How small and medium-sized food & beverage companies can turn the current rising inflation into an opportunity
In recent weeks we have been witnessing the global problems generated by the pandemic and the war in Ukraine. In particular, it has now become evident that the cost of transport, supplies and consequently raw materials is rising (with no possibility of predicting an end date).
This high inflation reduces the purchasing power of the market, which in general tends to become conservative.
Larger, more structured companies see their margins being eroded, but have the liquidity and dimensions to be able to absorb the situation for a period of time. They are also less bound to quality, and can therefore take advantage of the option of choosing lower quality raw materials.
Small and medium-sized businesses, on the other hand, must make important choices: raise the price of their products; reduce the quality (and price) of raw materials with the risk of compromising the relationship with their customers; reduce their margins; or cut costs.
Finally, end customers (except very wealthy ones) have to make similar choices: cut waste, reduce the quality of goods purchased, or reduce the quantity of goods purchased.
We are witnessing these types of dynamics both in our own points of sale and through the sales outlets and e-shops of our customers and, through CRM and customer care activities, we are managing situations of stress and uncertainty regarding price increases across a range of products.
For artisans and SMEs, reducing quality and price is a reactive and not a strategic decision.
Cutting quality to maintain a low price is a decision that can pay off only in the very short term, and only while such an emergency situation is ongoing. It involves a deterioration in the customer experience and the certain loss of clients within a brief period.
It becomes essential to ask why customers choose a certain company and its products or services. If it is primarily for the price, then this is the only case in which such a decision can be strategic.
In all other cases it is important to preserve, as far as possible, the competitive advantage built up over time, which distinguishes the company on the market and which prompted people to become customers of the company. A change of policy – even during a time of difficulty or crisis – must be a strategic choice and not a reactive one, i.e. it must be a choice that is taken with perspective, with awareness of the consequences it will bring, and in the context of a medium and long-term vision.
Reactive decisions are driven by gut instinct, when people are guided by their emotions (in this case from fear generated by need).
Consequently, it is possible to choose to contain prices and reduce quality, but the businessperson must be aware that it will not be possible (or will be very complex) to recover their position on the market after a return to normality.
Maintaining quality becomes a strength in the medium and long term.
Together with our clients we have reworked their strategies according to the very specific challenges we are experiencing. We have focused on maintaining and preserving everything that has been built up over the years, without throwing it away in order to deal with what is simply a poor season, and as such will pass.
We do not consider below the strategy of reducing margins through the absorption of higher costs, which is a strategy that can be applied by very solid SMEs and which must be evaluated through communicating this to its customers. Below we list two strategies that we have implemented in other cases where it was necessary to react strategically.
In some cases we have opted for a price increase, supported by clear and sincere communication to private and trade customers. We focused on equipping our customers’ sell-in (to their direct customers, for the most part other trade professionals) with the strategic and communication tools to be able to convey the meaning of a price increase at this point in time to the end customer.
It is essential to demonstrate to your professional clients that you are working towards their success: the duties of a company that wants to expand do not stop at manufacturing and selling, but include ensuring that its customers also benefit.
We have increased, simplified and intensified activities focused on customer care, we have worked to increase the perception of quality and in particular to ensure that the entire supply chain understands the value of quality and diversity.
We have shared our purpose with our customers and their entire supply chain: work to counter the flattening brought by the “fast“ philosophy, by globalisation policies and the current crisis.
In this way we will be able to endure a period of reduced income and a lower frequency of purchasing, but our customers will not lose their customers – on the contrary, they will become even more loyal. We will, in fact, have upheld the reasons for which people choose our client companies, and we will have focused efforts and economies on creating an even deeper bond between stakeholders, instead of focusing on saving money.
Once the recovery and the return to a stable situation begins, these companies will have an advantage over competitors who made more conservative and reactive decisions. This is an example of how to make a strategic choice.
In other cases, we opted to introduce important innovation in strategies, in the business model and in the offer, communication and values.
This type of action allows us to introduce more current values and purchasing motivations to the company strategy (which also look towards the future), it disengages the company from price comparison with the competition, increases the perception of quality and inspires customers and consumers thanks to the courage shown by the business.
Innovating in a time of crisis, changing models while maintaining strengths and introducing new ones – perhaps even more differentiating – demonstrates to the market great resilience and the ability to react dynamically to market developments.
In addition to retaining customers by involving them in actions that strongly leverage the historical values of the company, they can acquire new prospective customers by appreciating in advance – through market analysis – what new needs and requirements are arising due to the new paradigm being created.
A complex situation therefore becomes an opportunity to look forward and start to work on moving out of the moment of difficulty, so as to be in an advantageous position in the medium and long term.
Crisis as an opportunity through strategy and analysis.
As we have seen here, a very difficult period can become an opportunity and an occasion for those realities that employ a dynamic mentality to approach the situation strategically and analytically.
Knowing your customers, your market and analysing medium- and long-term scenarios will allow you to make conscious choices that are part of a journey.
Making reactive choices, driven by fear, and focusing on the present moment without considering the company’s positioning is what turns a complex moment in the market into a crisis.
How about you, how do you lead your business?