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Sunday, November 28, 2021

Fear of price increases changes the buying behavior of consumers

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It is estimated that the effect of price increases on raw materials, transport and energy costs in the final prices of food products will last until March 2022.

The president of IELKA (Consumer Goods Research Institute), Konstantinos Macheiras, in an interview with APE-MPE, points out that to date a significant part of the increases in raw material prices have been absorbed by the intermediate nodes of the production chain. processors, suppliers and retail in Greece. This, however, can not be taken for granted as long as the upward trend continues, as all businesses have to face increased costs.

He estimates that "high VAT rates are a significant obstacle to managing prices at lower levels". It is noted that, according to a survey by IELKA, Greece has one of the highest VAT rates on food in the European Union. In this ranking it is in 6th place with the highest VAT rate. The main difference is that many countries and especially the countries of Western Europe have a much lower VAT rate for basic foodstuffs (eg bread, dairy, etc.), which usually ranges from 4% to 7%, when in Greece the corresponding goods have a double or triple VAT rate of 13%. However, the high VAT rate, which still includes many food products, is significantly higher than in other European Union countries. Specifically, this rate in Greece is 24%, the 6th highest among the countries of the European Union, when the average of the countries is 21%. According to Mr. Macheiras, "in order to deal with the price pressures in Greece, the management of VAT rates is an opportunity."

The results of a study by IELKA show that the course of prices in Greece is increasing in recent months, but at the same time better than the European average. According to the published data of El. Stat. (Hellenic Statistical Authority) the consumer price sub-index for the group of food items in July 2021 is recorded increased compared to January 2020 by 0,41 (before the start of the COVID-19 pandemic) and by 1,73 in relation to with July 2020. In terms of individual food groups, the largest increase is recorded in fresh fruit by 13,31% and in lamb and goat by 6,24%. As for the prices of fruits, they are increased due to the weather conditions of this summer, while the prices of lamb remain increased. The groups of fresh vegetables have much lower prices compared to January 2020 by 13,28%, but compared to July 2020 they are also increased by 8,01%. The other groups recorded smaller fluctuations, but with a clear effect of the increase in international raw material prices.

Also, the index of international commodities prices of food remains significantly increased compared to before the pandemic COVID-19 by 24,34% compared to January 2020. All sub-indices show increases (cereals, oils, meat, dairy , sugar) with larger increases than these being recorded in vegetable oils and cereals. The increases are mainly due to the efficiency of production in the major producer countries and the increase in demand from Asian countries. Several of these changes affect food production in Greece due to imported raw materials, but also imports of final food and beverages from international markets.

Adjustments to consumer buying behavior

But how does the pressure of price increases on product prices affect consumer behavior in the market? As Georgios Baltas, Professor of Marketing & Communication at the Athens University of Economics and Business, Director of Postgraduate Studies, explains to APE-MPE, consumers react to the appreciation of products and services by making adjustments to purchasing behavior, which include:

- reducing the demand for overpriced products and services, to the extent permitted by the nature of needs and the structure of preferences.

- the search for more economical purchasing solutions in the overpriced product categories and the substitution of more expensive options by cheaper ones.

- the effort to save money by reducing various inelastic costs and purchases of non-essential goods.

- the postponement or cancellation of high cost purchasing decisions, especially if they do not involve the satisfaction of very urgent needs.

At the same time, according to Mr. Baltas, there are smaller-scale consumer adjustments, such as the creation of stock in products that are expected to appreciate significantly, transferring markets in the near future to the present.

"The pressure on consumer budgets will intensify as long as energy costs do not fall and remain very high in the coming months, where heating is added to the usual energy costs," Baltas said. energy that has a price effect on the economy, the inflationary pressures are also due to the disruption of the international supply chains and are transferred to the Greek economy through the import of intermediate or final goods.

"Of course, this is the time for the practical proof of social responsibility on the part of companies, which are called upon to contribute to the extent that each has to restrain the cost of living of consumers. It is noted that the current situation is difficult for consumers who have already been pressured by the long-term economic crisis and the effects of the pandemic and are facing a new threat to rising cost of living. "As the inflationary trends are mainly attributed to the prevailing conditions on the supply side of the economy, the long-standing and consistently topical demand for a dynamic reconstruction of Greek production returns to the forefront," said Mr. Baltas.

For his part, Dr. Lefteris Kioses, general manager of IELKA, speaking to APE-MPE, points out that the pressure of price increases on product prices already seems to affect consumer attitudes in the market and explains: process of product selection by consumers, today the measurements already show that this trend has been reversed and consumers are looking for the criteria of price, value and offers / discounts ". These are buying behaviors that are reminiscent of measurements of the last decade, according to Mr. Kiosse.

At the same time, this change has already been recognized by businesses. According to a recent survey by IELKA, executives of the retail sector-FMCG consider that the consumer's priorities are mainly the prices and the cost, exceeding other criteria in importance. "Based on these indications and the forecasts for the macroeconomic factors that affect prices, it appears that in the coming months we will see a consolidation of this situation which will be called upon to be managed by the companies in the sector," notes Mr. Kioses.

SOURCE: RES-EBA

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