As time passes after the Brexit decision it seems more and more unlikely that there will be a swift rebound in the UK Pound versus Dollar & Euro. Shares might have rebounded, but currency looks like it will stay down for some time to come.
So how do you deal with the currency movements that will affect your raw materials e.g. - malt, hops, grain, bottles & containers?
Most businesses have four routes to deal with increases to the cost of their sales;
- Increase sale prices
- Change the mix of sales to improve margin
- Reduce use/cost of materials
- Initiate cost savings in other areas to compensate
Let’s look at each route to see what pricing opportunities they may offer your drinks business.
Increase sale prices
If materials move up 20% and materials are 20% of the sale price then you need to lift prices by 4%. Some might say difficult, but if you have built value into your product and brand, it’s not impossible. If your product is purely sold on price then your options are limited.
Change the mix
You can do this two ways. Change your mix of distribution so you favour those channels that provide better margin or else push those products that deliver better margin because your material cost is low or your price commands a premium.
Reduce use/cost of materials
Be more efficient in your use of materials. See if you can reduce the use of expensive items. Switch hops around if you are a brewer. Look for cheaper options across your material categories.
Initiate cost savings
Look at your operation and see if you can take costs out. For example, can you use energy more efficiently? Can you create less wastage? How could a planned distribution strategy also provide you with savings?
Of course the truth is that very few businesses use just the one method to ensure they hold or improve their margins. It is about using the full mix of tools at every business’s fingertips.
It is worth the time to sit down & review the four key categories on margin increase to see what is possible, even a 1 or 2% increase has value.
But the lesson to be learned is surely that you should not wait for a rise in your cost of materials to initiate this review/reassessment, it is something that every business should be doing ALL the time.
Large companies have people focused on each of the areas and constantly review, reassess and take action, smaller companies still need every so often to ask the critical questions;
· Is my range optimal – can I reduce & focus – have I got a hero product?
· Can I squeeze another 50p or £1 for my product?
· Can I reduce my cost of production, do I really know what each product costs?
· Each additional internal staff member is a cost – each externally facing staff member is an opportunity
· Managing the mix requires time & dedication
Successful companies manage the mix for best results. Businesses statistics show that most small companies can usually improve results by around 5% without too much disruption.
To discuss your product mix, efficiencies and ways of making your products more profitable why not arrange a ‘no obligation’ chat with one of our associates.