Protecting Your Margins in an Inflationary Environment

Staying on top of pricing is more critical now than ever. As CPI Food at Home prices starts to increase, and suppliers start to pass on increases in fuel costs, delays in price changes on the shelf can add up quickly. Besides, just changing the prices at the wholesale or corporate level does not necessarily mean they are released at the store level, and tags are hung.

Ensuring that you are protecting your margins means that you have to have the disciplines in place for monitoring price changes as cost increases come through and a method to follow up with your stores to be sure prices are released and products tagged.

Pricing at Store Level

A simple schedule of test scanning your aisles and reporting those results back to management can detect high levels of incorrect pricing and unit tags. This process is simple and can be done with most POS systems and the handheld scanners in which they interface. In addition to this being a checkpoint for timely price increases, your tags must match what scans to keep a high level of trust with your customer base.

Back Office

The back office takes a bit more time to monitor with cost increase and pricing. If your wholesaler sets your pricing, you need only spot check for errors. However, if you are maintaining your pricing files, a few reports need to be reviewed to identify issues early, before they erode your gross margins.

  1. Negative Gross Reports: These reports should be run regularly and mostly except some hot ad items, that the vendor may be providing funding outside of costs, there really should not be anything on this report.
  2. Gross Margins by Category: Review your margins by category for consistency in your category goals. There may be exceptions you have set, but this offers a quick way to “eyeball” the errors.
  3. Cost Increase Sheets: Your buyers should provide your pricing staff with cost increase sheets. There must be a system in place to log them from the buying department and have a sign off process when complete.

While these strategies are useful, the critical edge is sales which are the top priority, because strong sales can cure many ills. The top 25% retailers average a larger per-transaction size of 16% over the average independent.

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The ideas above offer some basic approaches to being sure food inflation does not leave you behind. In addition to those national brand items that are going up in price, be sure to keep an eye on your private label price parity and the parity in the cost of different size products as prices increase.

Two essential items that affect our industry are food and fuel, and they are increasing!

FMS Solutions is a grocery retail consulting firm that studies industry labor and compensation and publishes annual independent grocer financial surveys.