Talking Retail June 2008

Over the last month most of my time has been taken up trying to get the retailers to accept price increases for my products.  What a traumatic time it has been.

Although it is all over the news that price inflation on raw materials means food prices are going to have to go up, it doesn’t get much sympathy from some of the supermarkets.

It is in these tough times that you really get to see what these retailers are made of.  In this environment where they are fighting tooth and nail to be the most competitive the piggy in the middle is the supplier – especially the small supplier.

As a small supplier, regardless of how much inflation on raw material may be hurting, we are trapped in no man’s land until the retailers decide to move their own label prices.

The industry rule is, quite rightly, that you should not discuss retail prices with the supermarkets.  As a supplier you give them the cost price of your goods and then it is up to the retailer what they charge.  In this, like any other industry, only a fool would try and sell a product into a supermarket without prior knowledge of all the retailers’ rrps and margin expectations.  So even though discussion of retail prices is taboo, once the buyer knows your proposed selling price, quick maths will tell him what he needs to do to achieve his desired rrp.  As we know, with such ferocious competition between the retailers, that retail price is going to have to be in line with their competitors.  This is the starting point for what can be a lengthy and exhausting negotiation.  The bottom line is, to stand any chance of being listed, the brand owner knows that own label products set the benchmark for what the supermarkets find acceptable, and your product has to fit in with that structure.

As a small player you feel the pain of an increase in raw material prices a long time before the supermarkets’ own label brands do, and you are left biting your nails as your precious margin gets eaten away waiting for them to make their move.

This economic climate favours the big players be they large manufacturers or supermarkets.  The smaller players are mainly the ones at peril.  At the end of this price inflation crisis it will be interesting to see how many of the small suppliers survive.  Our survival will come down directly to how we are treated by the supermarkets.

In the past the major retailers have made a big deal of trumpeting their commitment to working with small suppliers and have seen these relationships to be an important part of their business, but I wonder if in this climate these principals will be put on the back burner.

After much negotiation I have managed to get price increases from all of the retailers, but this price inflation doesn’t seem to be letting up.  And just when I thought I could take a sigh of relief, I am having to go back to the retailers asking them for another price increase.  If this is just the beginning of price inflation, at what point do we reach a ceiling of what is acceptable not just to the retailers, but to the consumer?

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~ by theblackfarmer on January 18, 2010.

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