The complexity of price increases
As industry folks in retail and CPG, a discussion about price increases that could result due to price changes with raw materials, wages, retailer programs, shipping costs, etc. has always been prevalent and worthy of a sit-down. We know that the profits we generate are in our pricing strategies and we need to stay on top of that so that we can generate the margins required to maintain a profitable business. That was the world pre-February 2020; now let us fast forward to the Spring/Summer of 2022.
Now we are in a world of hurt. I have been doing this for a long time – over 40 years in retail/CPG – and I have never seen anything like this and I am pretty confident in saying that I don’t think anyone else has either. We have been bombarded with so many hits to our bottom lines within this past year or two: freight increases (containers as much as 5 times what they were pre-2020), fuel increases (gas has gone through the roof and fuel surcharges have gone crazy), raw material increases (I can’t even start to explain these), wages, Human Resource shortages, packaging increases (like gas – wow!!), looming recession, war, food shortages and then pain in the ass retailers (no fee reductions, late charges when we know there are supply chain issues and then no accepting of price increases), etc… The term and use of the word unprecedented is over-used and quite frankly, I hope that the words, Covid and unprecedented, are removed from our vocabulary as soon as possible so that we can erase the memory of 2020 and 2021 and maybe most of 2022 😊. What a crazy time.
What makes this very difficult right now in our industry, is the reluctance of the retailers to accept legitimate price increases and the media helping with the notion that it’s the suppliers that are being greedy and that the retailers are the ones saving the consumers from increased retail prices. The price increases are unjustifiable according to both of those entities. There is an underlying feeling of many, those who are not in the industry or those who are and have never been on the side of brand owners and are in the industry and don’t seem to appreciate how bad it is out there for brands – small and medium-sized brands in particular.
Don’t let anyone tell you that you could have or should have seen this coming and that only the savvy would have and would have had this built this in already. This is not your fault.
This is nuts.
No one saw this coming and most surely, not coming all at once. Having said that, this is ours to deal with though and ours to figure out how to manage thru.
How do we do this?
Like we just chatted about above; there is the most obvious which is initiating a retail price increases; perhaps making some packaging adjustments like downsizing or a multitude of other creative ways to reduce COGS to remain profitable. It is just part of the game in retail in general. It’s just that this has been thrust upon us hard as of late and this will be with us for the foreseeable future and right now, at this time I would rather remain profitable during the next year or two during this rough patch we are in and will continue to be in...
There has never been a more justifiable time to look at all options to battle the COGS increases we are seeing. In fact, the strategy might be looking at price increases and size changes as well as other tactics…
Whatever you decide to do, ask for help first. Reach out to your friends and mentors in the industry, have a frank discussion with your retail buyers, have frank discussions with all of your suppliers. We are all in this together, we have to work this out together.