GTN GIMA Column

Sharing the pain of price rises

Despite the fact that we haven’t been plunged into an immediate recession since the result of the European referendum, there is still a great deal of anxiousness in regards to inflation, particularly price rises for garden products.

In the September edition of GIMA Pulse, a monthly snapshot of the UK Economy produced for GIMA members, it was surmised that although consumer confidence might be lifted by lower unemployment levels, cheaper fuel and a stabilising housing market, manufacturers would still continue to be hit by energy prices (at a two-year high), crude oil (up 2.5% during June-July) and most crucially importing against the fluctuating exchange rates of the US dollar, Euro and Yen. While some manufacturers were able to plan ahead and buy extra foreign currency to stop import costs affecting trade prices in the short term, others were unable to and have been absorbing cost increases now for several months.

Suppliers are experiencing on average, around a 10% increase in costs across the board. Raw materials and energy costs have risen, but in most cases these have been absorbed and translated into trade price increments that are proportionally much lower for retailers, with suppliers doing their best to keep sales buoyant.

Of course, the danger is that if either supplier or retailer shoulders too much of the burden of cost increases, the whole supply chain is affected. For example, if costs were needed to be cut on the supply side, this could result in inferior products as suppliers cut corners, ultimately leading to dissatisfied customers. Squeezing labour costs could lead to a less flexible supply chain with reduced sales support, customer service, packing and warehousing for example. A reduction in time and investment means having to play it very safe - and would of course negatively impact on new product development. This belt tightening could ultimately impact the level of resource available to innovate and develop new products, something none of us would want to happen.

There is an obvious need to strike a balance between making a margin and ensuring stock still moves through the supply chain and achieves the optimum sell through rate on the shop floor. When it comes to prices, the majority of GIMA members are committed to reasonable pricing levels, and are fully aware of the negative impact of overpricing.

So could prices come down again? Inflation is usually one way, the effect of which is eventually smoothed out following rises in living wages and a general stabilisation in the economy. However, it needs to be said that in any case, the amount that prices have risen over the last few decades has been miniscule compared to the increase in average earnings over the same period here in the UK. A certain bestselling bottle of fertiliser is one of many products that has been kept at around the same price, which is remarkable considering consumers now earn over £15,000 per annum more on average than they did in 1990.

It is certain that retailers will be looking at suppliers’ price lists this year even more carefully than before, to see just how much prices have gone up, but as an organisation that brings suppliers and retailers together, we at GIMA hope that retail buyers will work with the supply chain to ensure that we both work to shoulder the burden of price inflation together.