How is inflation impacting the events sector?
April begins with encouraging data: after two months of acceleration, prices have slowed down in March to 3.3%, according to the advance data published last Thursday by the National Statistics Institute (INE).
Which is good news by half: it is a year-on-year figure that compares prices in March last year, when electricity, gas and oil prices soared out of control. This readjustment of bullish behavior, which gives us some breathing space, does not mean that prices are going down, only that they are going up less. Given this reality, the euphoria over the impressive return to presence after the pandemic should not hide the fact that inflation is being a serious drag on the return to normality in the events sector, as we saw in our recent 2023 Market Study.
More than 55% of suppliers raised their prices by more than 10% in 2022, a very high level (higher than general inflation). Average supplier price inflation has been 12%. This inflation will continue according to the American Express Meetings & Events annual report, which quotes Jonathan Kaplan (IHG) for whom “average prices will continue to rise due to the rising cost of talent, food and other fixed costs – the trend will continue with strong demand.”
This inflation has been applied especially in the hotel world, one of the few segments of our sector that applies the concept of yield (why?), and has raised prices by 17% according to the INE, with even an average rate 15% higher than 2019.
We are a sector where elements whose price has risen a lot weigh heavily: food raw materials, energy and logistics, some raw materials such as metal… and also talent, which today costs more. But while prices have risen, only 48% of suppliers say they have not been able to pass on inflation in their prices, and have therefore had to lower their margins, and agencies point to the same difficulty in passing on inflation in the face of clients who struggle mightily to contain inflation. This difficulty in passing on costs, the lack of what the Americans call “pricing power” and which indicates the strength of a company or a sector, is a problem at events. It indicates a low appreciation by customers of the specific value of this or that provider’s or agency’s services, a market that is too fragmented, or simply a difficulty in differentiating itself.
In any case, the desire to control or limit this inflation is not a whim, but something that seems necessary for organizers to be able to maintain their activity; according to a study by Knowland (in the USA), prices are the main danger for the full return to events (according to more than 46% of organizers).
Eroded margins
In fact, if we ask suppliers, they often complain about the drop in margins (almost 50% say that their margins have decreased, while only 17% have noticed an improvement in their margins, as would have been logical in a context of strong activity).
Behind these lower margins is the price war. After a time of clear over-demand in 2022, suppliers have adjusted their capabilities, have recruited (although as we will see, this has been and remains difficult), can service demand and therefore have less power than at the crazy turn of events in 2022. Result: the price war is greater than before the pandemic for 45% of suppliers, affecting their margins. How do they adapt? As can be seen in the table, they take care of their financial cushion, strengthen their risk management in an uncertain environment, ask for more prepayment and check their financial solvency more (all these different strategies gain weight according to 30-40% of the suppliers). In summary: a year of strong activity, but eroded margins, and increased caution on the part of the various players.
Suppliers expanding their services
Integrating more services is a trend we have seen a lot in recent months, especially from the space side. This is a delicate issue in the relationship with agencies, which often see this type of initiative as unfair competition or a measure that affects their margins. Certain spaces are increasingly equipped with audiovisual equipment, hotels offer a teambuilding menu, and so on and so forth.
55% of suppliers report offering a more complete service, integrating the services of other complementary suppliers. It is a way to widen margins, to allow events with less set-up time (in the case of spaces equipped with audiovisuals), to facilitate the organization… but probably a not very positive evolution for the freedom of the market and for the careful and tailor-made character of each event.
The freedom to work with whomever you want seems an important value: in the complex exercise of creating experiences or scenographies, the relationships between agencies and their trusted suppliers is something important.
Source – https://www.eventoplus.com/articulos/como-esta-impactando-la-inflacion-en-el-sector-de-eventos/
