As prices peak, consumer products sector shifts focus to volume

19 March 2024 3 min. read
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The consumer products sector looks back at a great year. But as the sector moves into 2024, there is little space to gain more from higher prices, meaning companies will need to return to boosting volume in order to enjoy another good year. That is according to a report from Bain & Company.

In 2023, the consumer products sector saw excellent growth, with a 10% year-on-year increase in global retail sales value. That is far above the average growth rate and about 75% of it is likely linked to price increases, according to Bain & Company.

Volume increases, the other part of the equation, were not as much part of the growth seen in 2023 in many markets. Price increases were found to be the main driver of around 95% of retail sales in both the US and Europe markets.

As prices peak, consumer products sector shifts focus to volume

But now companies have reached a natural limit to price increases, with higher pricing options more or less depleted amid a tight-spending economy. The focus therefore should shift towards volume, with the study suggesting that global players will keep a keen eye on realizing much of their volume growth in emerging markets in Latin America, Asia, and the MENA region.

Price and volume imbalance

The vast majority of volume growth has come from emerging markets like India, where growth was far more balanced between increases in price and volume than the global average. The US and Europe stand out for having a much higher percentage of price increases, highlighting a significant imbalance.

Much of that troublesome decoupling of price and volume is linked to the lingering issue of higher inflation, with 82% of respondents to a Bain & Company survey reporting it had a major impact on their business. In addition to that, 54% said that their businesses were affected by consumers spending less.

As prices peak, consumer products sector shifts focus to volume

Respondents to the survey noted that raw materials and cost inflation were the biggest obstacles they faced over the past twelve months. Several other recurring issues topping companies’ list of concerns include lackluster consumer spending, increased pressure from retailers, and supply chain disruptions.

Emerging markets

Part of the solution to the limits of raising prices will be in tapping emerging markets where there is still a lot of room for boosting volume. India is a standout example of a market with a higher level of volume gains. Other markets like Brazil, Indonesia, and Mexico also feature high on the opportunity list.

As prices peak, consumer products sector shifts focus to volume

While emerging markets may represent a great opportunity for consumer products companies, increasing growth in these markets often requires new capabilities that can prove to be a roadblock. One side of that expanded set of capabilities is in digitalization, with Bain & Company noting a widening gap between digital leaders and those lagging behind.

“As inflation slows, a paradox is emerging for consumer companies,” said Richard Webster, global head of Bain & Company’s Consumer Products practice. “While on one hand, prices have risen too much to maintain consumer spending, on the other, they haven’t risen enough to keep up with increasing costs and mounting pressures from retailers. Future growth will require a fundamental reshaping of value propositions, portfolios, and business models.”