Capitalise on the crunch

by ArabianBusiness.com staff writer on Monday, 08 December 2008

LANDMARK GROUP CEO VIPEN SETHI: Consumers will now actively seek value for every unit of money that they choose to spend.

Retail News investigates how industry players plan to fight off the economic downturn.

As retailers across some parts of the globe are battered by the financial turmoil, Middle East retailers are showing their resilience by investing in strong, differentiated brands.

The consumer goods industry is less susceptible to economic cycles and market disruptions than many others, according to Yassin O Al-Attas, external relations general manager, Procter & Gamble Gulf FZE, as consumers will continue to require and purchase staple products from toilet paper to detergent.

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The company's investment innovation during these challenging economic times is predicted to result in an improvement of its overall value scores, leading it to "emerge from this economic cycle stronger than ever".

Forward-thinking, homegrown retailers recognise that this tougher market poses the opportunity to strengthen their talent pools, thus emerging stronger from a downturn.

"P&G has witnessed "no material impact from the recent events in the credit markets," Al-Attas comments.

"We have been accessing the credit markets without issue and remain comfortable with our cash flow and liquidity," after completing seven consecutive years of growth at or above annual target levels, 4% to 6% sales growth, double-digit EPS growth, and strong cash flow, with at least 90% of earnings converted to free cash flow".

"We expect some short-term market share volatility as we are leading pricing in many categories, as the category leader. Competitors in general are raising prices as well. They are facing the same cost pressures as we are. We are confident that our market shares will recover as price gaps return to more normal levels," Al-Attas comments.

Developing markets now account for about 30% of P&G's total business, with developing market sales growing at approximately 6%-7%, with the US accounting for about 40% of its global sales. Western Europe, Canada, Japan and South Korea make up roughly the remaining 30%. Al-Attas says that the 170-plus-year-old company pays "very close attention to the price of P&G products, relative to both branded and private label competition."

"we closely monitor the value ratings of our brands versus all competitors. We are also continuing to innovate, which provides consumers with new reasons to keep trying and trusting P&G brands".

This focus on innovation-driven trade-up has been fruitful, "as we see premium-priced products such as Gillette Fusion, Venus, Clairol Perfect 10, and Olay Regenerist grow market share. P&G's financial model is to deliver consistent, predictable results for the long term, even in today's more volatile environment," Al-Attas adds.

Sheeraz Siddiqui, national sales and marketing manager for Emirates Macaroni Factory says that in the short term, the retail industry as a whole will not be as adversely affected as some Western countries

Masafi CEO Ashraf Abushady says that because it offers "items that are more or less in the essential category, our volumes have remained the same. Hence, our growth prospects have not been hampered, especially with mineral water."

Consumers have started to change their choices to suit their convenience and comfort, he says, and "the only things that they spend on as before are on essentials and consumables. Fortunately for us, our core offering has not been affected."

The current buzz phrase is ‘cautious optimism', he says, because of the global downturn and the optimism in view of the region's fundamentals.

"We would rather say that across sectors, it's a wait-and-watch strategy. If you see international investors, there has thankfully been no flight of capital or interest. They have just postponed plans and not cancelled. This more or less summarises the general mood."

Looking at prospects for next year, "we have factored in the current situation in our plans and are realistic about the path ahead. We have not ignored worst-case-scenarios into our strategy that would determine our ability to adapt.

The downturn seems to be a temporary, albeit protracted, phase, he says, and "we are fortunate that the Governments in the region have accorded priority and are allocating significant resources for this to tide over."

HR talent remains the best sustainable competitive advantage in tough times, yet this must be coupled with operational efficiencies and control over the supply chain, with a strong need for a hedge mechanism.

The manufacturer: Impact on luxury before basics

Sheeraz Siddiqui, national sales and marketing manager, Emirates Macaroni Factory says that in the short term, the retail industry as a whole in the Middle East will not be as adversely affected as Western countries because of the higher economic growth this region is witnessing.

Demand is still strong due to increased household incomes and rising migrant populations to support the high economic growth. Although, if the current economic downturn continues for long, and large Western economies go into recession then this region will certainly feel the heat.

There could be a negative impact on demand for luxury and high value items first, percolating down to basic items later, resulting in job losses and slower economic activity.

As far as food production industry in this region is concerned the immediate impact of the current credit crunch is very limited or minimal. The companies that are heavily dependent on credit from banks are facing problem in getting easy credit resulting in negative impact on expansion plans.

One of the positive effects of this turmoil is that the prices of almost all of the raw material has declined in recent months from abnormally high prices about three months back resulting in lower production cost for many food items like edible oil, wheat based products, rice and dairy products.

Companies importing raw materials, such as ours, have gained in terms of exchange rates due to lower world currencies in comparison to US dollars. Many companies have either passed the lower cost advantages to their customers or are in process of passing them on in the near future, resulting in increased saving for customer as a whole.

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