Rising inflation has been a challenge for economies globally during the last two years. Following several years of moderate price growth, several factors combined contributed to driving higher annual inflation, including into double digits for several nations in 2022.
In this report, Strategic Gears experts explore:
- The factors that have led to high inflationary pressures globally.
- How companies reacted to inflationary pressures.
- What alternative strategies companies can adopt to enhance/sustain profitability in the long term.
We conclude that:
- A combination of several demand, supply, and other factors led to high inflationary pressures globally.
- Companies globally have reacted mostly by adopting:
- Cost pass-through strategy - the passing on of higher prices to consumers to protect operating and cash flow margins.
- The reduction of costs through layoffs.
- Although inflation is forecast to subside in 2023 from high 2022 levels, price pressures remain, and companies can adopt a range of alternative measures (beyond cost pass-throughs or layoffs) to enhance or sustain profitability. These include:
- Eliminating Ingredients or Process Elements that are Not Valued by the End Customer.
- Accounting for Demand Shifts
- Product Mix Adjustments
- Recalibrate Recruitment & Salary-setting Approaches
- Embracing Digitalisation
- Diversify Supply Chain/Supplier Base
- Active Price Management
- Develop Flexibility in Product Development & Manufacturing
- Restraint Dividend Payments
- Expand into Untapped Market Segments
- Cut Expenditures (capex/opex)
This report also presents case studies on how two companies within the GCC increased GM% (without increasing price) and improved products (leading to share growth) by eliminating ingredients or process elements that do not add value to the end customer. This can serve as a reference for companies who are intending to safeguard their profitability levels amid these inflationary headwinds.