The global economy is beset by challenges caused by skyrocketing inflation. With pressure rising in the Gulf, retailers are scrambling to shelter customers from unwanted price hikes.
In response to high inflation, the US Fed recently decided to raise interest rates, and central banks in the GCC immediately followed suit. These moves came as the prices of key commodities continue to rise, including in the food sector, while supply chain challenges further confound retailers.
The Gulf relies heavily on food imports, and, in recent years, has rolled out aggressive initiatives to boost its local manufacturing capacity, with a special focus on developing local logistics and food and beverage ecosystems.
While these government-led policies could help in the long-run, retailers should revisit their internal systems to cope with the rising price of raw materials, an analyst from global consultant Kearney said.
“Inflationary environments have always been a great time for consumers to discover new brands and reward retailers providing the right value proposition,” Mohammed Dhedhi, partner at the consumer and retail practice at Kearney Middle East, told Arabian Business.
Consumer behaviour, he added, is already changing, with UAE consumers seeking “more value products and questioning the utility of their recurring purchases.”
“Price remains the key factor in consumer purchase decisions in the UAE. While some costs are non-discretionary like mortgages on housing and cars, several costs that have risen are discretionary and recurring and now must be factored into weekly and monthly budgets vs one-off expenses,” Dhedhi explained.
Can retailers ease inflationary burden for consumers?
One aspect retailers could improve on is their cost structure, the Kearney partner said, beginning with improving their understanding of price increases passed on by suppliers.
Retailers can “implement efficiency measures internally and jointly with suppliers, evaluate product sets for substitutes, and identify what value-centric products can be introduced, or even reconsider product specifications,” Kearney’s Dhedhi said.
Another strategy is to reconsider purchasing agreements, he added, this time focusing on optimising contracts with suppliers.
“This can include reviewing purchase volumes to drive efficiencies and reducing wastage, reviewing contract terms to optimise working capital and margins, evaluate alternate suppliers, negotiate great and more specific promotion support from suppliers, and review transport and other supply chain-related costs for alternatives and greater efficiency opportunities,” Dhedhi said.
Restaurants reveal strategy to buffer inflation
These strategies are especially true for restaurants, whose relationship with suppliers are critical to ensure the businesses’ good performance.
Razielle Majareis, a project manager with three decades of experience in the UAE’s food and beverage sector, said restaurants normally have provisionary efforts to buffer the blow of increasing food prices.
“Ultimately increasing the price of the menu should be the last resort, because restaurants need to make sure they don’t lose their customers,” she told Arabian Business.
She said there are numerous ways for restaurants to protect customers from inflation-led price hikes, including different pricing strategies that are resilient to spontaneous market fluctuations.
“When restaurants do menu analysis for pricing, they already consider the possibility of price fluctuations – so when it happens, consumers are protected. Pricing only usually changes every six months to a year, and when it does, it’s usually negligible, Majareis explained.
The food and beverage expert said more obvious strategies to circumvent price fluctuations include introducing new dishes on the menu, creatively sourcing raw ingredients, and negotiating good deals with suppliers.
Technology’s role in the mix
Technology could also play a key role in the currently challenging economic environment, with software offering restaurants the opportunity to streamline operations.
“The situation is not expected to improve in the next couple of months, while some expect it to drag into the year 2023. As a result, today we see a significant focus on developing and creating more efficiencies within the day-to-day operation of both restaurants and their food suppliers,” Manar AlKassar, co-founder of Dubai-based Kaso, an online business-to-business ordering system for restaurants, said.
Although traditionally slow in adopting technology, the restaurant industry has increasingly tapped digital solutions to improve their operations – a trend further accelerated by the Covid-19 pandemic.
AlKassar commented: “The absence of certainty around price fluctuations has resulted in a need for technological disruption of the food supply chain.” The co-founder added that this dynamic has to led to more restaurants realising the value of digitalising their supply chain.
Cutting food waste is also one of the promises of digitalisation, allowing restaurants to use data to ensure food inventory is managed well and avoid unnecessary surplus, particularly of perishable goods.
According to industry estimates, the hospitality industry loses $100 billion annual due to food wastage – and in an inflationary environment, this problem could be further exacerbated.
Follow us on
