Oil and gas prices remain at elevated levels due to the Ukraine war.
The governor of the BoE says rising global food prices are a “major worry“ with price inflation of 6.7% last month. The CEO of 2 Sisters, the chicken manufacturer said that the cost of chickens could rise by up to 15% this year as a result of the war in Ukraine and the increasing cost of grain/wheat. [source: BBC]
The textiles industry is also experiencing inflation. The average price of Indian cotton which is the largest global exporter is up 109% YOY. There has been a decline in domestic cotton production, resulting in the Government banning cotton exports from the country. This is squeezing supply on international markets.
Impact on consumer businesses
- Product / SKU Cost price increases from suppliers
- Operations cost increases eg warehousing / deliveries / store costs
- Knock on effect on retail price inflation leading to lower demand / change in consumer behaviour and reduction in sales – inflation has hit 9%
- Supply / demand issues having huge impact on stock availability
- Overall profitability is declining
How can 4C support?
1. Category strategy reviews: 4C can support with strategy development to reflect shifts in consumer purchase behaviour and margin
The increase in the cost of living means that consumers are turning to cheaper private-label products and moving away from more expensive brands.
2. Address E2E cost-to-serve through increased supply chain visibility
There are opportunities to remove inefficiencies in the supply chain. Some examples include diversifying networks to route shipments through lower cost network routes, strategy reviews to place distribution centres in more optimal locations and relying more heavily on 3PLs to reduce overheads.
3. Pricing and promotional analytics for revenue maximisation
Support retailers with price elasticity analytics so they can tailor their inflationary price response by customer and product types, considering margin performance and consumers’ willingness to pay
4. Develop sourcing tools to track commodity prices and sourcing regions
- Create should-cost models to create real-time visibility into the impact of inflation on end-product costs
- Look at alternate specifications/regions for products and track those commodities
- Negotiation strategies for when commodities do start to fall
5. Strengthening supplier relationships
Consolidating suppliers to create fewer but stronger relationships. Partnerships with joint business plans with a long term outlook will result in more favourable cost prices.
Our team at 4C Associates combines extensive knowledge and experience with the latest process and technology innovations to provide our clients with transformative solutions and sustainable commercial outcomes. Please contact Jeremy Smith at 4C Associates at firstname.lastname@example.org if you would like to understand more about how we can help you to manage costs and to improve your resilience.