Ever wondered why certain businesses flourish despite economic inflation? Inflation signifies rising prices, indicating a decline in purchasing power over time. This decline in purchasing power is typically reflected in the price increase of selected goods and services over a specified period. But while it is detrimental to some sectors of the economy and consumer spending, inflation makes certain economic aspects more relevant.
During periods of inflation, certain businesses tend to thrive. These include food, pharmaceuticals, healthcare, fashion, investment, hospitality, beverage and alcohol, mothercare, utility bills, electrical appliances, technological gadgets, and transportation and logistics enterprises. These businesses exhibit resilience amidst economic challenges because they provide goods and services that are considered essential and indispensable to consumers. Their intrinsic necessity enables them to weather the storm of surging inflation.
Various factors contribute to the resilience and prosperity of these businesses despite economic inflation. Below are some reasons why these businesses thrive during inflationary periods:
They are essential
Businesses specialising in essential goods and services, which people cannot easily forgo, naturally thrive despite economic inflation. For instance, food, healthcare, pharmaceuticals, utility bills, and Mothercare products are necessities consumers would continue to purchase irrespective of economic conditions. Consequently, regardless of price increases, consumers will find a way to acquire them, even if it entails opting for less expensive alternatives.
Non-discretionary spending
Inflation often accompanies an elevation in the cost of living. However, incomes may not increase during such periods, prompting individuals to engage in non-discretionary spending. Consumers tend to prioritise expenditures on essential items like healthcare, medication, utility bills, and basic food necessities over discretionary and recreational activities during inflation. This prioritisation fosters a stable demand for products and services by these businesses as they are deemed indispensable for survival.
Demographic trends
Certain industries like healthcare and mothercare capitalise on demographic trends such as population growth, ageing populations, and rising birth rates, which sustain demand. Additionally, other sectors benefit from demographic shifts, albeit less visibly. These include hospitality (hotel reservations and event planning), beverage and alcohol, and electrical and technological gadget companies. While inflation may disrupt certain economic activities, it typically does not deter individuals within specific demographics from hosting events, purchasing beverages and alcoholic drinks, or acquiring electrical gadgets.
Technological advancements
Industries such as fashion, electrical appliances, and technological gadgets continuously innovate and unveil new products, enticing consumers to purchase regardless of economic conditions. These innovations often improve efficiency and reduce production costs, enabling businesses and individuals navigate economic challenges successfully.
Investment opportunities
During periods of economic inflation, investment businesses may thrive as investors seek avenues to hedge against inflation or capitalise on opportunities arising from market fluctuations. While investing during inflationary times can present challenges, several investment options tend to perform well. Consider investing in commodities, inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS), and consumer staples. These investments typically maintain value and generate returns amidst economic fluctuations.
Luxury vs. necessity
While luxury goods and services may witness a decline in demand during economic inflation, businesses offering essential or reasonably priced luxury items, such as certain fashion brands or hospitality establishments, may still attract customers. For instance, rather than splurging on a designer dress priced at N250000, consumers may opt for a budget-friendly alternative that serves the same purpose. Similarly, instead of dining at a five-star hotel, consumers may perceive it as extravagant and choose to eat at a more affordable restaurant or prepare meals at home.
Adaptability and innovation
Businesses in transportation, logistics, and hospitality frequently adjust their strategies to adapt to evolving economic conditions. They may revise pricing structures, introduce promotional offers, or diversify their product offerings to maintain competitiveness and cater to changing consumer preferences. This proactive approach to innovation has consistently enabled them to navigate economic challenges successfully.
Regulatory environment
Businesses operating in the transportation, food, pharmaceuticals, and healthcare sectors often benefit from government regulations or policies that ensure sustained demand for their products and services, thereby offering a degree of stability amidst economic fluctuations. During periods of economic hardship, governments may implement policies to incentivize healthcare providers and pharmacies, ensuring the accessibility of their services and products to the populace. For instance, in response to Nigeria’s current economic hardship, Governor Babajide Sanwo-Olu of Lagos State implemented a series of measures to provide economic support to residents of Lagos.
