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Business environment remains challenging for Consumer Goods Industry as manufacturers continue to adapt to supply chain disruption and cost inflation

Brussels, 4 October 2023 – A survey of 900 manufacturers from the consumer goods industry across 28 countries in Europe reveals 78% continue to adapt production due to unforeseen costs in the past year, as the future outlook for investment in Europe remains cautious.

Supply chain disruption continues to challenge the Consumer Goods Industry in Europe, with 72% of companies surveyed still experiencing sourcing challenges, leading to 49% of manufacturers having to reduce, or cut, production. 42% have had to modify packaging, whilst 52% have been exposed to labour shortages. Unforeseen costs have impacted 78% of manufacturers; 35% of those surveyed indicated this impacted no less than a third of their product range.

“Agility to adapt to sourcing challenges remains a key factor in producing goods for consumers”, said Michelle Gibbons, Director General of AIM, the European Brands Association. “The accumulation and knock-on effect of global change, including the pandemic and the war in Ukraine, over the past few years is still impacting production processes. The consumer goods manufacturers grappling with sourcing challenges remains high at 72%, a drop of a mere 3% compared to last year’s barometer”.

Cost inflation continues to have a significant impact on the manufacturing process, with 99% of companies experiencing some kind of inflation in the past 12 months, whether on product components/ingredients, energy costs, transport & logistics costs or packaging. At least half of the companies surveyed experienced over 50% inflation of all costs. No less than 22% of companies have absorbed over 80% of their increased production costs, passing on less than 20% of these increased costs to their customers, the retail sector.

The impact on consumer prices is relayed by the retail sector, which has the sole responsibility of setting consumer prices. 96% of manufacturers have seen retailers increase the consumer price of their products, with 28% saying the consumer price has been increased at a level higher than the manufacturers’ price increase to retailers.

“Whilst we do not set consumer prices, as that is the sole remit of retailers, consumer goods manufacturers still support consumers and households directly, not only through absorbing increased production costs to ensure supply, but also through promotions on products” explained Michelle Gibbons. “That is an important mechanism we have as manufacturers – we pay for, and deliver, promotions to retailers so that households under pressure can continue to enjoy the brands they love”.

The competitiveness of Europe will remain a challenge in the next 12 months, as nearly 1 in 5 companies plan to reduce employment, 17% do not plan to invest, or plan to reduce, CAPEX, and 15% will not invest, or reduce, R&D. This may be explained by company results in the past year in Europe, where 26% saw sales decline, 55% saw profit shrink and 42% lost market share. Business decisions on investment and future planning remain cautious going into 2024, which will again have an impact on innovation, as forecast also in last year’s survey.