Negotiating a cost increase during a period of food inflation

volatile market for everyone but guaranteed volume will be good for some of these businesses, just as it can be good for yours.

Negotiating your increase

With this homework behind you, let’s hope you have a smoother negotiation on the increases you propose. You will need to share some information but not too much. One cost component that will never decrease is labour. Usually, the labour market is influenced by

Food represents a significant portion of our disposable income – 11 per cent in 2022 -- and when prices increase, that’s red meat for news media. This environment of heightened public awareness makes it even more difficult for producers and processors to negotiate cost increases.

It should be easier to negotiate a cost increase when inputs, packaging, labour, energy and many other factors are rising in cost. The problem is, retailers will be blamed for increased prices and they will do their best to slow down the increases and deflect the blame.

Work in advance of the increase

When negotiating a cost increase during a period of inflation, do not assume your increase will be approved. Retailers seem to push back more than ever. You need to do your homework and justify the reasons for the increase.

If your cardboard supplier says the cost of your master case is increasing by 12 per cent, let retailers know. If possible, tell them you have bought enough cardboard in advance to offset the need to change your cost for four months.

Two benefits of negotiating with your suppliers: offset an increase and build credibility with your customers. If you can negotiate a delay in an increase or perhaps switch to another supplier, you can reduce the increase or hold your price for a few more months. Unfortunately, retailers believe they are the link in the value chain who negotiate the hardest, to keep prices in line for consumers. Whether this is true or not, this is what they perceive.

When you can share some stories about negotiating with your suppliers to delay increases or reduce the impact, retailers will appreciate your efforts.

Your customers are often asking for locked-in prices, in advance of your season. Ask your suppliers for the same commitments. Some will work with you and some will not. If you have enough size to have some leverage, you can negotiate commitments on pricing. It is a minimum wage. When you negotiate costs the percentage increase in minimum wage is a public number and you can let retailers know labour represents 30 per cent of your total cost of goods. A six per cent increase in minimum wage will result in the following change to your cost of goods:

Your per unit cost has increased by .06. When discussing labour with retailers remember to get past minimum wage. In some markets we have seen producers have to increase more than the minimum wage just to get people to come to work. You can also factor this in.

Industry averages such as Statistics Canada’s consumer price index are a good fact to use in your negotiations. This will also include a year over year number which is probably more relevant.

Editor’s note: The entire column with chart is available at www.thegrower.org/columnists.

Peter Chapman is a retail consultant, professional speaker and the author of A la Cart-a suppliers’ guide to retailer’s priorities. Peter is based in Halifax, N.S. where he is the principal at SKUFood. Peter works with producers and processors to help them get their products on the shelf and into the shopping cart.