Pricing increasingly on the agenda of Irish exporters

Low inflation had become the norm in Ireland for years – however a rapidly changing market means that prices are beginning to rise. While many Irish exporters enjoyed profit growth even amid the pandemic, the majority now fear their profit margins are vulnerable to this heightened inflation.

A new study by Enterprise Ireland and strategy consultancy Simon-Kucher & Partners has surveyed Enterprise Ireland client companies on pricing strategy. The multi-sectoral pricing survey of Irish companies involved a survey of nearly 500 Enterprise Ireland client companies covering 12 industries, while the results were contrasted with the global averages from Simon-Kucher & Partners’ Global Pricing Study 2021.

What the research found was that rising costs and inflationary pressure, as well as the need to fund innovation to ensure the long-term success of their company, have made developing a robust pricing strategy a priority for Irish exporters. While 54% of companies stated that in spite of Covid-19 or Brexit their profits had improved in 2020 (just behind the global average of 59%), years of low inflation mean many lack the skillset to implement price rises. As a result, with volume gain identified as the top driver of profit growth, only 8% of companies expected their profit growth would be sustainable.

With inflation rising quickly globally, many of these companies will indeed see their profits come under pressure in the coming period. In this context, it is imperative for Irish exporters to quickly increase their skills in pricing strategy. As well as protecting their margins, this will help future-proof their business by giving them the resources to invest in important functions, like research and development and sales and marketing activities.

To that end, Simon-Kucher and Enterprise Ireland’s analysis revealed that 71% of respondents planned a price increase in 2021. At present, 35% of respondents targeted price increases above the inflation rate, and 34% planned a price increase in line with inflation. However, illustrating exporters’ lack of experience in this matter, the researchers found that many are not raising prices high enough. With inflation anticipated to hover between 1.4 and 1.6% until 2023, a 2% increase would only achieve around a 0.4% increase in profit – leaving many companies at risk of significant margin erosion.

Some sectors are feeling the pressure more acutely than others. According to the study, the food and beverage segments are feeling it worst, with 60% of respondents their stating they had experienced higher price pressure in the last year. This was followed by consumer and retail – where 54% said the same.

The research supports another recent study in this regard, with a survey from Food and Drink Ireland (FDI) – an Ibec group representing the industry – finding more than 50% of companies have seen costs go up by at least 10% on raw materials, energy and packaging, with some seeing hikes above 20%.