According to a report by Álvarez & Marsal (A&M), in collaboration with Retail Economics, as inflation reaches record levels, with Spain at the head of the large European countries, Consumers are increasingly guided by the price of products, although they continue without neglecting other aspects such as quality or sustainability. In addition, the study shows a correlation between countries with more adverse economic situations and those whose consumers prioritize the low prices of the products they purchase.
With an inflation that has reached the highest level of the last 40 years, Spain stands out –among the countries analyzed– as the economy that currently faces the greater economic difficulties and as the country with the highest proportion, about 40% of consumers concerned about the price. In this way, the A&M report reveals that almost a third of Spaniards would sacrifice the quality of the articles in favor of lower prices.
On the other hand, the pandemic has influenced the way in which consumers consider sustainability in their purchases, especially present among younger consumers. More than 35% of Spanish consumers are willing to pay a little and 6% much more to buy sustainable products. Our country is below the average of the rest of the markets analyzed with Switzerland in the lead (62.7%). The issues that most concern consumers in terms of sustainability are the salary conditions of workers by the company, the sustainability of production materials and the commitments to reduce the carbon footprint.
To improve the sustainability image of companies among consumers, the study shows that the most relevant areas for the consumer are fair conditions for employees and sustainable origin of raw materials.
Among the countries analysed, Spain stands out for having a large number of consumers who opt for more practical products, especially in health and beauty items, where it is above the rest of the markets. However, the Spanish show a more emotional behavior when buying electronic and household products. In this sense, the fact of being able to touch and feel the products attracts a third of Spanish consumers to visit stores instead of buying online.
Alejandro González, Managing Director of A&M in Spain, has added: “Although price is becoming an increasingly important factor for Spaniards when making purchase decisions, consumer demand for businesses to act ethically and sustainably continues to grow. It should be noted that in an inflationary context such as the one we find ourselves in, retailers should bring their products closer to the needs of consumers, but without forgetting that sustainability can also create business opportunities.”
A Looming Profit Crisis in Small Business
Inflation and increased consumer awareness of product prices are causing a profit crisis in the small business sector. This comes against a backdrop of supply chain issues, rising labor costs, rising utility bills and rising shipping costs due to fuel prices.
Thus, the long-term trend shows a dsteady decline in profit margins. The Alvarez & Marsal report anticipates a reduction in small business profit margins to 5.1% during 2022. Excluding the initial impact of the pandemic, this would represent the lowest level in the profit margin of the retail sector. last 10 years.
Erin Brookes, Managing Director and Head of Retail and Consumer at A&M Europe, said: “As costs rise and competition intensifies, consumer-facing companies have to transform to avoid a profit crisis. Investing in digitalization will be essential to boost the efficiency and agility of processes. In these contexts of uncertainty, supply chains must also adapt to be more flexible, diversifying and simplifying their operations. Without these changes, margins and profitability will continue to take a hit.”
