60% of UAE firms to hike prices as costs surge

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Nearly two-thirds of UAE businesses are planning to increase the price on their goods and services as costs in the non-oil sector climb at the fastest pace for 11 years.

The latest S&P Global UAE Purchasing Managers’ Index (PMI), issued last week, found that rising energy costs and higher wage bills were biting into profit margins for UAE companies.

“Nevertheless, the latest data suggested that firms were unwilling to pass higher costs on to customers in June, as output charges were reduced at the fastest rate in over a year-and-a-half,” David Owen, economist at S&P Global Market Intelligence, said.

• UAE businesses keep squeeze on profits as inflation bites

S&P Global carries out similar monthly surveys in over 40 markets and Owen told AGBI that the UAE was an outlier when it came to this issue and “in most of the countries we look at, businesses are able to pass at least some of that cost on to customers”.

However, this looks likely to change in the coming months according to Jen Blandos, founder of Female Fusion, a UAE-based community of female entrepreneurs set up in 2015 and with more than 20,000 members across a range of industry sectors.

“Many small and medium-sized enterprises (SMEs) in the Female Fusion community have been rebuilding since the pandemic, and increased prices from the market have hit them hard,” Blandos said.

“When faced with increased costs, such as shipping or courier fees, or increasing employee salaries to help them meet the cost of living, inevitably prices need to go up.

“More than 70 percent of our members have either increased, or plan to increase, their prices in the coming months.”

A poll of Female Fusion members garnered around 120 responses last week and found that 12 percent of respondents had recently already raised prices, while 60 percent said they planned to do so in the coming months.

In a follow-up survey emailed to members, 45 percent of respondents said rising utility bills was the biggest challenge, followed by increased transportation costs (41 percent), higher food costs (37 percent), larger shipping fees (32.4 percent) and rising wages bills (27.9 percent).

“For SMEs to survive, and even thrive in today’s challenging market, adapting to market changes quickly is essential – and this is where community support, from organisations such as Female Fusion, is so vital,” Blandos said.

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“For example, we are constantly working with suppliers of business services to provide big discounts for our members.

“Shipping and courier fees are a big expense for many SMEs in the UAE right now, and Aramex [the UAE logisitics company] has been incredibly supportive by providing discounted rates for our members.”

Overall, 76 percent of respondents said costs were higher than last year, with only 2.9 percent saying their business costs had declined.

Straining at the seams

Many small businesses across a variety of sectors described how the combination of rising costs and a competitive marketplace had impacted their margins and what strategies they were adopting.

Juwaeriah Siddiqui, founder of Arabically, an educational platform helping users learn Arabic, said retaining teaching staff had become a big challenge.

“Over the past two years we were able to retain our teachers by paying them a percentage of the profit for our online live courses,” Siddiqui said.

“However, this year we are finding it hard to retain them for the same number of hours per course.

“We decided to increase the prices of our Early Reader Programme for Arabic Storybooks, which happens bi-yearly. However, that has made it harder to acquire clients. We still haven’t figured this out.”

A crafts-based SME said they had seen their material costs rise this year for items such as paper, envelopes and packaging, due to increased shipping costs.

“My selling price is still the same as I am already on the higher bracket as compared to the market,” the owner said.

“I am afraid if I increase the price it will affect the volume of the sales.”

Similarly, the founder of a dental clinic reported that the cost of importing materials had gone up “but the competition is so cutthroat that we can’t really increase our prices”.

Pamela Opie, CEO and founder of Linen Obsession Textile Trading LLC, which supplies major department stores such as Debenhams, BHS and Jashanmal across the Gulf, said her company imports from many countries and while shipping costs were up, it varied depending on the source market.

“The production costs have dramatically increased this year,” Opie said.

“We are seeing cost increases averaging 10 to 20 percent from Asia, while costs have increased by 50 percent over the past two years from the UK.

“The increased shipping costs from China has affected us less, as most brands have moved their production from China to Pakistan, which is cheaper and quicker for shipping to the Gulf.”

Simi Tanna, from The Cake Smash Queen, said that despite the market being very competitive at the moment, she hoped her customers would be understanding of the need to increase prices.

“Costs have increased for all involved, such as the cost of ingredients for the bakery we use for our cakes and the cost of helium we use for our balloon decor,” Tanna said.

“We have yet to increase our rates to cover these additional costs but it’s something we are considering. 

“One thing we cannot do is compromise on quality, so we won’t change vendors.

“Our clients have come to expect high standards from us, and I think they’ll understand the need for any price increase.”

A designer working on a high-profile restaurant project described how the rising cost of importing luxury materials had eaten into margins as they were forced to absorb the extra costs, rather than antagonise important clients or miss deadlines.

“So raw materials and shipping charges have both made our profits the bare minimum,” they said.

Another issue at play is the fact that some customers are now also haggling hard on existing prices: “Customers started bargaining on service charges, like 50 percent off,” one SME owner said.

Naim Maadad, chief executive and founder of Gates Hospitality and a board member of UAE Restaurants Group, added: “Inflation will not spare anyone or anything and businesses need to be ready to adjust in order to survive. 

“I predict that most F&B [food and beverage] and hospitality businesses will wait to see the summer season finish, after which we’ll see a bigger hike in Q4.

“From aviation, hotel stays and basic foods such as beef, chicken and vegetables increasing prices so drastically, it will affect us all. Brace yourselves, is all I can say.”