Downsize or up-price: How Egypt’s FMCGs dealt with changed consumer behavior

The year 2017 marked a year of change for Egyptian consumers – local currency devaluation, subsidy cuts and rising inflation all affected spending patterns. At the same time, companies had to make big decisions. 

Given the economic reforms that were undertaken, FMCG players had to decide whether they would downsize their products or raise their prices in order to keep up with and survive the financial and economic developments. 

So what did they opt for – reducing the size of their products or raising their prices?

Research company Nielsen released a report looking at three sectors – namely salty snacks, cheese and yoghurt – in Egypt and how they dealt with the dilemma. Here is what it found:

Salty snacks downsized
FMCGs producing chips and crackers decided to reduce the size of their products while keeping their price consistent. 

“Players within the salty snacks category opted for downsizing to provide lower price points, decreasing the average weight of the product between two and four grams,” Nielsen states. 

Primarily, a 14%-volume drop could be seen in 2017, but consumption normalized again in 2018. What is noticeable is that after the downsizing, consumers started buying more units than before the devaluation. So, for instance, instead of buying a bag of chips, the consumer would opt for two. 

Cheese became more expensive
The cheese category in Egypt experienced a price increase of 48% in 2017 and 26% in 2018. Accordingly, volumes dropped 21% in 2017 and 12% in 2017.

“While consumers might not have completely excluded cheese from their grocery list, they are likely be opting for buying in smaller quantities over long periods of time,” Nielsen reports. “Considering the perishability of the product, Egyptian consumers are avoiding wastage by buying less to ensure full consumption of the product.”

Yoghurt: the case of downsizing and up-pricing
While the salty snacks and cheese sectors were clear about using one approach to solve their problem, yoghurt manufacturers decided to merge both mechanisms. 

“Yoghurt saw an average downsize of five to 10 grams, together with an average price increase of 62% between 2016 and 2018,” according to the study. 

Although the price increase was lower than the one witnessed in the cheese sector and the downsizing was milder than the one experienced in the salty snacks sector, the yoghurt sector suffered great losses.

Up until 2018, the consumption of yoghurt has been dropping by around 15%. Nielsen attributes that to the potential shift of consumer behavior to opting for fresh yoghurt alternatives. 

So what is the best way to deal with the dilemma?
“Price and promotion have proven to be essential ingredients for remaining relevant to increasingly value conscious and stretched Egyptian consumers,” Nielsen explains. “There is a science to successfully executing value-based pricing and promotion, without risking erosion of loyalty and unwanted long-term impacts on the category or brand.”

Understanding the elasticity of one’s products in terms of size and price is essential in making similar decisions. This requires studying the response of demand towards a change in price or a change in size. 

When is downsizing beneficial?
According to the report, downsizing the product could be favorable when the of goods is high, there is no need for the competition to match a product’s price, downsizing can be masked, key stakeholders are included in the execution, the change will not alienate consumers, size elasticity is low and price elasticity is high.  

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