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How to navigate inflation as a small food producer

business-articlesHow to navigate inflation as a small food producer

How can small food businesses absorb the shock of higher costs, without pricing out customers?

Inflation is the word on everyone’s lips at the moment, as consumer prices soar and various central banks, including the Bank of England (BoE), predict further increases ahead. As energy bills rocket and disrupted supply chains lead to higher prices across household staples, small business owners are left wondering how to meet increased production costs while maintaining a fair price for customers.

There’s little to be done in terms of bringing costs back down, but by identifying which prices have increased the most, it may be possible to make effective substitutions that cost less without compromising on quality.

Otherwise, businesses could make savings in other areas to make up for increased expenditure on ingredients and energy. Perhaps marketing and packaging are areas which could afford cutbacks.

Ultimately, the goal is to keep product prices as low as possible to retain a loyal customer base. Consumers are feeling the squeeze more than ever right now and are likely to make sacrifices if they feel products are no longer essential or affordable.


 

Tackling food inflation – effective substitutions

Depending on which part of the world you live and work in, the foods most affected by inflation may differ. For example, the foods most affected in the US include citrus fruits, meat, bread and some fats and oils, while in Europe prices have soared across flours, fats and oils, and pasta.

In the UK, a representative from the catering sector also reports price hikes across flour, as well as butter and eggs.

One substitution already being made is the use of mild-tasting vegetable oils in place of sunflower oil – including rapeseed. Recommendations made to consumers work in many cases for commercial food producers.

Other suggested swaps include eggs for applesauce or silken tofu in baking; butter and margarine for oil, citrus fruit for local seasonal fruits; and meats for hearty vegetables such as aubergine and mushrooms, or soy products.


 

Dealing with higher energy prices

Energy prices are the biggest driver of inflation in many parts of the world right now, including the UK and Europe. The reasons for rising energy costs are manifold – but a large contributor is the deteriorating relationship between Western countries and Russia, which is the world’s largest exporter of natural gas.

So: what can be done to lower the cost for small business owners?

According to the Energy Saving Trust, the appliances responsible for the biggest share of energy consumption include wet appliances (dishwashers, washing machines and tumble driers); cold appliances (fridges and freezers); consumer electronics; lighting, and kitchen appliances like the hob, oven, kettle and microwave.

In terms of the former, maximise efficiency by using shorter washing cycles where possible, or lower temperatures. Don’t overcrowd the dishwasher; but place items strategically so the flow of water is unrestricted.

Expenditure on cold appliances could also be minimised by downsizing to smaller or more energy efficient models. Only use fridge and freezer space where absolutely necessary – many typically refrigerated items can be kept at room temperate and popular ingredients can be replaced with alternatives that do not need chilling, such as UHT milk.


 

Making savings elsewhere

There are some instances, of course, in which energy expenditure is necessary for a business to function. Examples include cooking, premises maintenance and transportation of goods.

While such operations can’t be suspended, you may be able to offset rising costs in one area by cutting back on expenditure elsewhere. Identify areas in which your spend reflects a premium product or service and consider whether you could find a more economical alternative without risking product quality.

Examples may include bakeware, packaging materials and basic ingredients such as flour, rice, fruit and sugar. Perhaps consider purchasing ingredients from a supplier that charges wholesale prices.

Another expense you may be able to make significant savings on is labour. If you employ cleaners, accountants, or marketers, consider whether you could perform any of these jobs yourself to save money. In some cases, you may be able to find free training.


 

Delivering the end goal

For your business to survive the current cost-of-living crisis, it is not only important to deliver a quality product at an affordable price – you must also convince your customers that your product is worth the spend as they decide where to make cutbacks.

What makes your product unique? What does it offer the consumer at a time when purse strings are tightening, and morale is likely to be lower? Focus on selling points such as convenience, nutrition, and wellbeing.

It may also be prudent to offer special deals which represent savings for the consumer, but don’t necessarily leave you out of pocket.

By making portion sizes slightly smaller, you can charge a little less while reducing your own spend on ingredients. Multibuy promotions also represent a compromise wherein the profit-per-product is less, but the volume sold increases.


 

To summarise…

Minimise production costs by substituting expensive ingredients for less pricey alternatives. Invest in efficient appliances to cut back on energy costs and consider where automated processes could be simplified or omitted.

Swap branded or premium products and services for cheaper alternatives, where quality won’t be compromised, and if possible do it yourself rather than paying someone else.

Finally, maintain a loyal customer base by offering rewards and promotions. Marketing your product effectively is crucial, as potential customers will be looking at where to make savings.

Furthermore, confidence is infectious. If the artisan is confident in the quality of their product, customers are more likely to be convinced of its value. While all other ingredients are rising in price, confidence is free – so stock up on as much as possible to really make your business stand out.
Currencies Direct

Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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