Scenario Analysis For SME Retail And FMCG Operators

Introduction

SME retailers and FMCG operators face quick shifts in demand, input prices, and cash flow timing. Scenario analysis helps you stress test your numbers before the pressure hits your bank account.

Why scenario analysis matters for SME retail and FMCG

You deal with seasonality, stock constraints, and supplier changes. Small changes in volume or price hit margins fast. A scenario model shows you the range of outcomes. It prepares you for shocks.

Core components of a scenario analysis model

Revenue drivers. Units sold, price per unit, seasonal swings.
Cost structure. Supplier prices, shipping, wages, rent.
Working capital. Stock levels, debtor days, creditor terms.
Cash flow timing. Payment cycles, inventory build, promotions.
Scenarios. Base case, downside case, upside case.

Step by step walkthrough using a real case

Client background

A small FMCG retailer sells a three item bundle for 29 dollars. The bundle includes snacks and drinks sourced from two suppliers. The client sells 2,000 bundles per month on average.

Step 1. Build the base case

Price per bundle: 29
Cost of goods: 17
Gross margin per bundle: 12
Monthly volume: 2,000
Monthly gross margin: 24,000

Supplier A provides snacks at 9 per bundle. Supplier B provides drinks at 8 per bundle. Lead times average 14 days.

Step 2. Define the key risks

Seasonality. December volume jumps 25 percent. March volume drops 15 percent.
Supplier price change. Supplier A plans a 6 percent increase next quarter.
Demand volatility. Foot traffic shifts when weather changes or a competitor launches a promo.
Cash flow risk. Inventory build before peak months strains cash.

Step 3. Build the downside case

Assumptions

Volume drops 20 percent to 1,600 bundles.
Supplier A increases price by 10 percent instead of 6 percent.
Delivery delays force an extra week of stock on hand.

Numbers

New COGS per bundle: Snacks 9.90 plus drinks 8 equals 17.90.
Gross margin per bundle: 29 minus 17.90 equals 11.10.
Monthly gross margin: 1,600 times 11.10 equals 17,760.
Stock build: Extra 400 bundles of inventory funded upfront.

Impact Gross margin falls 26 percent. Cash outflow rises due to higher inventory.

Step 4. Build the upside case

Assumptions

Volume increases 15 percent to 2,300 bundles.
Stable supplier prices.
Faster turnover cuts stock on hand by 20 percent.

Numbers

COGS stays at 17.
Monthly gross margin: 2,300 times 12 equals 27,600.
Lower working capital frees cash.

Impact Cash position improves due to lower inventory. Margin grows due to higher volume.

How to interpret results

Focus on the sensitivity. A 20 percent volume drop cuts monthly gross margin by more than 6,000. A 10 percent supplier increase removes another 1 dollar per bundle. Compare these shifts to your buffer. Check if your cash reserves or credit lines cover the downside.

Actions the client can take based on the scenarios

Adjust price. A 1 dollar price rise recovers most of the supplier increase.
Negotiate supplier terms. Push for a two week extension.
Tighten stock. Reduce slow sellers to cut tied up cash.
Plan seasonal orders. Pre order early only for fast movers.
Run small promos to stabilise volume in soft months.
Track weekly margin. Update the model when supplier conversations or demand signals shift.

Conclusion

Scenario analysis helps you see the likely range of your cash flow and margin. You prepare for swings before they hit your store or warehouse.

FAQs

What data do I need to start a scenario model

You need your selling price, unit costs, volumes, and stock levels.

How many scenarios should I run

Run a base case, a downside case, and an upside case.

How often should I update the model

Update it monthly or when supplier or demand conditions change.

What metric should I watch first

Watch monthly gross margin and cash tied in stock.

Does scenario analysis help with pricing decisions

Yes. It shows how small price moves offset supplier increases or volume shifts.