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Inflation, not sales growth, drives increased FMCG revenue in SA
By our News Team | 2023
The apparent higher revenue from South Africa’s FMCG sector is a result of high inflation – up to 40% on specific products – study finds.
While the South African FMCG sector showed increased sales income over the past year, the rise is due to higher prices rather than growing consumer demand.
This is according to the latest Nielsen IQ State of the Retail Nation report, which states that there was a 13.4% increase in annual sales over the past year, bringing total spending in the market to US$33-billion (ZAR593-billion).
Photo by Pixabay
Nielsen researchers found that food inflation up until March 2023 (the end of the12-month period covered by the report) stood at a significant 12.2%, almost double the overall national inflation rate (CPI) of 6.3%.
Among the commonly purchased food items that experienced a particularly high inflation rate were cooking oil, maize meal and chicken. Cooking oil, in particular, suffered from an inflation rate of 40%.
According to Nielsen, this was a big contributor to the overall inflation figure, despite cooking oil accounting for only around 2% sales in the overall basket of goods measured, which comprises a total of 40 items.
On a positive note, the researchers said they expected food inflation to ease during the next period under review.
They added that increased promotional activity and consumer demand for promotions could lower inflation in specific categories.
Rice among the products where inflation has reduced
For example, rice has seen reduced inflation due to increased promotion, while coffee has experienced high inflation – 15.5% – due to decreased promotion and higher everyday prices.
Steve Randall, Consumer Panel Commercial Lead at Nielsen IQ, said the full effect of these massive cooking oil price increases had created a change in consumer consumption patterns around the product. Volumes purchased had dropped steadily over the last three quarters, an indication that, despite its essential nature, consumers had been curtailing product usage.
Comments the Daily Investor website: “South Africa is experiencing a peculiar phenomenon with high prices for food being driven by deteriorating infrastructure and intermittent power supply.
Thus, while global food prices are declining, South Africa’s remains high and, in some cases, are increasing.”
In an article published in early July, news agency Reuters said South African food producers have been spending millions of dollars mitigating prolonged rolling power blackouts, water supply issues and crumbling infrastructure.
“This investment, sometimes at the cost of essential capital expenditure, will eventually be passed onto consumers,” Reuters reported.
It quoted Derek McKernan, Chief Manufacturing Officer of FMCG giant Tiger Brands, as saying: “We are very aware of the struggles that consumers are going through … but inevitably some of it will be passed onto our consumers, unfortunately.”
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