Riding the wave of rising costs
When you’re running a business, it can feel like it’s hard to catch a break from rising costs. Increasing interest rates, climbing fuel costs and challenges accessing specific materials or ingredients can all be results of inflation – or a decrease in purchasing power. And all are out of your control.
Patrick Khouzam, a managing director with MNP Corporate Finance, says inflation is seen as soon as higher prices are applied to raw materials and salaries.
“Inflation in raw materials is variable and you can somewhat control how much you pay or how much you buy,” Khouzam says. Salaries, on the other hand, are dictated by the market and are more difficult to control.
Ideas for handling inflation
Inflation is something all processors are dealing with, combined with supply chain delays, says Dwayne Boudreau, Atlantic brand specialist with Food and Beverage Atlantic.
“Everyone is balancing the need to find new purchasing strategies because of a shattered supply chain,” he says.
The reality is everything costs more - every single business input. Cutting costs is one method to handle the issue, but so is shifting strategies to try new approaches. Boudreau recommends seeing where one or more of these strategies fit into your business to save you money.
- Seek out substitutes (without sacrificing quality) and new suppliers you can negotiate with fairly.
- Discontinue products that are barely, or not, profitable.
- Take care of employees and consider reduced hours rather than layoffs.
- Consider productivity-enhancing automation or upgrades.
- Carefully assess marketing and promotion spends and stick with those that are effective. Build loyalty with existing customers to sell more to them.
- Delay moves into new markets and offer incentives to create increased orders to keep transportation costs in line.
- Assess package sizes that allow for moderate price increases and offer higher-priced, value-added products.
Candice Appleby, executive director of the Small Scale Food Processor Association, says processors may find strength in numbers creating savings.
Some B.C. food processors have formed BuyBCFoodandDrink.com. The collaboration pools resources and offsets marketing costs, while also saving the processors time and money by working with a larger marketing group. It’s all to ensure the resiliency of small-scale food processors, Appleby says.
Khouzam, meanwhile, recommends processors lock in prices with suppliers whenever they can to ensure a consistent price point. He also suggests processors work with multiple suppliers. Buying from multiple suppliers puts you in a better position to negotiate prices since you can shop around for the best deal.
Make your case with consumers
As consumers also face increasing prices in their grocery carts, they may leave higher priced food items for something less expensive. Khouzam says processors can mitigate this.
He says in an inflation cycle, consumers expect a price increase. Therefore, it's logical to pass some of that along. The key is to ensure consumers understand why.
“Are you able to get your message across to the consumer as to why replacing your good with a cheaper good will not serve them better?” Khouzam says. “Why is your option better than the cheaper option? Why is it the better choice?”
Boudreau wonders whether consumers who leave your product behind were ever really yours to start with.
“Consumers you lose to cheaper products were never loyal to begin with,” Boudreau says. To maintain loyalty, offer bundles, different pack sizes and loyalty programs, he says.
If rising prices is part of the strategy, be upfront with customers about the reasons. No one is trying to get rich by adding $0.50 to the price of a product; instead, it’s the price of trying to stay alive.
Article by: Ronda Payne