Like most
Americans, retailers have been struggling with the
rising cost of fuel. It now costs retailers
substantially more to buy goods from manufacturers whose
own costs are rising, and it costs more for retailers to
ship merchandise from distribution centers to stores.
But
retail companies would prefer not to push those cost
increases down the chain to customers. To avoid price
hikes, many retailers have rolled out proven
anti-inflation strategies:
- Streamlining operations
- Cutting back on inventories
- Reducing part-time staff hours
- Conserving energy
- Buying
more local goods to save on transportation
- Offering incentives to keep customers
engaged
When
warranted, retailers will even take a hit to their own
profit margins before raising the price of merchandise
on shelves. All of these these strategies have worked
for retailers of goods like clothing, furniture, and
electronics, as evidenced by the fact that inflation in
these categories is virtually zero.
But
grocers and restaurateurs have been hit with a double
whammy: In addition to rising transportation and
manufacturing costs they're facing a declining food
supply, as many traditional commodities are now being
used for fuel. (Drought conditions and poor crop yields
in some regions have exacerbated the effect.)
Basic
foods like corn, rice, wheat, eggs, dairy and soy have
reached record prices, leaving merchants with little
choice but to pass some of the burden on to the
customer. Of course, many prepared and processed foods
rely on these staples and thus prices for egg-, corn-,
and wheat-based products are increasing as well. In
2007, the all-food price index increased by more than
4.5 percent, the largest jump since 1990. Estimates for
the current year are even higher with expectations for
another five percent increase.
Goods
like food (and gas) are not discretionary; consumers
have to buy them. Understandably customers become
frustrated by inflation and retailers often become their
sounding board, bearing the brunt of Americans'
unhappiness when prices rise. Retailers may want to
start a two-pronged effort to off-set ill will consumers
may associate with their brands because of prices.
- Educate their employees. Front-line
retail workers typically face the brunt of consumer
frustration. But many of these workers probably don't
understand the complexities of price increases
themselves. Few of us do. Giving a cashier some
baseline knowledge that they can pass on to the
consumer who's raging about how much the store charges
for a gallon of milk can only help.
- Educate their customers. Companies
should consider committing resources to advertising
and signage aimed squarely at consumers. It should
explain both how the retailer is trying to keep prices
down and why some prices are out of their
control
It should be noted that while these strategies
may be executed differently in different industries,
they're management ideas with universal appeal.
Employees who connect with customers always benefit from
being able to give reasoned explanations to uninformed
or misinformed customers. And customers benefit from
being given knowledge so they don't have to ask for help
in the first place.
Grocers
have also implemented other industry-specific
strategies. For the short-term, some grocers have
adopted incentive initiatives that allow customers to
cash their tax rebate checks for free, or convert them
into store coupons with an additional 10 percent off.
Long-term, retailers are looking to Washington to
help alleviate the price pressures. Retailers have
become increasingly concerned about federal biofuel
mandates, specifically corn ethanol and soybean oil,
which are partly responsible for the dramatic increase
in food prices. And while other factors such as rising
demand from developing countries and international
export restrictions play a part, biofuel mandates are
the one factor over which U.S. policymakers have direct
control. If slowed or removed, retailers and restaurants
believe biofuel mandates could have an immediate impact
on food inflation.
Inflation, particularly in food and fuel, is a
very real concern to most retailers and restaurants.
Once the temporary buffer of rebates is gone, consumers
will have no cushion to offset these higher prices and
retailers will continue to feel the pinch.
Tracy Mullin is the CEO of the
National Retail Federation, the world's largest retail
trade
association.
$250 