Inflation Surge in Home and Garden: Company Actions Taken to Cope

Delivery

This report comes in PPT.

Key findings across the “inflation surge” reports in home and garden

There is a lesson to be retained about passing costs forward whenever the opportunity allows

Some product categories absorbed in their margins more than half of the cost of materials inflation in 2021/2022, often with a view to temporarily and partly cushioning supply chain partners and consumers from full shocks. With 2022 demand changing from booming growth to decline, the difficulty in passing forward delayed cost rises ramps up, raising questions about everyone being able to seek win-win outcomes and the strength of business models.

Defeated by victory - the advantages of being in a booming sector have led in some cases to a margin crisis

There were other factors at work; the cost waves in timber gave earlier warning versus metals of how serious this inflation period was going to be, and exposure to shipping inflation also mattered. However, the clearest motive visible in categories that passed costs forward rigorously as soon as demand allowed was a sense of vulnerability. Profit lines cushioned by factory scale gains during 2020/2021 did not feel the true margin urgency until later in the crisis.

One in three companies (half in Western Europe) cannot yet see when their supply chain issues will be resolved

83% of home and garden companies were at least moderately harmed by supply issues in the 12 months to August 2022. Some categories, such as homewares and home furnishings, are tracking to return to full availability, but home improvement is not expected to recover until 2024, and gardening may not yet have reached the peak of disruption. In Europe particularly, there are companies that see no end yet in sight for their supply problems.

Passing costs forward is expected to improve in 2023, but a demand drop is widely anticipated

The industry is expecting an 8% increase in the cost of production in 2023, due to energy trends, and anticipates passing that through into its own pricing better than in 2022, and in some cases raising prices over this level, attempting to recover previously lost margins. This is linked to a widespread view that demand is going to drop by more than 4% and any current terms sales growth seen in 2023 will come purely from anticipated price increases.