Each week we are exploring one of our 10 trends to focus on this year. We approach this a bit differently as our trends are developed for suppliers in the food and beverage industry. They are based on what we learn talking to different retailers, suppliers and stakeholders in the industry.
Our eighth trend is Accountants will have more input. Retailers are facing higher interest rates like everyone else and the bump in sales they realized during the pandemic has diminished. Despite cost increases driving retail prices higher it will be more difficult for them to deliver a bottom line. Within their business they will be exploring every opportunity to reduce costs.
When food service sales migrated to retail during the pandemic, up to 15% of food sales shifted from other channels to retail. This is a huge increase that would have resulted in efficiencies retailers never dreamed of. They did have to build e-commerce platforms and figure out how to manage during the pandemic. Overall, they put billions of dollars through their cash registers without increasing their infrastructure or fixed costs. Those sales have shifted back to other channels and retailers will be working hard to maintain some of the profit they generated. People seem to assume the higher prices lead to higher margins for retailers. This might be true in some cases but not all and we do have to remember retailer’s costs are increasing too.
A few areas accountants might have influence
The cost of inventory is a big number for retailers. Although supply chains are tight and they have worked to reduce inventory in stores and warehouses, retailers continue to carry huge value of inventory. It is true some items sell before retailers pay for them but not all. We would expect retailers will continue to look for opportunities to reduce the value of the inventory in their system, without losing sales.
They can do this by pushing payment terms further out. We know this can be a challenge, so it is important to watch it carefully. Most of this work is done by systems, so if you are not being paid in the agreed upon number of days you need to raise the issue. If you see payment taking longer there is a reason for it. Either something is not correct in the system, or your customer is consciously putting it off. You can access the portal but sometimes you need to bring this to the attention of your contact in merchandising. If there is an issue it needs to be resolved and if they are taking longer to pay remind them of the agreement you have.
Another area retailers might see as an opportunity is more frequent deliveries. Last week we talked about logistics and how this can be a big cost. More frequent deliveries of smaller quantities might reduce their inventory but you will have to help them understand what happens to the freight cost per unit. Sometimes this type of direction will come from high up in the organization. I can remember during my time at Loblaw where someone wanted produce to be fresher, so all produce deliveries needed to be more frequent. We argued because in some categories like berries this is true, in storage crops like many hardlines it really does not make much difference.
Reducing lead time for orders is another area you might be challenged in. This is another opportunity for retailers to reduce inventory and give them more flexibility to make changes. Sometimes these changes can be caused by an inexperienced buyer. If you see it continuing to happen raise the issue with your merchandising contact. They can be a better advocate for you with the supply chain part of their business.
Compliance fines are another area where retailers generate revenue. We believe it is one of the issues that has pushed the industry to the code of conduct discussions. We do read progress is being made so it would be a surprise if retailers implemented more of these in the near future.
Labour is a challenge for retailers too
For most retailers, labour is the largest controllable expense. They are always looking for opportunities to be more efficient or deliver more sales with fewer hours. It was a great debate when I was there and I am sure it still goes on today.
If you can find improvements to your product or process to allow them to use less labour on your products that is a win for you. A savings of 30 seconds per case over 100,000 cases is equal to a labour saving of $15,000 if you use $18 per hour. You will get their attention if you can find a few of these.
Finding work for suppliers to do
For some retailers, one method of reducing costs is to offload work to suppliers. This can take many forms, but we know it does happen. It can be in the office, in logistics and for some in the stores. Every situation is unique so it is worth making an assessment if you can take on more and perhaps it will keep your listing or allow you to grow in some area. It is possible you can absorb it with your current infrastructure. If you have to make investments, it is worth calculating the payback. Unfortunately, if you are not willing to do it some other supplier probably is.
With higher interest rates and relentless focus on the bottom line we expect to see more initiatives from retailers to protect their margins. In this period of food inflation and higher retails they will be criticized for growing margins but they will not accept them going down.
If you have any questions about our SKUFood trends, you can always send me an email firstname.lastname@example.org or call me at (902) 489-2900.
Losses grow at Beyond Meat
Beyond Meat has recorded an even larger loss in their most recent fiscal year. A sales decline of 10% and increasing costs has pushed their overall loss to $366M. A huge number for a company that was a symbol of the changing consumer and plant-based protein movement.
It is always difficult to understand the details behind the loss and whether they really are changing their strategy. They have been able to reduce inventory year over year and the 4th quarter was better than previous quarters. Whether it will be enough remains to be seen.
Price comparisons are everywhere
Food prices continue to be in the media. This is a piece aired on CBC comparing prices at Halifax stores. It is always a challenge when price comparisons are conducted with their own methodology.
A lot of the items here are random weight items and a true comparison needs to be done on a price per pound. Yes the consumer pays the package price, but if they are smaller packages they are not getting as much. It would be a true comparison if per pound prices were used.
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