10 ways to stabilize retail price costs
Food retailers are eager to work with suppliers to maintain costs.
Food inflation is a big issue, and retailers are eager to work with suppliers who can keep their costs in line and deliver stability in product costs. There is a lot in the media about food inflation, and often retailers are blamed for the increases – it’s at the store where consumers see the change and where inflation is measured.
Inflation is throughout the value chain
Most of the inflation we see at retail starts much earlier in the value chain. Input cost increases in fertilizer or fuel will impact the cost of goods for primary production. The primary producer will fight to build these increases into their selling price to the processor. When the retailer sees the processor's request for a price increase, it can be a substantial change.
Retailers don’t like price increases
Retailers believe higher retails will slow sales. Another concern for retailers is price image. They are in a difficult position if their competitor does not increase their price. Increase the retail and be perceived to have higher prices or stay with the competitor and deliver a lower margin.
Consumers see prices going up and assume retailers are making more money. Sometimes this is true. However, their costs are changing like everyone else in the value chain. They have trucks that use fuel, employees who want to be paid more and many other challenges.
Here are 10 considerations for suppliers to bring stability to costing:
Keep in mind that every food production or processing business is unique. No solution will work for everyone.
- Discuss sales estimates with retailers. In periods of volatility, we should see less drastic swings and more predictable sales. Use your sales estimates to negotiate with suppliers to stabilize their pricing for periods.
- Put financing in place to pay for increased purchases of inputs or packaging to bring stability to your costs. High-interest rates are not a great time for this, but perhaps the financing costs are absorbed by a better price for more inputs or packaging.
- Logistics costs have been a huge challenge, and the cost of moving products must be a higher percentage than it has ever been. Challenge your suppliers to ensure you are being treated fairly.
- Many suppliers use channel partners such as brokers, distributors and retail coverage. Push these suppliers to hold their prices for the next 12 months to enable you to bring stability to your pricing.
- Try to anticipate where you might have problems or cost increases. Search for alternatives and be proactive. If possible, have options and a Plan B for the items that will impact your cost of goods.
- Understand retailers’ windows for category reviews and price increases. If you can, commit to maintaining a price until the next window. This will have a positive impact on your relationships.
- Measure your trade spending and marketing spend. Reduce the investment and bring stability to your product cost. Just because you did it last year does not mean you have to do it this year. Measure return on investment and build the right plan.
- There are times when it is right to change your package size. Look at what’s happening in the category. It’s a cost increase when you charge the same for a smaller package, but it is perceived differently.
- Look for offsets wherever you can. Hopefully, there are some things out there that are becoming less expensive. If you can save 10 cents per unit, you can absorb a 10-cent increase and keep your price the same.
- Talk to your customers, that is, retailers. They live in a time when they are blamed for most of the increases. If you can bring stability to your pricing, let them know how you did it. If you implement a period where you will not entertain increases and leverage your position with your suppliers, they will applaud you.
Article by: Peter Chapman