How to manage cost increases - while keeping happy customers
Public discussion about inflation and the rising cost of everything from food and shelter to gas creates a climate where retailers and consumers expect to see price increases from everyone, including you.
That doesn’t mean it’s an opportunity to increase selling prices unnecessarily. Rather, it’s context for a conversation about inflation.
Relationships built on trust
Selling price is something to speak to retail customers about regularly, regardless of inflation figures. Find opportunities to share information about ingredient costs, packaging costs and other issues impacting the cost of goods on an ongoing basis. For example, share media articles or a letter from suppliers addressing increased costs.
Or, if you buy supplies like ingredients or packaging in advance of a cost increase, share this news with customers through your social media channels or newsletter – they want to know you’re doing all you can to keep prices as low as possible.
Steps like these pay dividends when prices increase since there is a level of trust in the relationship.
Review costs and revenue
A regular review of your selling price ensures it’s correct. If you delay asking for an increase at the appropriate time, you risk falling behind, and catching up is a much bigger mountain to climb.
As well, share information about increases and decreases impacting your cost of goods. There are times when your inputs could decrease – and that doesn’t mean you reduce your price. Let retail customers know the decrease in one commodity was offset by an increase in another, allowing you to maintain your selling price.
When the prices go up
When there are several commodity price increases, it’s necessary to raise prices or make changes to maintain profitability. Customers will respect your position more when you explore all the possibilities.
Some options are:
- Reduce the number of SKUs you produce to find efficiencies
- Change shipping parameters, such as cases per pallet, to reduce freight per unit
- Consider a pack size change
- Decrease your trade spend
If you exhaust options and a price increase is required, focus on the facts and explain your rationale. A 15% increase in a commodity representing 10% of your total cost of goods justifies a 1.5% increase.
There are also several considerations when submitting your cost increase:
- Find the appropriate window to request a cost increase. Retailers publish different periods for suppliers to propose increases in various categories.
- Explain any changes you implemented to reduce or delay the increase.
- Offer changes to purchasing, such as full pallet quantities that could reduce the price increase.
- Understand the impact on the retail price. You know the category margin they’re making, so you can calculate the new retail price. Check to make sure it is in line with other items in the category.
- Watch the private label or control label products in your category. When you see those prices increase, you know the retailer is aware of changes happening that could justify your cost increase.
- If you propose necessary price increases, don’t back down. Your customers will question any future increases you propose.
- If it’s right, you might have to fight. Most retailers will offer a process past the category manager to review price increases if the supplier believes the increase is justified.
Every processor must manage their relationship with customers, including understanding selling prices.
Take care of the rest of the business
When your cost increases on the shelf, it's important to continue providing value.
Carly Minish Wytnick from Smak Dab Mustard in Manitoba says when food processors increase prices, it’s important other areas of business remain the same.
“Increasing your prices with customers is not the time to pull back your marketing budget in efforts to conserve and save cash,” Minish Wytnick says. “When your cost increases on the shelf, although educated shoppers will understand, it's so important to continue providing value.
It's more crucial than ever. Shoppers might start to develop more of a budget when it comes to shopping, and unless you’re providing that value and purpose to enhance their everyday lives, you won’t make their shopping list.”
If food processors have been talking about input costs and preparing consumers for changes, it shouldn’t be a surprise when the price increases. By the time you get to proposing the increase, they should already be expecting it.
Article by: Peter Chapman