The ever-changing economic landscape most recently exacerbated by inflationary pressures, the war in Ukraine, and the COVID-19 pandemic have compelled specialty food companies to reevaluate their financials, goals, sales, and market strategies. Executive VP of Saffron Road Foods, Jack Acree, and VP of Finance at King Arthur Baking Company, Brock Barton, will speak to the these issues the upcoming SFA In the Know Webinar titled “Navigating Turbulence in Today’s Economy.” It takes place this Thursday, September 15 at 1 p.m. ET. Register now.
SFA News Daily recently spoke with Acree and Barton.
How can specialty food makers best respond to inflationary pressures?
Acree: There are many basic things like cutting discretionary spending, but after all basic cost cutting is in place, you have to make sure you are charging a sensible price. For most food manufacturers the input increases have been so great that passing along increases is inevitable. Getting to the right price means starting in the area that you know you need to be and then looking at the markups between you and your ultimate consumer so that you can target specific new retail.
While you can't tell someone what to charge you can make some very educated guesses. Where possible, talk to your retailers and see if there is a blend of something you can do between your everyday price and your promotional strategy, both in frequency and depth of promotion. Different retailers have different strategies, so try to talk to all of them. If you have several large customers make sure you have a strategy to hit key retails with them. That’s where you will have the most impact. You need to be fair to all customers, but in our business that can be a blend of “everyday low cost” and “promotional” spending.
Barton: In a rising cost environment, it’s easy to say that “everything is going up,” but it’s not always easy to substantiate. At King Arthur, we were fortunate (I used fortunate somewhat facetiously…) as the dramatic increase in wheat costs is reflected in a public, futures market. This allowed us to approach our retailers with data that supported a cost share—this sharing also offered us more influence over promotional strategy (e.g. still notable discounts, but offered in much shorter windows).
What should specialty makers do to stay afloat during this turbulent time?
Acree: Make sure they are charging what they need to, or, if you have financing to ride out some losses, this is a great opportunity to pick up new customers. This will put you in a great place once things settle down.
Barton: We’ve adopted a “leverage and maintain” mentality. Rising costs have forced us to find leverage in almost all expense groups—always a great exercise, but one that was critical this year. We’ve also adjusted our expectations to reflect less trade spending, etc. I know that this shows my finance bias but disciplined working capital management has never been more important than it is right now. We’ve set up more concrete targets around DSO [days sales outstanding], DPO [days payable outstanding], and inventory weeks of supply; with the unknowns in the supply chain, it hasn’t always been easy to implement, but we’re starting to see notable progress.
Have you had to adjust your company’s goals recently?
Acree: Yes, we still have yearly budgets, but everyone has to be much more flexible. So many recent events have affected pricing. Since we made this year’s budget there have been many adjustments along the way. This is where small companies can have some advantages.
Barton: Yes, we have definitely adjusted our company goals. Our financial projections still reflect profitability, but they have shifted to maintain in the near-term and resume expected growth in the out years (i.e., “clawing back” margin over time, not immediately). We’ve also implemented many goals and targets around expense leverage.
Examples: In the past, we’ve used percent of sales as a guide for marketing costs, promotional spend, etc. However, in this year’s budget, we focused on flat year-over-year spending (despite a top line that grew due to price increases). Our management team is also rallying around a no-net new hiring target which ultimately expects a departure before a position is added. In a high staffing turnover environment, it’s actually led to some pretty great conversations around priority and focus.
What issues do you expect to concentrate on during the webinar?
Acree: I hope we can help people pull out of the day-to-day challenges and help find some important tools for planning and executing during such a turbulent time.
Barton: I am looking to provide examples of high-level shifts, in expectations and strategy, that can make short-term differences. Most importantly, how these shifts can help build a stronger company moving forward.
Related: Understanding Intellectual Property Protections: Q&A With Gearhart Law's David Postolski; Proposed Revisions for Organic Standards for Livestock, Poultry May Affect Specialty Food Makers