As the chill of the credit crunch spreads wider in global markets, the Middle East’s FMCG industry faces a reality check and the prospect of harder times ahead.
In the UK, shoppers have rediscovered the self-reliance of the postwar austerity years in the UK, as knitting, home cooking and vegetable planting gain fresh impetus.
Councils have reported a sharp rise in demand for the allotments once regarded as the preserve of old men, while retailers battle for the lowest prices’ limelight and suppliers are being pinned by their collars to take on increased costs, with reports of spurious marketing costs being charged to small businesses for the display and sale of goods in stores.
To prepare for the possible onset of the international crunch taking its toll on the Middle East market, retailers should learn from other countries, for example packaged food players should offer convenience meals that look and taste like restaurant food, as eating out would be one of the first luxuries to be curtailed when consumers curb their spending.
In the US, California’s Kitchen restaurant chain offers not only frozen retail versions of its restaurant menu items, but it also gives detailed advice on how to replicate the restaurant’s ambience at home.
Consumers have started to ‘shop like the Germans’ in many developed markets, which necessitates a sharper focus on discounter offerings and private label products. Last year, 35% of packaged food was sold through discounters in the country, compared to 13% in the US and less than 2% in the UK.
In Germany, across the entire spectrum of socio-economic classes, spending the bare minimum on the basics at hard discounters is viewed as the intelligent thing to do, as opposed to a desperate measure only taken by the economically disadvantaged.
Discounter offerings, as has been the case in Germany, should be of high quality and accompanied by literature for consumers as they shop around for the best prices.
There is nothing to stop leading branded manufacturers in this region from protecting their market shares by introducing more affordable versions of their brands themselves, a move that the dairy giant Danone has pulled off successfully in France with the launch of its yoghurts in economy packs.
At the same time, brand manufacturers should be urged not to risk devaluing their overall brand equity in the long-term, but rather like Danone they should extend their portfolios to cover the entire spectrum of purchasing power.
As rising prices have already made an impact on retailers in this region, shoppers are undeterred by having to stop off several times a week at different outlets to get what they want at the best price, and in turn sales of private label ranges are rocketing. Let’s face it, everybody loves a bargain.
Lynne Nolan is the editor of Retail News Middle East.
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