Financial and Economic Crises: The effect on Lebanon's FMCG Businesses

The devaluation of the Lebanese pound, coupled with a drastic reduction in liquidity and the unavailability of US dollars, has led to a volatile market environment. Major supermarket retailers and suppliers in the Beirut and Mount Lebanon area are struggling to adapt to the changing circumstances, with many being forced to constantly recreate themselves just to survive. The current economic crisis has resulted in a significant reduction in consumer purchasing power, with food prices increasing by over 400 percent while salaries have remained stagnant. According to the World Food Program, two out of every three Lebanese households suffered from a reduced income compared to the previous year. The Central Administration of Statistics reported a consumer price inflation rate of 145.8 percent year-on-year in December 2020, with food prices jumping 402.3 percent and transportation costs increasing 206 percent. As a result, consumers are being forced to adapt their purchasing habits, with many becoming solely price-driven. According to the survey, only about 5% of consumers earning in US dollars or comparable currency still have pure brand loyalty, while close to 90% of consumers are now making purchasing decisions based on price. The average basket size in supermarkets has been reduced by 25-50% in terms of volume, while the average basket cost has tripled compared to 2019. Suppliers are also being forced to adapt to the changing market environment, with many reducing their payment term facilities to as little as a week. This has resulted in a significant reduction in the value of stock held by retailers, who are being forced to pay their outstanding balances to suppliers. Suppliers are also reducing their product portfolios to include only "fast-moving" imports and local products, with some even resorting to parallel imports from Turkey and Eastern Europe. Retailers are also being forced to adapt, with many resorting to buying brand names being produced in parallel markets. For example, a larger retailer can import a container of Kinder chocolate produced in the Gulf States or in Egypt to be distributed among its many points of sale for significantly less cost than the Kinder produced in the EU. Supermarkets are also reconfiguring their planograms, with products being allotted visibility according to their historical performance and/or the popularity of their brand. The survey results also reveal that retailers are struggling with their pricing strategies, with the threat of selling a product at a price lower than it would cost to replace it becoming a very real and constant threat. Initially, the law in Lebanon only allowed supermarkets to increase their prices according to a predetermined markup on invoices, but this has not been sufficient to keep up with the rapid devaluation of the Lebanese pound. As a result, retailers are being forced to adopt adaptive pricing strategies to stay afloat in the volatile market environment.