How retailers’ cutting costs can impact food processors
Retailers are facing higher interest rates like everyone else. And as cost increases drive retail prices higher, they also face increased costs.
That means retailers are exploring every opportunity to reduce costs. Accountants will have more input than ever to ensure retailers deliver a strong bottom line.
When food service sales migrated to retail during the pandemic, retail saw an increase of up to 15%. That’s a huge increase, and although they had to build e-commerce platforms and figure out how to manage them, retailers put billions of dollars through their cash registers without increasing their infrastructure or fixed costs. Those sales have shifted back to other channels, and retailers are working hard to maintain some of their generated profit.
Expect retailers to look for opportunities to reduce inventory value in their system without losing sales.
The cost of inventory is significant for retailers. Supply chains are tight and have worked to reduce inventory in stores and warehouses. Still, retailers continue to carry huge value of inventory. Some items indeed sell before retailers pay for them, but not all. We expect retailers to continue looking for opportunities to reduce the inventory value in their system without losing sales. Here are five strategies they may use:
1. Pushed payment terms
Watch this carefully since most of this work is done by automated systems. If you aren’t paid in the agreed-upon number of days, raise the issue. If payments are taking longer, there’s a reason for it. Either something is incorrect in the system, or your customer is consciously putting it off.
2. Smaller deliveries more often
More frequent deliveries of smaller quantities might reduce inventory, but you must help retailers understand what happens to the freight cost per unit. Be mindful that sometimes this type of direction will come from high up in the retailer’s organization.
3. Reduced lead time for orders
This is another opportunity for retailers to reduce inventory and give them more flexibility to make changes. Sometimes, these changes can be caused by an inexperienced buyer. If this happens frequently, raise the issue with your merchandising contact. They can advocate for you with the supply chain part of their business.
4. Labour savers
For most retailers, labour is the largest controllable expense, so they always look for opportunities to be more efficient or deliver more sales with fewer hours.
If suppliers can find improvements to your product or a process to allow retailers to use less labour on your products, that is a win for you. A savings of 30 seconds per case over 100,000 cases equals a labour saving of $15,000 if you use $18 per hour. You will get their attention if you have a few of these.
For some retailers, one method of reducing costs is to offload work to suppliers. This can happen in many ways – in the office, in logistics and, for some, in the stores. It’s possible you can absorb it with your current infrastructure. If you must make investments, it is worth calculating the payback. Unfortunately, if you are unwilling to do it, some other supplier is.
With higher interest rates and a relentless focus on the bottom line, we expect to see more initiatives from retailers to protect their margins. In this period of food inflation and higher retail, they will be criticized for growing margins, but they will not accept them going down.
Article by: Peter Chapman