“At the end of the day, you need to do the things that will continue to make your business sustainable either at the loss you’re incurring now or at the cash flow you’re bringing in. Making sure your pricing is always correct is a very important piece of the puzzle of building a successful business and brand,” advised Jack Acree, executive vice president of the American Halal Company/Saffron Road during SFA’s webinar, “Raising Prices in Uncertain Times,” Thursday.
Having built two of the fastest growing startups in the natural foods business, Terra Chips (Hain Foods) and Alexia Foods (ConAgra Foods), Acree is experienced when it comes to pricing.
Questions that are useful in understanding your current pricing situation include the following, he said:
• Do you use a co-packer or manufacture product yourself?
• What’s the focus of your business plan? Sustainable or high growth?
• What’s your financial situation regarding cash flow?
• What kind of product do you have and what’s its competitive set?
• What’s your product’s sensitivity to price (elasticity)?
• How big is your brand in consumers’ minds?
Acree recommended discussing pricing with brokers and other industry contacts you may have to understand what retailers you deal with are saying. His guess is that your input costs have increased during COVID. He believes you need to understand how these costs are affecting you and if they are long- or short-term.
What Levers Can You Pull Other Than Price?
As hard as raising prices may seem, decreasing them is even harder, noted Acree. Some other cost cutting measures include:
• Weight out – make your package smaller (warning: this may come with headaches like changing your UPC and unavoidable upfront costs).
• Discretionary expenses – cut back on marketing, promotions, founder’s salary?
In the event that a short-term solution won’t cut it, Acree recommended the following considerations for setting a new price:
• Start fresh and review all costs – rebuild cogs analysis, know how consumer is acting
What price can you live with?
What price can you grow with?
When it comes time to implement a price change, it’s a much easier process for online or direct-to-consumer, said Acree. This is because you need to give 60 to 90 days’ notice when working with retailers. There are some product exceptions such as dairy, he noted. Additional tips Acree provided include:
• Early, clear communication is paramount. Confirm receipt.
• Minimum 90-day notice for most distributors. They need the nuts and bolts (UPC, items, and what costs are increasing to).
• Retailers vary widely. Some require extensive documentation. Most national retailers require a cost change form (download here after registering to view the recording). Keep in mind that the 90-day notice may start after this form is accepted.
• Larger retailers will want to see a price increase across the board – ensure equity across all business in this class of trade.
• What do promotions look like now? If you try to promote at same price point much of your increase will get absorbed.
For more on this pricing, view Acree’s webinar here in the SFA Learning Center, and keep an eye out for more information about the next Basics event, where makers who've not yet set their price can learn more about the topic.
Related: Retailers May Grapple With Thanksgiving Supply Shortage; Price Increases Change Customer Behavior.