Food & drink sector dos & don’ts for cost of living crisis
The soaring price of food, energy and running costs has pushed inflation to a 40-year high as the rising cost of living continues to squeeze. UK food and energy prices are rising at their fastest rate in 42 years. With…
Blog12th Dec 2022
The soaring price of food, energy and running costs has pushed inflation to a 40-year high as the rising cost of living continues to squeeze. UK food and energy prices are rising at their fastest rate in 42 years. With a long recession expected to last well into 2024 businesses need to focus on profitability and survival. So the question becomes, what are the do’s and do not’s businesses should consider while costs continue to rise?
Review monthly costs regularly. Allowing businesses to see what can be streamlined, cut back and stopped completely. Drilling into the detail of the costs that a business is incurring will help it to separate those costs attributed to items that are simply ‘nice to have’ and those that are necessary for running the business. During a time where every penny counts, reviewing expenditure receipts and invoices is a good place to start.
Where possible, approach regular suppliers and try to negotiate favourable terms or payment arrangements. This can ease the burden on cash flows and perhaps enable businesses to maintain existing terms or pricing for their own customers who will also be looking to monitor and reduce costs.
Check existing contracts. Review contract end dates and turn off any auto-renewals. It is important to shop around to find the best deal, or negotiate better terms with existing suppliers as there are potentially large cost savings to be made by taking the time to look at other offers available on the market. Energy in particular is often a major outgoing for businesses and one of particular importance as the UK navigates the current energy crisis. A subtle price per unit saving could lead to a massive overall difference to a business’ profitability and cash flow. As well as this moving to more environmentally friendly sources of energy such as solar power for electricity could be a potential option to generate energy, improve carbon footprint and boost your environmental policies which is attractive to investors and employees.
Employees are often a business’ biggest asset so losing valued and hard-working team members is typically reserved as a last resort. To mitigate rising labour costs, employers can consider the shift patterns of their employees and whether changes can be made to working hours to achieve optimum efficiency. This may allow the business to retain staff and reduce costs by utilising its labour resource in a more efficient way. Unfortunately, it may not be possible to avoid redundancies entirely however, this should only occur after all other avenues have been explored.
Conduct a review of products and services that you supply, and their profitability. Consider whether items that are less profitable than expected, or not profitable at all can be discontinued on a permanent or temporary basis. This will allow you to better utilise cash flow and direct resources to produce a more effective product mix and reduce wastage. The cost of living crisis is forcing consumers to cut back and review their own spending patterns therefore revenue streams and stock need to be managed closely to avoid a build-up of unmoving or wasted stock which can be costly to a business.
Set a monthly budget and cashflow forecast to highlight any external funding requirements. Recognising a cash deficit in advance will provide business owners the opportunity to mitigate the extent of the deficit ahead of time and gives them time to consider the funding options available to them so that they can make an informed decision that is right for their business. It is also key to keep up to date with any funding initiatives available for the industry either through trade journals, press articles or simply through your network of trusted advisors and contacts.
It is important to keep up to date with marketing initiatives. Marketing your business more effectively could help you to retain loyal customers and generate further business by reaching your target market. Marketing doesn’t have to be expensive, e-mail and social media are free but effective marketing tools that can be utilised, and employees can help to promote the business through their own social media too.
Communication is key. Communicate with employees, suppliers, and business partners to make them aware if the business begins to struggle. Providing a level of transparency may result in stakeholders working with you where possible, to reach a mutually beneficial outcome to help businesses survive a difficult economic time. Communication with customers is particularly important when revising pricing policies. By letting them know as early as possible and explaining the reasoning behind pricing decisions, they are likely to respond better to the changes. Customers value transparency.
If you have any queries on how to navigate this period of economic uncertainty and inflation as a business or want to find out more about AAB’s specialist food and drink sector team, then please contact Derek Mair or Estelle Hope or your usual AAB contact.