Navigating Cost Price Increases

CPI

The Bank of England has said the changes we are experiencing to our economy are unlike anything we have felt since the 1970s. The scale and speed of change is unprecedented (yes that word again) and it is critical that suppliers are taking the necessary steps to protect their bottom line.

Cost Price Increases (CPIs) used to be seen as a last resort, but for many, they have now become fundamental for survival.

So, what is a CPI?

Put simply, they are an increase in the purchase price of a good or service, typically due to rising internal costs linked to commodities, labour and logistics.

Why are CPIs important?

CPIs are important as they enable businesses to mitigate cost pressures, maintain profitability and enable future growth (and that is what we all want, right?). But sometimes they can be confusing, challenging and hard to navigate, especially when you are smaller business.

When we recently held an event with the YF Community we heard that many small brands, like yours, are avoiding making cost price changes. But why?

This is down to a variety of factors, but the most common ones you are telling us involve:

1) Avoiding tension with the retailer
2) Worried about being delisted
3) Uncertainty in how to do it
4) A misconception that CPIs are only for the big CPGs to activate

Do any of these feel familiar? We thought so.

We know that challenger brands require more clarity and support around this subject. So, we have created a couple of CPI alternatives with questions as thought-starters to help you successfully move forward.

Alternatives to CPIs

When it comes to mitigating inflation, cost price increases are not your only option.

If right for you, promotional de-escalations and reviewing your price pack architecture are two alternatives to consider. But before making any hasty decisions, and become guided by the fears outlined above, be sure to really answer the below:

Changing your promotional laydown

1) What percentage of your volume is sold on deal?
2) What ROI do you make on promotions and how does his vary across different accounts?
3) How does your depth of deal compare vs. the rest of the category?
4) Have you trialed different mechanics and reviewed the P&L impact? 

Reviewing the price pack architecture of your range

1) Does your range provide consumers with a viable selection of products that meet their needs at the price they are willing to pay?
2) What is your current pricing strategy and is it working?
3) Are you offering better value on your big packs?
4) What are the growing formats within the category and are you set up to win here?
5) Are you clear on the price elasticity of your products in the context of their categories? 

We are here to help

CPIs can indeed be challenging for both supplier and retailer, but this does not make them any less important. YF’s Trading team has 20+ years experience of dealing with CPIs across various retailers at both blue chip and start up level.

We can advise you through the entire end to end process across planning, execution and implementation, so you can feel confident entering the conversations.

To learn more about advisory from our Trading Team, contact [email protected]

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