Shopping for food items and other essential consumer goods has become a luxury for millions of people in emerging economies worldwide, as prices have risen steadily over the last few years and spiked in the last few months. Reports show that 9 out of 10 FMCG manufacturers have increased, or plan to increase, their prices this year, and this isn’t the first hike, as 66 percent have increased prices two or more times in the last two years.
While the increase in prices of food items and other consumer goods is global, it will likely have a higher effect on consumers in emerging markets, especially across the Middle East, Sub-Saharan Africa, and Latin America. According to a report by the Economist Intelligence, food items account for over 40 percent of consumer expenditure in these regions, and the sharp rise in prices of FMCG goods means that many low-income consumers may not be able to afford essential goods.
This is certainly the case for Um Ibrahim, a 60-year-old widow and street vendor in Egypt, who says that feeding her children has become much harder. She says that the prices of everything has risen, from clothes to vegetables and even poultry eggs. For many consumers like Um, going to bed hungry or being unable to feed their children is a frightening but real possibility.
This article examines how the fragmented, inefficient distribution chains typical of emerging markets have contributed significantly to the price hike and shows how digitizing the consumer goods supply chain can help keep prices low.
Why the prices of consumer goods are rising rapidly
Global prices of consumer goods have been rising rapidly for the last two years, fuelled by the COVID-19 pandemic, international trade wars, significant energy crises, and supply chain disruptions. In addition, the conflict in Ukraine and Russia has also caused the prices of essential agricultural commodities like grains, corn, and oil, to soar. For example, available data shows that global prices of corn and soybean have risen by 17 percent, while wheat prices have risen by up to 40 percent. These commodities are the key raw materials used to produce consumer goods like packaged food, toiletries, beverages, cleaning, and laundry products, among many others.
As the costs of these commodities rise, FMCG companies in emerging economies where there is a significant dependence on food imports (e.g., sub-Saharan Africa, the Middle East, and North Africa) will spend more to produce consumer goods, and these costs get passed down to consumers.
However, the increased costs of raw materials alone are not responsible for the rising prices of consumer goods. According to the IMF, pass-through price increases from manufacturer to consumer are only about 20 percent. The remaining 80 percent of the hike in prices of consumer goods is due to shipping costs of agricultural commodities, processing and marketing of the goods, and final distribution costs.
Distribution costs have risen steadily as supply chain disruptions have multiplied, with 40 percent of retailers blaming high prices and out-of-stocks on supply chain issues. The fragmented distribution chain in emerging markets makes distributing consumer goods significantly costlier and more complex, as brands and distributors depend on a completely manual and inefficient distribution model to get consumer goods to small grocery stores.
The current outlook for prices of consumer goods doesn’t look good, with economic analysis showing that the food prices and inflation will increase significantly across emerging markets. This is particularly problematic, as economists say that increased inflation and the rise of prices of essential goods, in particular, can fuel the risk of social discontent, such as what happened in the Arab Spring in 2010-2012, as the disposable income of consumers were eroded.
Digitalized distribution can reduce the cost of consumer goods
Tackling the rising prices of consumer goods will require concerted efforts from all stakeholders along the supply chain. But, more importantly, FMCG brands and distributors in emerging markets must take steps to mitigate the impacts of supply chain disruptions and reduce distribution costs. The best way to do this is to redesign their supply chains to be much faster and more resilient.
The route to market for consumer goods in emerging markets is fragmented, with over 80 percent of all consumer goods sales occurring in small roadside shops and small grocery stores. This makes distribution inherently complex, as multiple small intermediaries have to cover the same routes and serve the same retailers. The current distribution model also leans towards manual processes, which are slower and more prone to inconsistency and inefficiency than digital and automated processes.
Digitalizing the supply chain can help brands and distributors increase the efficiency of the distribution chain by aggregating orders, creating a lower cost to serve small retailers, which will result in lower prices at outlets. Building a digital distribution chain also provides convenience when ordering stock and reduces the chances of essential items being out-of-stock, so consumers can access the products they need at the prices they can afford.
Leveraging digital technologies can also help FMCG brands and distributors build flexible supply chains. From automated sales plans to dynamic delivery routes, digital distribution makes it possible to intelligently allocate resources to reduce costs and, by extension, lower prices.
However, for many CPG companies and distributors, adopting digital distribution isn’t easy, as there are no solutions that provide end-to-end visibility across the distribution chain in real-time. The few solutions that provide limited visibility are costly, often requiring investments in hundreds of thousands of dollars, and are often too complex for sales reps and marketing staff to use effectively.
This is why we need Open Commerce.
Open Commerce can digitize the supply chain and reduce prices of consumer goods
Open Commerce is a new way of buying and selling online – a decentralized digital commerce platform that empowers brands, distributors, and retailers in emerging markets. Unlike traditional e-commerce, Open Commerce is decentralized and doesn’t charge huge commission charges or high transaction fees. Instead, every player along the supply chain can interact and trade directly without undue interference from the platform, leading to lower costs and prices.
RedCloud has built the world’s first Open Commerce platform, Red101, which provides FMCG brands and distributors with end-to-end visibility across the supply chain, increasing distribution efficiency and reducing distribution costs. RedCloud’s integrated marketing intelligence engine captures outlet-level information in real-time and performs advanced-level analytics to produce clear, actionable insights that inform strategy.
With Open Commerce, inventory management becomes easy, as retailers can place orders for the products they need when they need them. This enables distributors to deliver right on time, preventing stock-outs at the shelves. RedCloud has also eliminated the high costs and risks associated with cash payments in emerging markets by building the world’s largest payment network. This payment network has over 2 million pay-in points across 100 countries, so retailers can physically digitize their cash and pay for consumer goods online using the Red101 Market app.
Schedule a demo with us today to see how RedCloud is helping brands and distributors digitalize their supply chain, reduce distribution costs, and tackle the rising prices of consumer goods.