Today’s shopper is as unpredictable as the global economy. In times gone by, businesses could draw on historic data to create a solid forecast for the months ahead, but the pandemic, resulting supply chain disruption and record levels of inflation wreaked havoc upended the planning process with major consequences for wholesalers, manufacturers and everyone in the food supply chain.
The supply disruption and demand volatility of the last two years has created hyper-reactive buying patterns which have a significant downstream impact, shifting the problem from retailer to supplier and distributer. While the hope is to get back to more steady and predictable flows, that’s not looking likely with a global recession looming.
To cope through the months ahead, wholesalers and distributers need to focus their attention to pricing and rebate management to ensure these financial cornerstones are managed to withstand more volatility.
The politics of pricing
When food prices hit the headlines, it’s always for the wrong reasons. For a year now, manufacturers and distributors have been under increasing scrutiny for price changes despite the widely acknowledged higher operating costs and commodity prices. Now some of the big retailers have fanned the flames by publicly criticizing manufacturers price rises.
One the reasons is that some brands are making sweeping price rises across their portfolio, rather than bespoke changes to products in the range. It’s a reassuring message to shareholders but harder to swallow for customers and consumers. Not all products have been affected equally by inflation, so it raises questions about the legitimacy of the changes.
The reality is that for most manufacturers and wholesalers, it’s hard to make nuanced price changes. Even the largest consumer packaged goods (GPC) groups are still managing their pricing with spreadsheets, which makes it difficult to see actual margin for each product, channel and customer. Instead of raising prices for the items that have had their margins squeezed the most while holding or even dropping others, it’s simpler to look at the overall bottom line and go from there. But the trouble with this method is that it erodes trust and doesn’t allow any room for maneuverer if costs go up further.
Long-term customer loyalty
As private label continues to grow, it will be even more important for food manufacturers and distributers to get their pricing right. Recent consumer research states that nine out of 10 shoppers are bargain hunting when grocery shopping and 73% of people have acquired a taste for private label brands and plan to keep buying even as the economy improves. There’s no doubt that many food manufacturers have significant brand equity, but squeezed consumers need to be handled carefully when it comes to price rises.
Complexity
For manufacturers, wholesalers and distributers, order volatility, when coupled with already high transport and warehousing costs, means that pricing needs to be bullet proof, based on real input costs with guaranteed margin built in.
The complexity of managing buy-side and sell-side pricing with its matrix of individual promotions and rebates, has been a long-term challenge but today’s pressures should make it a priority focus.
For most businesses, the time spent managing dozens of pricing and rebate spreadsheets is a major drain on resources and it’s almost impossible to get a real-time view of profitability.
By moving to intelligent, automated pricing, that complexity is taken away. Cost data is automatically linked to pricing, enabling businesses to instantly see where margins are being achieved, or where pricing needs to be changed to improve revenue or profitability, by customer, channel, all the way through to product line.
Pricing can be easily set according to pre-determined rules with adjustments linked to payment or return terms. Intelligent automated pricing eliminates the risk of human error of under-pricing which is costing the average manufacturer and wholesaler millions each year.
Control
At a time when margins are precarious, the sales function needs to be armed with the right information. Sales performance can’t be based on deal value alone when that revenue could be unstable and subject to cancellation. By giving sales agents the ability to model deals on the spot they can ensure they’re committing to a price that will deliver the margins needed and terms that reduce risk.
Access to automated pricing reduces the amount of time that teams spend on pricing administration, and because changes can be made quickly and are applied immediately, sales teams have more time to get out to meet customers.
Staying on top of rebates
Rebate management is one of the most unwieldy aspects of manufacturing and wholesale financial management. And today’s volatility is causing even more challenges on average, $2.65 million is lost in unclaimed rebates every year.
By moving to an automated system, manufacturers and wholesalers can eliminate lost revenue by calculating and claiming or paying whenever the payment is due. It can also reduce the number of days rebates are outstanding by making a claim as soon as an amount is owed, improving vital cashflow.
Manufacturers and wholesalers can visualize rebate revenue on a daily basis by recognizing revenue as being earned rather than when it is received so it can instantly be factored into pricing decisions. Meanwhile, accurate and detailed claim reports can improve collections by making it easier for suppliers to give approvals.
Building financial resilience through pricing agility
After a tumultuous three years, the prospect of a recession feels like a kick in the teeth for businesses that have navigated a pandemic, supply chain chaos, record levels of inflation and chaotic buying behavior. But taking time to review and rethink fundamental business practices like pricing could deliver much more significant results without compromising future growth. Moving on from manual, time consuming and error-prone pricing and rebate management will cut revenue leakage, improve margins and deliver major efficiency gains. Helping to build the financial resilience needed to tackle the unpredictability of the year ahead.
