Fit for Business...
"Are prices now stabilised? Are stocks in balance?"
Even the wisest pundit failed to forecast the depth and breadth of the challenges that came to the specialist cheese trade at maker, retailer and shopper level, through the milk shortage and price rises of the autumn. By general consensus the specialist cheese trade did fairly well at Christmas, and the future is thought to be largely favourable.
However, it is important for the whole trade to reassess positions that may have changed during these past months. Since the shopper is the ultimate arbiter of sales success, some attention to detail may keep them buying the product.
The persistent gloom that is broadcast of rising costs and lower spend, may not affect the profile of customers who shop for difference, localism, quality, luxury and indulgence, but when these feelings become the norm, any business sector that ignores them does so at its peril. Cost is the most obvious concern and since it cannot be avoided, it needs to be managed.
A milk increase of nine pence, when margin recovery is made at maker, distributor and retailer end will probably see retail prices rise 25% for premium lines, so don't underestimate the damage. Even the most well-heeled shopper will notice, and may just react, possibly changing products or buying less and certainly remarking on it. If they do react in either of the first two ways it could be a slow process before that's recognised and may even initially be seen initially as beneficial by some small makers short of stocks. However, this is no time for ignorance.
The early months are a good time for retailers, distributors and makers to reacquaint themselves with the real position. It is a frequent mistake that the linked sectors in this area frequently forget to update each for their mutual benefit.
The retailer has the most up-todate view on customer reaction and buying patterns in January, after all, the Christmas high water is simply old news now and hardly relevant. What is the customer doing now? In my experience the knowledge at this level is immense and although sometimes relevant to a particular area, when taken from many sources it helps build an idea of trends that are occurring.
Similarly the retailer and distributor need that up-to-date view on current positions. Are prices now stabilised? Are stocks in balance? What can the maker advise? Views given in November of shortages may for example be limiting the attempt to expand a product, when it may now be in better supply.
A simple phone call can suffice in most cases. Of course, visits and personal contact are better, but not always possible. Letters and emails have a part to play, but unless they are outstanding in content, will largely end up as litter, with their contents only partly read or understood.
Retailers are often very enthusiastic about new items at this dark time of year, so it’s a real winner to talk about what's happening. Although the maker should not expect much major reaction before Easter, starting now is a good time to catch the attention of busy shop owners, give distributors something to talk about and steadily start production. Everyone's a winner because even the consumer will be able to find something new during their shopping adventure.
"A rise of between 16 and 20% on milk cost has a trade impact too."
A rise of between 16 and 20% on milk cost has a trade impact too, which is sometimes not fully recognised. Each of the sectors - maker, distributor, retaile - will have a cash flow challenge caused simply by this change. In simple terms, a distributor will need 20% more cash to stockhold and sell the same volume of product, and a retailer possibly 30%. Many businesses run on overdraft and so the outcome is obvious in financial terms.
At this time of raised prices, makers and distributors should review the size of the product they are ultimately offering the deli. Although it may be ideal to produce four, five or six kilo cheeses, this may not meet the needs of smaller retailers. In fact, a typical deli stock 50 to 90 lines. With a 25% cost increase this will have added around £400 to their stock value. Many have already complained that large cheeses are too big and can represent £30 to £40 for a unit, which is quite a sum for a small outlet. Of course, once waste is brought into the equation it becomes steadily worse, and is likely to be one of the reasons that many lines would not be stocked.
Some distributors have tackled this problem with in-house cutting, but that in turn leaves a maker's brand with a potential rag bag of appearances on the counter. Therefore, the challenge must be to cut smaller at source, even if the cost of cutting is passed on. It's usually low technology and retailers would prefer to pay a few pence extra for the smaller cut, than lose £8 a kilo on waste, or worse still, simply not stock a product. Size does matter.
The brand value of cheese is generally recognised by the trade and consumers alike, but now we are asking them for 25% more for our product, so it needs to live up to the price tag. The milk story is not a consumer winning issue, so whether you're a retailer or maker, push the brand for everyone’s future benefit. It can be as simple as recipe leaflets, or tasting samples, a redesign to attract new customers, or a promotion. Do whatever is necessary to get the end result – extra purchases!
Well deflation may occur in the months ahead, and pressure to lower prices is inevitable. Extra margin and cash volume is here and may not be here for the future, so using that dividend to add value to the brand now would seem a sensible move.
"Now is a great time to talk about new and innovative products."
The specialist trade is diverse and independent, but occasionally needs a quick annual health and operations check with maker, distributor and retailer. It starts with good communication at every level, especially understanding the consumer reaction to cost changes. So, now is a great time to talk about new and innovative products, tackle the cost issues and the impacts they have for every sector in the chain.
Product size needs to be relevant to the needs of retailers - it will reduce waste, it will increase potential distribution, it will help in a more balanced demand pattern for the maker. Plus, the costs would be minimal and the benefits substantial.
Invest in the brand with relevant planned actions, wasting money here is easy, but failing to tell customers why the product deserves this price tag is more of a failure. It’s easy to be lulled into doing nothing because immediate past history has been good, the wise amongst the trade will look to improvements and change to secure their successful future.
George Paul Managing Director Bradbury and Son
