Posted by Greg Thomas, Pricing Research Director at Pricing Solutions.
Many commodity prices seem to be starting to inflate again. Wheat, in particular, has shot up over 25% (see The Economist August 7th 2010 pp94). Wheat is an important input into numerous food products and will likely impact process food prices at retail in the coming year. Other important processed food inputs such as sugar, corn, and soybeans have all increased 10-20% in the past few months.
A few years ago when commodity prices and oil prices inflated rapidly a number of our clients struggled with passing these costs on to their retail customers. Many reacted too late and had their margin pinched as they had committed to a list price a year in advance. Most did not have any consumer insight on how increased retail prices may impact their portfolio of products. Thus they made ‘across the board’ price changes. More targeted price changes to low price sensitive and low margin SKUs can potentially have a better return to the portfolio than an ‘across the board’ price change.
Planning for 2011 is likely beginning and a period of input inflation is likely developing. Therefore plan carefully and allow yourself some options to adjust list prices if input costs continue to inflate.
Greg Thomas, Director of Research