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Supermarket Cost Price Increase
Join Andrew Grant and Darren A. Smith in the thirty-first episode of the Grocery Guru. They discuss increasing costs for suppliers. From diesel to cargo costs, to minimum wage labour. Whilst the supermarkets slug it out in a potential price war. And, all of this whilst everyone in the supply chain tries to recover Covid costs.
You Can View the Full Supermarket Cost Price Increase Transcript Below:
Darren A. Smith:
Hello and welcome to Episode 31 of the Grocery Guru. We’re here with that guru, Andrew Grant. Andrew, how are you?
Andrew Grant:
Good morning, Darren. Yes. Very good. Thank you very much.
Darren A. Smith:
Good. Good. All right. Short week, this week. We’re Friday. What’s been happening in the world of grocery this week?
Andrew Grant:
Yeah. Something that I picked up on through the various news feeds we get access to, the nasty word inflation.
Darren A. Smith:
Oh, okay. All right.
Andrew Grant:
And a bit of a perfect storm brewing, I think, for grocery suppliers in that just about everything seems to be going up in price or is in severe shortage.
Darren A. Smith:
Okay. If I take you back to the ’80s, there were price increase negotiations every year and they always went up about 3%,4%, 5%. The supplier asked for 11, we got it down. Okay. Now, what’s happening is we got inflation coming again, but it’s not the typical round that used to happen, is it?
Andrew Grant:
No. It’s going to be really awkward, I think, for the poor old suppliers out there. Remember, everybody’s trying to recover from this pandemic. Not only if you look at global food commodity prices, whether it’s wheat or soya bean or whatever, they’re in orbit. Well, actually, what worries me is, it’s all those ancillary costs that buyers are really, really good at swiping away are going up like nobody’s business. The price of a shipping container from China, $1,700 to $8,000.
Darren A. Smith:
Wow!
Andrew Grant:
That’s a six fold increase.
Darren A. Smith:
Yeah. 100% increase. Wow.
Andrew Grant:
All of us have probably had to fill our car up for the first time in a year. That’s gone up from what, about $1.08 for diesel to $1.28 plus?
Darren A. Smith:
Yeah. I think there was a point where Morrisons got it below a pound. But yeah, it’s up now. I think I saw it yesterday, $1.38. Yeah, diesel’s up.
Andrew Grant:
25% plus rise in your transportation costs. If you can get minimum wage labor, you’re having to compete with the restaurant sector and everybody else. If you need somebody for your factory or to pick stuff in your fields, the shortages of labor and the cost of that labor is going up. Obviously, you’ve also got the COVID costs. You’re probably having to run your factory with safe distancing rules and all sorts of various extra costs as a result of COVID. All of those costs will now be building up and building some severe pressure on supplier’s cost bases. And unfortunately, it’s those costs that buyers are so, so good at batting away.
Darren A. Smith:
Yes.
Andrew Grant:
I know you and I will have done it. It’s very easy to say, “Well, you need to break down exactly what your make up of cost is.” You say, “Shipping costs have gone up from 1,700 to 8,000,” and I’ll say, “Oh yeah, but you’re using a spot price based in Shanghai. I’ve got the three month Singaporean index in my hand and that’s flat.” You’re just then in a world of pain.
Darren A. Smith:
Very true. We’ve got costs going up in the supply chain of [inaudible 00:03:36] ancillary costs. Plus we’ve also got supermarkets that are trying to recover from what was a good increase in sales. We talked here a few weeks ago about the average increase was let’s say 10% across the supermarkets. The but is that Sainsbury’s for instance, I think it was 468 million pounds worth of costs on COVID.
Andrew Grant:
Yeah. Yeah. We talked about the struggles that the supermarkets will have this year, trying to lap that phenomenal sales peak of last year, because everybody was eating at home, eating and drinking at home. They’ve got their own pressures. A little bit of inflation is not a bad thing for a supermarket. A couple of percent inflation if you could control your costs, just goes straight to your bottom line.
Darren A. Smith:
Absolutely.
Andrew Grant:
As always, I think it will be the suppliers that get squeezed. And I guess it’s one of the things we do is we have cost price increase workshops. We can help suppliers or walk suppliers through that torturous maze that is a cost price increase. And I think the message out there would be, you need to start thinking about a cost price increase now. It’s a minimum 12 week notice period. You can in theory, put a price increase through quicker because a supplier’s cost price is the same as a retailers retail price. And they don’t give you or I notification when the cost of four cans of Boddingtons goes up. And they don’t give us a reason to do they?
Darren A. Smith:
They certainly don’t. I think the biggest thing that I would take away is buyers don’t like surprises. Ta daa, here’s a cost price increase. Know at some point, yes, there’s going to be a first introduction of it, but it’s managing that message through, it’s having the influencing and persuasion skills to be able to do so.
Andrew Grant:
Yeah. Second only to running over their dog, it’s probably the worst news you can give them that you’re tabling a cost price increase, because it’s a direct challenge to what they do.
Darren A. Smith:
And it’s also another thing to think about in a busy day like we all have, buyers have busy jobs as do account managers, it’s just a whole nother thing now to think about, to manage, to try and convince people to manage it internally, think about future margin. It’s tough. It’s tough.
Andrew Grant:
I think you’re talking the minimum of giving them 12 weeks notice. You probably need two, three, four weeks yourself to prepare and get the messaging right. You’re talking about a four month process. You’re talking beginning of June. June, July, August, September. You’re talking about September, October increases. And if anything, now is the time because most of the supermarkets, some of them are still in Q1. Certainly they’re in, if they’re not in Q1, they’re in early Q2. There isn’t quite that year end pressure that you get in Q3 and Q4. Trying to put a price increase through over Christmas and into their landing zone of the end of their Q4, worst possible time. If you’re going to do a price increase, for most of the UK supermarkets, you do it between February and May, June. The windows rapidly closing if you want to get an effective price increase through this year, will be my opinion.
Darren A. Smith:
Yeah. Sorry, it’s kind of slightly fuzzy, but I think we’ve got the message. And I was going to add that the window, there’s a window that happens now, as you said, or February to June, and then it’s got to close before Christmas. Oh, we’ll think about Christmas, come back to me in the new year, will be one of the tactics.
Andrew Grant:
Yeah.
Darren A. Smith:
Okay. All right.
Andrew Grant:
Yeah. Obviously we’re in a new normal, but in the old world where everybody disappears on a holiday 15th of July, so nothing happens until the beginning of September. The minute, and traditionally it was always Halloween started the Christmas season obviously. You went Halloween, Bonfire Night, full-on Christmas and to get a buyers attention after about the 30th of October, particularly with a price increase, forget it.
Darren A. Smith:
Yes.
Andrew Grant:
You’ve probably got two price increases over the year. You’ve got mid-January [inaudible 00:08:21] 30th of October in our experience and our opinion.
Darren A. Smith:
Andrew, sorry, it went a little bit fuzzy. Just tell us those two windows. You talked about mid-Jan to…
Andrew Grant:
Yeah. Mid-Jan to probably around now, middle of June. The bigger window. And then 1st of September through to the 30th of October. Looking at it another way, you can blank out November through to January.
Darren A. Smith:
Yes. Good. Okay. It went a little bit fuzzy, I wanted to make sure we got that message across. Okay. That’s really good. All right. My other thoughts is that don’t take a price increase in with either a spreadsheet that looks like something that was built by Stephen Hawking as in having a million numbers that no one understands. My second thought is don’t have a PowerPoint presentation that roughly says it’s a price increase, but over 50 slides.
Andrew Grant:
Yeah. As I said, it’s not going to be good news. It’s not going to be greeted with a smile and come and have a cup of coffee. It needs to be a very black and white suitable message and be prepared for it to be a very short initial conversation that ends with a N-O.
Darren A. Smith:
Yeah. Fair enough. All right. Okay, Andrew, brilliant. Love it. What’s our take away from here?
Andrew Grant:
I think it is for our audience, which are mainly grocery suppliers, if you haven’t already felt some significant cost pressures, and I’d be staggered if you haven’t, and you haven’t started thinking about a price increase, you’re running out of time to get something this year.
Darren A. Smith:
Love it. Good. Nice. Simple and clear.
Andrew Grant:
And obviously, the reason we do these podcasts is we’re here to help.
Darren A. Smith:
All right. Andrew, Grocery Guru, thank you. We’ll let you enjoy your Friday and your weekend and we’ll see you next week.
Andrew Grant:
Bye-bye.
Darren A. Smith:
Bye.
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