In present circumstances, if a company experiences a cost increase of $1, how much can it pass on in increased costs to customers?
Quite a bit, according to a survey of food and beverage industry executives sponsored by the Mazars Food & Beverage Practice.
Asked, “How much has your company been able to pass along inflation costs to the consumer? That is, of the higher cost you have experienced due to inflation, how much of that was added to your selling price?” only 15 percent reported that they could not pass along any costs. Another 7 percent said they had experienced no cost increases.
The other 78 percent were able to pass down anywhere from 1 to 100 percent of costs on to customers. Thirty-seven percent gave figures ranging from 1 to 10 percent. Another 27 percent said they were able to pass on between 10 and 49 percent of cost increases. Fourteen percent were able to pass on between 50 and 100 percent.
I asked Kristen Walters, partner and coleader for Mazars’ food & beverage practice, whether she saw any companies using an inflation as an excuse to raise prices when it was not necessary.
She replied, “I have not seen this because it is extremely rare to find a company that is not already experiencing significant inflation and supply chain issues. Most are more actively managing their inventory to pass along costs more quickly than what may have only been a twice-a-year effort.”
The executives displayed remarkable optimism for the future. Twenty-nine percent expected to increase their sales by over 40 percent this year over last year, with another 29 percent expecting increases of 31-40 percent. Only 21 percent said that their sales would decrease or stay the same.
When asked about these sunny expectations, Walters replied: “The survey participants based their responses on their outlook over the next year on observations from their own business models and strategic objectives. While it remains to be seen if the respondents will achieve this rate of growth, what we have seen thus far is that food & beverage clients are entering new markets and launching new product lines to diversify their businesses. This should help them reach a broader customer base.”
Sixty percent of those surveyed expected new product introductions.
Of coming food trends, “‘plant based options’ was selected most often (by 48%) as likely to have a positive impact on sales in 2022,” says the report. “Next in line was ethnic/international (37%), followed by functional foods (35%), “Free from” foods (35%), sustainability (33%), and grocery ordering and delivery service (33%).”
On the future of plant-based foods, Walters commented, “Plant-based foods require more research and development to attain the level of texture or taste a consumer might be looking for. Combined with the time needed for testing, this means that these foods take longer to enter the market. Just in terms of fast-food chains alone, Burger King and others have taken on plant-based options, and McDonald’s and Panda Express are rolling out some plant-based options in the U.S. this year. The trend appears to be moving towards a more permanent menu item. As more consumers migrate towards healthier eating habits, we should see plant-based foods move beyond being just a vegan/vegetarian option, but only time will tell.”
Out of a list of current concerns, shipping costs, container costs, and pier fees were the ones most commonly selected, followed by rising commodity and other costs, the supply chain, delays due to shipping congestion, and truck or driver availability.
In short, practically all of the executives’ top concerns had to do in some way with the supply chain.
The media is engaged in a back-and-forth about whether we are now in a wage-price spiral. Some say we are; others say not.
But we can safely say that we are in a price spiral.