Inflation in Kenya and across Africa has caused product prices to skyrocket. We are now experiencing both weakened currencies and lower consumer sentiment. However, there are ways for brand owners and manufacturers to adapt and make smaller changes that can act as lifeguards.
As we all know by now, markets around the globe have shifted over the past few years, primarily due to Covid-19. With the Ukraine crisis becoming a hard fact, the consequences of it are felt across continents. Combined, these events have caused several reasons for troubled markets in Kenya, as well as Africa collectively, and made times difficult for brand owners, manufacturers, and distributors:
1. Supply chain
Supply chains have been disrupted. There has been a drastic price increase and a scarcer availability of materials, leading to more delays in many sectors.
2. Higher shipping costs
As a vital part of the supply chain, shipping is naturally affected as well. Simply put, higher shipping costs mean that not all brands and manufacturers have the resources to cover the increasing expenses.
3. Difficulties surrounding input price
Brand owners are suffering financially as they are unable to pass on input price increases from their customers. They are worried about losing market share.
4. End consumer financials leading to a shift in brand loyalty
Consumers are extremely financially constrained, as inflation has highly impacted the cost of living. Because they feel the pinch, there has been a significant shift in brand loyalty. Basically, we are starting to see the same thing in Africa that is happening in Europe. In practice, this means that consumers who may have bought from a certain brand over time, have now switched to the private brands of retailers with cheaper options. Established brand owners are therefore struggling to regain market share.
5. A change in the strength of the dollar
The dollar has a large impact on the Kenyan shilling, and with the shortage of it, products became more expensive. For manufacturers, this means that production costs have gone up. For end consumers, it has only put additional pressure and constrain on their purchasing power.
6. Stagflation
High inflation causes higher interest rates, which in tandem with stagnation, runs the risk of stagflation. Inflation may also ultimately lead to recession, as banks need to raise interest raise to fight the inflation.
7. Destocking due to elections
Ahead of the elections in Kenya, many vendors and retailers chose to destock products in-store, just in case. Warehouses and factories prepared for potential trouble. It is self-evident that this affects every part of the supply chain, from production to end consumer.
Read more: Supply Chain Resiliency for brand owners in 2022
I am a brand owner – what options do I have?
Right now, there is not one aspect of labels and packaging that has remained unaffected by the challenges within the market. From design, marketing, manufacturing, and logistics, to purchase and delivery. There are, however, ways that brand owners can navigate the circumstances. Here are some of our suggestions:
- Setting the primary focus on retaining customer bases and market share, through increasing product volume. There are declines in many product categories and this is where the potential for growth is most present.
- Creating compelling value propositions for customers.
- Reducing complexity in navigating the market by reviewing and simplifying SKU’s (stock keeping unit), namely product portfolios.
Skanem can also provide different options for value offerings. This mainly involves:
- Adding value to the SKU rationalization and introducing value offerings on new product development.
- Holding innovation days for customers. Previous innovation days held by Skanem were well received, and we are planning to do more.
- Giving advice on sustainability, size, and cost optimization - referring to labels only.
Read more: Eco-Friendly and sustainability trends within packaging and labelling for 2022
From boom to bust (for most commodities)
If we could pinpoint one area with significant turbulence in Kenya, it’s commodities. There was a boom during Covid, where most commodity prices went sky-high. This trend is now beginning to turn into a bust.
In the Kenyan market specifically, the changes generally look like this:
- prices are coming back down, significantly.
- companies that were struggling are starting to come back on their feet
- more product availability
- freight costs are starting to come down
Almost all commodities that experienced a boom, both due to Covid and the Ukraine crisis, are now starting to come down again. Prices on palm oil have decreased almost 40 percent, and steel by nearly 35 percent, during the course of one month. Oil prices per barrel and prices on wheat are also beginning to turn around. All of these will reduce inflation over the medium term.
The main reason that prices have come down is because there is still a risk of major countries falling into recession. In African markets, such turn of events could highly impact the effort to reduce inflation, as the demand for products and services decreases. Keeping prices down as much as possible, is therefore vital for markets right now.
Still a long road ahead
Consumer sentiment is weak and will take time to improve. End consumers are now highly conscious of how they spend their money.
Moreover, in our segment, paper prices are still very high. This is due to the energy costs and shortages in the transportation section in Europe. This shows that the inflation continues to have a stronghold.
The tension of the election has influencing power as well. The risk of it leading to prolonged impact on a lower-business level is very much possible. And although destocking was a highly realistic scenario due to the elections, the optimism towards a positive aftermath was also present. Vendors will surely gain their confidence back, ready to rebound and restock quickly.
Read more: How much should your labels be able to endure?
All in all, Africa has gone through and is still facing some challenges within various market sectors. In Kenya, specifically, stagflation has affected prices throughout the supply chain. Brand owners have experienced financial difficulties, with consequences for the purchasing power of the end consumer.
Luckily, there are now clear signs that inflation is being pushed down on – although some commodities have yet to see a significant decrease in price. Brand owners should continue finding alternatives to regain market share. Skanem offers brand owners different value offerings that can aid in fighting the aftereffects of the inflation.
