A new GlobalData whitepaper, ‘The Great Volatility’ Macro Supercycle explores the instability in the current macro environment and the risks and opportunities this will bring for the beverage industry over the next few years.

GlobalData Consumer Custom Solutions, one of the leading providers of consultancy services to the Retail, Food, Beverage and Packaging industries, has released a new whitepaper exploring the volatility in the current macro-economic environment and the impact this will have on the beverage industry and their consumers over the next few years.

Stronger economic growth along with higher interest rates, stubborn inflation, physical disruption from climate change, supply chain stress and an unpredictable geopolitical situation are all factors creating an era of significant macro instability that GlobalData is calling ‘The Great Volatility’.

‘The Great Volatility’ is a new macroeconomic supercycle that is creating a more pressurized, erratic and uncertain business environment for beverage companies to operate in, which is also impacting consumers’ lives and behaviors.

Dominic Allport, Consulting Director Non-Alcoholic Beverages, Consumer Custom Solutions at GlobalData commented: “The world economy is in for a bumpy ride over the next few years. Despite signs that the current wave of inflation is peaking across some markets, we can see that factors such as higher costs, higher prices, climate change, geopolitics, and high levels of debt will continue to cause economic uncertainty for the foreseeable future. This new economic supercycle, called ‘The Great Volatility’, will impact the beverage industry in many ways as consumers adapt to this new reality and adopt a range of different behaviors to cope with this economic rollercoaster.”

The whitepaper sets out to explain what ‘The Great Volatility’ is and identifies what has caused it. It also outlines the inflation management strategies that consumers and beverage companies could adopt to minimise the impact of higher prices, reviews some of the key macro-economic events driving this volatility in 2022 and 2023, offers GlobalData’s view on the potential for a recession in 2023 and what could happen in the global economy beyond this year. In addition, the paper explores the likely risks and opportunities of ‘The Great Volatility’ for beverage companies and their consumers.

Top insights from GlobalData’s ‘The Great Volatility’ Macro Supercycle whitepaper include:

The Risks and opportunities of ‘The Great Volatility’

• Stress on consumer spending
  Risk: A narrow brand portfolio or limited focus across categories will increase individual companies’ risks.
  Opportunity: create a diverse range of products that cater to both premium and value-oriented customers in multiple categories.
• Managing investment risk
  Risk: Uncertainty in investing offshore is being driven by trade disputes and geopolitical tensions.
  Opportunity: Consider a reshoring strategy that evaluates growth opportunities in developing markets and the viability of slower-growth markets.
• Geographical location
  Risk: The scarcity and rising costs of raw materials are causing volatility, and consumers now demand complete transparency of the supply chain.
  Opportunity: Shortening supply chains via reshoring offers ESG benefits.

Inflation management strategies for consumers and the beverage industry

Three ways consumers could respond to inflation:

• Cocooning – staying at home more frequently – less days working from the office, less time spent on leisure activities.
• Saving money by bulk buying, stockpiling, buying ahead and growing veg. However, this is a limited solution for low-income consumers.
• Managing finances to a strict budget – ‘Going without’ – spending less by buying less – reducing the frequency of foodservice and on-trade visits.

Three ways beverage companies could respond to inflation:

• Protect middle-tier brands from the impact of downtrading to cheaper competitor brands, by heavy discounted price and extra free promotions.
• ‘Bundling’ – enhance the value of the overall retail purchase by combining additional product purchases with the original one.
• Build a range of prices across a brand offer, such as the introduction of new smaller pack sizes or a new value sub-brand. 

What will happen beyond 2023?

• World economic outlook: Once we are past the current post-Covid macroeconomic challenges of high inflation, high interest rates and the ensuing cost of living crisis, the world economy will not settle back into the pre-Covid decade’s pattern of low growth with low inflation and low interest rates.
   
• Inflation: Inflation won’t be driven all the way back down to the official targets of 2% in most countries, due to concerns about financial stability and social and political resistance to a new era of austerity.
   
• China: A final major difference from the pre-Covid era is that, back then, periodic stimulus in China accounted for a large part of the modest growth achieved by economies in the rest of the world. But no longer. Those previous cycles of debt financed investment have left China with deep imbalances (excess housing supply/heavy debt burdens) that will make the present rebound short-lived and put the Chinese economy onto a much slower medium-term growth path – currently 3% p.a. vs 5-6% in the 2010s.

Christopher Granville, Managing Director, Global Political Research at TS Lombard, a GlobalData Company, added, “The Great Volatility macro supercycle, will be a higher-pressure hotter economy with stronger real growth but a regime of significantly greater macro volatility with higher inflation and interest rates. This will lead to more pronounced swings in input costs, labor supply and consumer confidence which will present beverage companies with rising risks and complex opportunities as they consider and navigate their way through the varied and complex landscape of the new supercycle.”

To receive your FREE copy of GlobalData’s ‘The Great Volatility’ Macro Supercycle whitepaper please click here.

About GlobalData’s ‘The Great Volatility’ whitepaper
The paper contains the latest research and insights from TS Lombard a GlobalData company recognised as global experts in their field of macroeconomics together with insights and data from GlobalData’s own macroeconomics team and GlobalData’s Consumer Custom Solutions consultants and analysts.