Delivering prices changes in an uncertain market

27/08/2008 - 00:00
For the first time in well over a decade, the food industry is facing a period of widespread, sustained price inflation. Food prices rose almost 5% in May 2008 driven mainly by increases in wheat and milk prices.

This rise is the sharpest spike recorded since November 2006. Raw material increases, combined with record levels of cost increase on oils, fuels and packaging have all combined to exert a huge pressure upon all parts of the food supply chain to absorb as much of the price increases as possible, whilst planning and executing a sensible sharing of the pain of cost increases. For the major supermarkets, the current economic difficulties represent a double-edged sword. When economic difficulties begin to bite, historically this has meant good news for the supermarkets. People will often rein back on large, non-food purchases, and will also curtail on eating out occasions. With BOGOFs, price holds and roll-backs, the retail buyers are coming up with more and more new ways of extracting money from the long suffering manufacturer/producer. Retailers can also remove the listing at a stroke. Equally, their considerable volume often means that manufacturers are heavily reliant on the throughput. Of course, this only adds to the pressure when it comes to negotiation – giving the buyers an upper hand. If it means laying off staff and having machinery lying idle there is enormous pressure to give in. One major pizza manufacturer was last week forced to make 300 people redundant following the loss of an ASDA contract. So – what can the beleaguered manufacturer do? Firstly, they can seek to diversify the business to reduce reliance on retail and its consequent volatility. The first, and most obvious, target for this is the foodservice market. There are many reasons for this but they include greater stability (menus don't change frequently), generally better margins and better longevity. Also, and in spite of the credit crunch, the market for out of home still appears to be growing. Unfortunately, many make the fundamental mistake of thinking that selling to foodservice is the same as selling to retail. It's NOT! Almost everything about this complex market is very different. The pricing, the supply chain, the packaging and the promotional activity are just a few of the things done differently in Foodservice. Secondly, understanding the needs of the buyer is key. What are they looking for? How does their operation work? What's the pricing mechanism? How do they negotiate? Are there any tips I should be aware of? Manufacturers and producers should equip themselves with the knowledge and negotiation skills – both to tackle existing buyers in a professional but firm manner and to seek out and develop new business. GA training, in conjunction with Foodservice Specialists Limited, offer a range of courses to help. Experienced professionals, currently buying and selling in this market, will give practical help, guidance, mentoring and training to equip all sales and marketing personnel with the best possible tools. By putting the sales professional "inside the mind" of the buyer, they will have the confidence to maximise opportunities for their business. Weblink:

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