Getting ready for 2022
How can we be getting close to the end of October and have only 10 weeks left in 2021? We are living and working in challenging times, but we do need to keep looking ahead. We have all learned a lot about how to adapt and make the most of the situation in front of us. There is nothing magical about a new year in the food industry, people do not shop that differently because it is a new year. That being said, it is a good time to consider the future and where you need to focus your efforts for 2022.
Between now and the end of 2021, we will share 10 SKUFood insights to help you make the most of 2022. We try to help you see the entire value chain and prepare your business to respond to changing customers and consumers. Each week we will share a different theme and some ideas and opportunities for you to consider.
Cost of goods we will be a major factor
As you have worked through the pandemic you have probably experienced different impacts on your business. Initially it was about reacting very quickly to changes in demand and just doing whatever you could to respond to consumers stocking up and the shift from food service to retail. After the initial response, you had to adapt to public health protocols and keep your employees working. It was tough to forecast demand and working with customers changed to virtual meetings. Our impression was there was more cooperation in the industry as retailers and suppliers were aligned in their work to get products to stores and keep the shelves full.
As the pandemic has dragged on the challenges are shifting to increased costs for ingredients, packaging, logistics and other inputs. Your labour might be more expensive and less efficient than it was prior to the pandemic. The reality of a different economic model is there and we need to figure out how to deal with it.
Challenge cost increases as much as possible
This is obvious but it is possible to fall into the trap where we see many things going up and just accept the increases we receive. Unfortunately, there are examples where some costs go up just because others are increasing and businesses believe it is an opportunity. Wherever possible get 2-3 quotes to confirm the increase you are receiving is justified.
There are a few reasons to challenge costs as much as possible. We know getting a price increase with retailers is a challenge. The more you can manage the increases in your cost of goods, the stronger your business will be. Retailers will have to accept increases, but the timing might not be perfect for you and you might not get as much as you need.
The second reason to challenge increases is so you can communicate this to your customer. Retailers want to believe their suppliers are doing everything they can to manage cost of goods. You can share with them you got 3 quotes on an ingredient or packaging component and the lowest increase was 8%. This is a much better story to tell than just telling them packaging went up 8%. When they perceive you are fighting to keep their costs as low as possible, they will have more time for you.
The third reason to challenge cost increases is you learn more and send the message to your suppliers you are watching. You should understand why cardboard is increasing 15%. You need to be able to explain this to your customers and perhaps 15% should really be 12%. Perhaps it is the old retailer coming out in me, but I never trust a cost increase rounded to 10% or 15%. Perhaps that is reality, but it seems convenient sometimes.
Foreshadow cost increases
The reality is many things are increasing. You will have to determine the impact on your selling price to your customers. We know this can be a challenge. You need to talk to them about it and share what you are learning. It is advisable to do this before you change your selling price. Perhaps you have a call about another subject. Insert into the conversation you hear your master case cardboard is increasing. They need to understand what is happening.
When you do the foreshadowing remember to put this into terms they can relate to. They do not understand a 15% increase in cardboard costs. If you pay $1.25 for your mast pack that holds 12 units, the 15% increase is worth 1.5 cents per unit or 18 cents per case. Put the changes into terms they understand.
Consider timelines and all costs
Managing your cost of goods is a challenge. You have many inputs, all changing at different times. Although it is most accurate to wait until the accounting is all done that might be too late. If possible, forecast your cost of goods. This will allow you to consider when you need to work with your customers. Many retailers will only accept cost changes in limited windows. Make sure you understand these and your chances of success are better when you can work within their timelines.
They like to delay; it seems to be part of the negotiating tactics. This is something to consider and allow in your timelines.
You have your selling price and you also should consider the trade spend you invest with retailers. This is the amount you invest to support ads, loyalty programs and other initiatives. There might be an opportunity to reduce this spend to ensure you return the same profit from your sales to this customer.
Logistics are another cost that is increasing rapidly. There might be options to increase your minimum purchase and reduce costs per unit in freight.
You need a fair price for your products
The key word in that headline is fair. Consider what is happening and the return you need in your business. You should also review the category margin and understand what the new retail price will be. You do not control the retail, but you do know they will adjust it to maintain a category margin to run their business. Watch other items in the category carefully. If you see them changing regular retail or ad price then you know they are approving increases.
If you get a lot of resistance you will need to be persistent. Your key point of contact is the category manager, but they do not always respond and agree with your position. If you have done your due diligence and the reality is the cost needs to change, you might have to consider other options.
Most retailers now offer suppliers some other course of action to provide the perception of a more level playing field. You also might have a relationship with the category director that you need to consider. The preference is to work through it with the category manager but in the end, it needs to be fair.
If you have any questions or help figuring out how to manage your selling price you can always call me at (902) 489-2900 or send me an email peter@skufood.com.
Peter
We are adding more industry updates and interesting ideas to your SKUFood newsletter. Hopefully you have heard me say this before and that it resonated with you in your business.
“Success in this industry is not just about making a great product to sell; it is about selling the great products you make”
Peter Chapman
If you see things happening let us know so we can share them with our community. We also want to hear if you find this helpful and benefits your food and beverage business!
Do you think about the taste of food changing?
We have had this conversation in our house. My answer would be yes, but I do not have any real facts to support my claim. This is an interesting article from Popular Science to explore the question about the taste of food. I would agree the demands for food to travel further and last longer have impacted taste. I can also tell you when we brought fruit like clementines in too early, we would sacrifice sales later in the season. If consumer’s first box was tart, they did not trust the item later in the season when it was at peak flavour.
Whole Foods 2022 trends
Each year Whole Foods Market publishes a Top 10 trend list for the upcoming year. This is a great source of information about what they see as where the food industry is going. They use data from their stores to help predict the future. When looking at these trends remember who the Whole Foods Market consumer is. They are not the average consumer but these are good to review and understand some of the opportunities for growth in the industry.
One new feature this year is you can purchase a box that includes one item from each of the 10 trends. A great example of turning something into a sales opportunity.
US Export capacity
It has been a privilege to work with the team at Aliment to support businesses from Atlantic Canada build capacity to export to USA. We have 4 webinars planned that are packed with great information from people who know how to do this. The team is from across North America who will be delivering the sessions and I know I am looking forward to learning a lot.
Food & Beverage Atlantic US export capacity Nov 3
Sales & marketing basics
When is Peter speaking?
Agriculture and Agri-Food Canada and Learnsphere
Turning pitches into purchase orders in export markets October 26
Turning pitches into purchase orders in export markets November 2
Food & Beverage Atlantic
Selling in Quebec when you aren’t local November 16
Foodpreneur Advantage
Creating your best pitch for national retailers November 23
