“Currency pressure”

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Paul Hargreaves

Chief executive of Cotswold Fayre

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Whether a fat finger blip or not sterling had already reached a 31 year low against the dollar last week, before plummeting to $1.14

Compare this with the rates of $1.65 we were seeing only 18 months ago. This really is bad news for anyone bringing in products from the USA, or indeed anywhere else in the world, as all other currencies are influenced strongly by the dollar. This will hit some food companies hard in 2017 possibly in a non-reversible way.

Not only that but several of our British suppliers have been murmuring about price increases in the New Year due to ingredients costs, many of which come from Europe or beyond. Much of this is due to the uncertainty over the path of Brexit, so expect similar fluctuations over the next two years, with various political statements being greeted by the currency markets in a positive or negative way.

If you are a producer you may need to increase prices, but be careful! The pressure from the discounters is still there and if your products become too expensive consumers may stop buying them.  It may be best to work on tighter margins, make savings in efficiency of production and maintain some volume i.e. tough it out over what could be a difficult time.

This is particularly true if your products are retailing close to a psychologically significant price point of, say £5 or £10. To inflict a price hike that takes the retail price over that figure could be fatal.  It has annoyed me recently, when seeing some potential new suppliers, when looking at their price structure how little margin they are including on their pricing for retailers. Several have the retailer’s margin down as 25%. Indeed, some wholesalers print a margin like this on the RRPs in their catalogues. I can only think they want retailers to go out of business, as that is what would surely happen if farm shops, food halls and delicatessens worked on margins like this. Successful speciality food retailers these days are working on 40% margin, and to assume they can survive on 25% is simply ridiculous.

No doubt, some of us will have to perform a balancing act over the next few months, and you will have to find the balance that is right for your business to maintain sales and margin. Good Luck!