Nordic Markets Retail Reflections

by | 08 November 2022

Last week, while participating as a guest speaker at Bonnier’s Retail Arena Conference in Helsinki, I had the opportunity to experience Finnish innovation first-hand with the Colliers Helsinki team.

At the conference, there was much discussion about the impact of global inflation on consumer purchasing behavior. Consider that similar to Finland (7.6%), the United States saw an 8% inflation rate in October, mainly due to COVID-related supply chain issues and growing energy prices. The most significant impact has been from unemployment and the tightness of the labor market. The ratio is 2:1, with two job openings for every unemployed worker, the highest since the 1950s. The Federal Government was slow to react to the early signals of inflationary pressure, and I’m sure if they had time for a do-over, they would have raised interest rates more quickly.

Quality of Life Ethos

Finland ranked essential items like housing, water, electricity, and gas highest on their consumer price index (CPI), with discretionary expenses like food and non-alcoholic beverages, transport, and recreation secondary. A far cry from the U.S., which saw accelerated spending across Alcoholic Beverages & Tobacco (3.8% vs. 3.4%), Furnishings (8% vs. 7.4%), and Recreation & Culture (4.4% vs. 4.0%) over the last 18 months. Natives to the Nordic and Baltic regions are reportedly healthier and live longer–living an average of 83 years, nearly a decade longer than Americans. That was evident as I explored Helsinki and its many outdoor markets. Although Americans are a bit behind on the quality of life ethos, the pandemic escalated a new perspective, similar to the Finnish lifestyle. I’m sure that life experiences will become more critical, and consumers will prioritize travel, family outings, and socializing in group activities.

Food, the O.G. Essential Item

One sector we have in common is food. In the United States and other nations, inflation has been driven by rising food prices. The single most extensive area of retail consumer expenditures, food is an essential item that diminishes consumer spending power for other more discretionary categories. We have seen a significant shift in spending with value-driven grocers, bulk buying, and discounter retailers. Yet consumers continue to eat out, which in some instances–fast food comes to mind, is less expensive than buying groceries to cook at home. Food and beverage became the largest online consumer spending overtaking health and beauty due to the pandemic. We saw nearly 16% of all food service sales in the U.S. made via delivery.

Retailer Reaction to Inflation

The global economy’s inflation is impacting retailers’ bottom line, too. Operational costs increased by 9%, a deferential cost masked by high demand and higher sales volumes. This year, the retail price is estimated to increase by 14%, well below anticipated sales growth, compressing margins and profits. Retailers are responding in a variety of ways. Rising product prices was the most common response, mentioned by 65% of retailers surveyed. Others have tried to be more creative in sharing costs with consumers, increasing service prices (48%), and using technology and automation (56%) to reduce labor and operational costs.

Additionally, 66% of retailers say they plan to increase their prices over the next six months, while only 10% plan price reductions. Shrinkflation is one countermeasure that has steadily become the norm where grocery products shrink in size and, in some cases, increase in price. Every category has been subject to shrinkage, from ice cream to yogurt, potato chips, and pre-packaged cheeses.

Finland and What Comes Next

As a highly industrialized country with a strong economy, Finland’s product prices have had very little change in the last decade, with an average of 1.6% percent from 1996 until 2022 and a record low of -10% in 2009. Yet, this past June, product prices increased by 34%. Despite the cost increase, retail sales value has grown much slower, suggesting that consumers are buying cheaper products or, more likely, cutting back on certain purchases.

The nation is known for its innovations, from global telecommunications company Nokia to video game developers for Clash for Clans and Angry Birds. According to the Global Innovation Index, Finland ranks in the Top 10 overall countries best for doing business.

We look forward to what the future holds.