by an average of 65% before consumers stopped buying it. 

Bread would have to go up by 62% until individuals drew the line and stopped purchasing it. For fresh vegetables, the price hike would have to be to the tune of 60%. The survey revealed that consumers would stop buying an item when its original price has increased by an average of 40%.Reducing energy dependency and offering high quality ingredients may help companies in the long-term.

Weathering the storm
According to Clarke, companies will need to work even harder to keep their customers as they continue to feel inflationary pressures. Nearly half of respondents (48%) said they had switched to a cheaper brand between September and November as a result of price rises, while 26% said they had changed to a retailer’s own-label version of the same product.

“With inflation rising so sharply, brands in premium nutrition categories, where the base price is already high, will need to work even harder to retain customers. We strongly believe that an effective way to achieve this is to demonstrate added value by using high-quality ingredients that provide clear differentiation and command high levels of trust.” 

This could be achieved through proven efficacy, sustainability, strong co-branding or a combination. “These values, communicated effectively, will tie a consumer to a brand more closely, mitigating the impact of price increases on purchasing behavior.”

“Companies in the well-being sector have a good opportunity now to demonstrate that they can enhance the quality of people’s lives during these tough times and should not be sacrificed. Dietary supplements, for example, deliver great value nutrition to keep people healthy and build resilience. This is a strong message as we emerge from the pandemic and face the future.”

By Andria Kades