As of: March 8, 2024, 10:37 p.m
By: Olivia Kowalak
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Consumers have to dig deeper into their pockets for their favorite products.
The reaction: A switch to cheaper brands.
Many consumers have had to change brands when looking at the prices of their favorite product during their last purchase.
While the white giant was able to ensure clean clothes in their own household for years, buyers are now switching to cheaper options.
The reason for this is the noticeable price increases by manufacturers of consumer goods.
Manufacturers like Henkel (Persil, Pril) have lost massive amounts of customer loyalty due to global price increases of 12.4 percent in 2023.
As the group's annual report shows, the manufacturer's sales of consumer goods fell by 6.3 percent.
At the same time, however, Henkel closed last year with solid sales of 21.5 billion euros - in the consumer goods sector, the group achieved sales of 10.6 million euros (+6.1 percent).
Sales instead of growth: Manufacturers complain about the difficult economic environment
With the price increases, manufacturers of popular consumer goods brands said they wanted to respond to difficult economic conditions.
Consumer goods companies resorted to this measure due to supply chain problems caused by political instability and, particularly in the wake of the Ukraine war, rising energy and raw material costs.
Companies therefore had to spend more money on logistics, raw materials and resources for personnel.
A tight labor market also continues to put pressure on wages.
Mondelez (Milka, Philadelphia, Oreo) incurred a cost increase of 38 percent in 2023 compared to 2020, while Henkel complains about a cost explosion of around 15 percent.
Purchasing during times of inflation and war in Ukraine © IMAGO/Martin Wagner
The manufacturers' strategy is not entirely without risk, says consumer expert Chehab Wahby, partner at the strategy consultancy EY-Parthenon.
Because when sales figures fall, companies lose market share despite growing sales, which can have a negative impact on investments: “In the long run, profitability before growth is a risky formula,” warns the expert.
Once the shares are lost, it would be difficult to get them back.
The competitiveness of these companies consequently suffers from the loss of growth.
Saving instead of loyalty: consumers turn to own brands
The situation is similar with customer trust.
It is precisely because consumers have remained loyal to certain brands over a longer period of time that they feel ripped off by companies.
They accuse them of making profits from high inflation.
As a survey by Deloitte showed, they do not believe that the prices were only determined by operational effort.
A full 64 percent think that companies make profits by increasing prices too much.
According to the evaluation, this consumer perception leads to a loss of trust and negatively influences consumer behavior.
According to a survey by the Private Label Monitor 2023, 62 percent of 1,000 respondents already use private labels.
This is a “central element of the savings strategy” to cushion the increased prices.
Especially on the European market, the relationship between sales and price is often divergent.
Consumers would more often tend to use private labels.
What do consumers have to prepare for?
So does it still mean that consumers have to dig deeper into their pockets?
With an inflation rate of 2.5 percent compared to 2023, people especially from socially disadvantaged backgrounds are struggling with consumer prices that have been rising for years.
And although energy spending has now eased, food prices remain stubbornly high.
Between January 2023 and January 2024 alone, these continued to grow by 3.8 percent.
In addition, producer prices have fallen steadily from the second half of 2022.
These reached a record decline of 14.7 percent in the fourth quarter of 2023.
Nevertheless, since mid-2022, food prices have been growing significantly faster in relation to the general inflation rate.
Products such as Milka, Philadelphia, Oreo experienced increases of 13.4 percent, Nestlé recorded an increase of 7.5 percent.
For Nestlé CEO Mark Schneider, the matter is clear: “What we have experienced in the past two years has definitely been an increase of historic proportions.”
The verb diving centers view this critically and therefore called on politicians and the Federal Cartel Office in an open communication to investigate price developments in retail and among manufacturers as well as hidden price increases.
But Schneider also gives the all-clear: Price increases “will be much lower this year than last.”
For consumers, however, this does not mean that they can look forward to lower amounts on their shopping vouchers.
Rather, Nestlé Germany boss Alexander von Maillot said of the price increases on the German market: “However, we are pushing a wave of costs ahead of us.”
These increases were therefore not passed on in full.
Consumers will obviously have to stick to their savings strategy in the future.