Navigate consumer demand in an inflationary environment
The devaluation of the Egyptian pound on October 27 will pose fresh challenges for B2C firms. Understanding the impact of the devaluation on consumers and revising your 2023 plans will be key to sustaining growth.
Our View
Consumers will continue to struggle with higher prices and weakening purchasing power moving into 2023. FrontierView forecasts that inflation will grow by at least 10.8% in 2023 on top of the 13.6% expected in 2022, meaning that the price of the typical consumer basket will jump by over 25% in just two years.
Imported inflation: Egypt imports a lot of final consumption goods, all of which will see price growth after the devaluation. The customs exchange rate, which was reintroduced in March at a discount to the official rate to prevent spikes in key imports, has gradually been brought in line with the official rate, which is now over 24 to the dollar. This means that essential food, medicine, and commodity imports will also see stronger price increases in the coming months after the devaluation.
High food inflation: Food inflation has been felt more acutely by the lower and middle-income brackets as it makes up over a third of the consumer basket. Easing global grain prices and Egypt’s steadily growing stock of strategic food reserves will help ease prices in 2023. However, some imported food items will likely see price surges following the devaluation.
Consumer income growth will barely keep up with inflation
Salary growth: Egypt raised public sector minimum wages to EGP 3,000 days before the devaluation, while the private sector minimum wage will likely follow suit. These increases will not fully offset the loss of purchasing power that will continue into 2023.
Actions to Take
- Anticipate significantly higher price sensitivity through H2 2023. Lower and middle-income consumers will trade down as they cope with higher prices and will increasingly seek value for money. MNCs should emphasize the value proposition of their products and highlight any cost-saving qualities.
- Enhance credit purchase options. More consumers will rely on credit for their purchases. This has been aided by the rising prevalence of consumer finance – the number of users has risen by over 120% YOY in the first seven months of 2022 – but will be challenged by rising interest rates. B2Cs should assess with their partners the availability of credit for their products and discuss ways to facilitate credit purchases, particularly for bigger-ticket items. As banking penetration rises, cultivating strong credit purchase demand will be key in sustaining long-term growth.
- Improve your online strategy to build a strong standing in the growing e-commerce market. Egypt’s e-commerce market has nearly tripled since 2019 and will show exponential growth in 2023 due to rising digital and banking penetration. As their purchasing power declines, consumers will rely on online marketplaces to compare the prices and specifications of products. In addition to formal online marketplaces, considerable e-commerce activity also occurs on social media, hence MNCs should take these venues into account when assessing demand.
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