By Nestor Eduardo Garcia Romero, Economist/MBA
After experiencing a severe crisis due to Covid in 2020, when the U.S. economy fell -3.4%, in 2021, the country managed to rebound to close the year with a 5.7% growth rate. The improvement was thanks to the measures implemented by the government, which focused on creating liquidity by lowering interest rates and through another fiscal stimulus, such as the support received by families so that they could reactivate their consumption. We understand that the government had to take radical measures due to the severe crisis. Still, we must also be aware that many of these measures would have short and medium-term consequences, mainly in terms of debt and inflation levels, which are currently occurring in the United States.
Inflation is a generalized rise in the prices of all goods and services in the economy. Its main impact is a loss of individual purchasing power and increased business operating costs. Both approaches are critical; hence inflation affects consumers in one way and businesses in another.
We can see inflation as a disease, which, depending on internal and external factors, can be overcome and kept under control in the short term or enter into more critical situations that we must take care of in the medium to long term.
Let’s think of inflation as a gastritis problem that can be of lesser or greater intensity due to bad eating habits, smoking, and drinking alcohol, among other causes. We can always take medication and correct “the short term.”
When inflation rises to levels outside the desirable range, the central bank raises interest rates, makes credit more expensive, and slows down consumption, which causes inflation to fall.
Just as with gastritis, if you feel bad, you take your medicine; or if you feel good and take nothing, you become overconfident and most likely make a mess that leads you to feel bad again, but at all times, you know that you can correct it and control it in the short term.
However, inflation also generates “medium and long term” impacts.
Today we are experiencing this type of inflation due to the interruption of supply chains, energy increases, international conflicts, increased freight and transportation costs, container shortages, and saturation of logistics nodes, among others.
This type of inflation “cannot be solved with a medicine for mild gastritis.” Here we are talking about a medical condition closer to an ulcer.
Today, in the United States and many parts of the world, we have a combination of “gastritis” and “ulcer,” which makes us think that the scenario of high inflation and low levels of economic growth will not be transitory.
On the other hand, companies are suffering the ravages of structural inflation caused by “supply shocks” that are causing them to face a scheme of higher prices, which adjusts their profit margins and makes it necessary to take immediate, timely, and correct actions to face the new economic scenario.
Companies in the convenience store sector, warehouses, merchandisers, and grocery stores are in a highly competitive segment. Still, at the same time, a good one, since well-managed, allows them to maintain profitable operations regardless of the economic cycle (expansion, deceleration, or recession) in which the country is in.
Here are some recommendations to optimize the operation of your business model to face inflation:
- Acquire liquidity today so your business remains a winner for years to come. Take lines of credit in the coming months before the FED raises interest rates in a decisive way (a scenario that seems inevitable).
- Make protective purchases. Once you have located the products you can keep in inventory for the longest time that your customers require, you can make bulk purchases with your suppliers that allow you to negotiate prices.
- Make alliances with other companies to present products in packages or joint displays. Seek to create packages with complementary brands and detect which products are frequently purchased by consumers together.
- Perform data analysis (Data Science) in the smallest details. In times of inflation, more than ever, it is necessary to know at the “micro” level, which is the losses, the areas of opportunity to correct, and to base an effective operation strategy. It is common to have computer systems that generate operating records if you are a medium or large company. If you are a micro or small company, you will likely need to invest in your business’s digitization to perform real intelligence work based on the company’s records.
- Look for public government programs and initiate gradual investments in sustainable and sustainable solutions that allow you to generate savings in fixed costs related to electricity or energy such as gasoline.
- Allocate part of your budget to promoting and advertising your brand and/or services. Brands must talk to their consumers permanently. Today, in the face of adversity due to inflation, constant communication with your customers will make them prefer you because of your proximity and value proposition.