The majority of businesses at a rate of 56% expect a worse financial result in terms of their profitability in 2022, while only 11% expect a better financial result.
This conclusion emerges from a rolling survey of FMCG Retail Trends by the Consumer Goods Retail Research Institute (IELKA). The survey was conducted in the period 13 to 25 May 2022 using a structured questionnaire and a sample of 150 senior and top business executives (Retail – Supermarket chains and FMCG suppliers) from the General Directorate and the Marketing, Sales departments. Markets, Finance, IT, etc.
The rest of the companies in the sample either do not have a clear picture yet, or do not expect any change. Practically 1 in 4 businesses in the retail and food industry expect losses in 2022, while only 1 in 2 expect profits, but even of those that expect profits, half of the companies expect marginal profits of less than 2%.
Certainly the main role in this development has been played by the increase in costs, revaluations and the attempt to contain prices. According to industry executives, the cost of energy is the most important factor with 100% of respondents recognizing this cost as having a very (15%) or extremely (85%) upward impact on prices. Equally important is international raw material prices with 98% (71% too much and 27% too much) and transport costs with 97% (61% too much and 36% too much) related to fuel. For all respondents, the war in Ukraine has an increasing effect on product prices, 12% a little, 41% a lot and 47% a lot. The remaining factors recorded in the study also have an increasing effect on prices according to market executives, but with less intensity than the aforementioned factors. These factors, in order of importance, are indirect taxes, labor costs, the monetary policy of the European Union, the costs of the pandemic and the cost of borrowing.
These data show the great intensity of inflationary pressures and the complexity of dealing with the phenomenon, due to the many negative factors that affect prices. Nevertheless, the majority of businesses in the food retail sector and the food industry have absorbed part of the price increases. Specifically, 9 out of 10 companies have absorbed at least part of the price increases they have received from their suppliers and have not transferred them to their customers. The percentage of the increase that has been absorbed on average is 25%, i.e. ¼ of the increase. 26% have absorbed up to 10%, 26% have absorbed 10-25%, 27% have absorbed 25-50% and 20% have absorbed more than 50%. Of course, whether this can continue is a big question based on the data of the survey on the profitability of businesses, since as long as there is no de-escalation of prices, the absorption of appreciations will be an unsustainable solution for companies.
According to the survey, the impact of the war in Ukraine on businesses is much stronger than the impact of the pandemic. While the impact of the pandemic was very significant, it never exceeded 5 out of 10 in intensity on average, the war in Ukraine immediately registered a negative impact intensity of 6.28 out of 10, almost 50% more negative impact than the pandemic.
The specific results of the executives’ views illustrate a negative and particularly demanding business environment for food sector businesses (industry and retail) and a situation which is difficult to reverse immediately.