Operating costs are on the rise, forcing the consumer goods and staples sector to take evasive action. From operational costs for brick-and-mortar stores to increasing pricing from South East Asian suppliers, costs are going up.Consumer goods and staples undoubtedly suffered during the global pandemic that stretched through 2020. With vaccinations underway and consumer confidence beginning to peak, expectations are high for a rebound in the global economy. Whilst market indicators are looking favourable, the year ahead is not guaranteed to be easy. Shipping prices remain unstable and oil prices continue to trend upward.
In our last instalment, we discussed the market conditions negatively impacting the consumer goods industry. Now we offer solutions to help consumer goods and staples businesses do more than simply hold on. These practical strategies can combat pressures that slowly eat into your bottom line. Using all of these strategies — or a combination of those most applicable to your business — can help contain rising costs.
Solution #1: Finding new suppliers
Consumer goods and staples businesses diligently work to build a network of suppliers they can depend on. Some longstanding relationships feel like part of your extended business family, making it difficult to cut ties in pursuit of better pricing. Cheaper pricing does not always equal a better deal — sometimes you get what you pay for.
Exploring your options is never a bad idea. No one says you must make the switch. For now, compile a list of alternative solutions in the supply chain. Branching out to locate new, more affordable suppliers is easier for businesses that are well established or stable in their product life cycle, reducing risk during a transition.
You can also negotiate with current suppliers to achieve better pricing. This is useful if switching suppliers is too risky or if you are in mid-production and cannot afford setbacks. Longstanding relationships can increase your chances of successful negotiations, but sometimes suppliers simply do not have room to move.
Solution #2: Negotiating new deals
Negotiating is a skill that comes easier to some than others. When times are tough, renegotiating deals can create breathing room. Businesses can negotiate higher prices for their products and lower prices from suppliers. Effective techniques include:
- Conduct thorough research. Understand your supplier’s cost structure before negotiating. This prevents unrealistic asks.
- Think like a supplier. Seeing things from their perspective helps you craft a win-win solution.
- Think outside the box. If pricing cannot change, look at payment terms, bulk discounts, or other levers.
- Get other offers. Bringing competing quotes to the table is a powerful motivator.
Solution #3: Securing alternative funding
When things are tight, traditional methods are not always the best option. Alternative funding can help relieve pressure. Venture capitalists have invested billions in SME consumer goods brands. Attracting their attention comes down to innovation — what are you doing differently, and how do you stand out?
Crowdfunding and peer-to-peer financing continue to grow and include platforms focused exclusively on consumer goods and staples.
Solution #4: Outsourcing operations
Outsourcing sometimes makes businesses nervous — concerns about losing control or weakening client engagement are common. However, outsourcing remains one of the most effective ways to restructure budgets during lean periods.
Reducing overhead costs is a primary driver for outsourcing. Outsourcing can also:
- Provide workforce flexibility
- Offer access to expertise or materials you do not have in-house
- Reduce risks caused by employee turnover
- Free up cash flow for reinvestment
Solution #5: Third-Party Logistics
Shipping costs are one of the biggest budget drains for SMEs. Consumer packaged goods businesses feel this more keenly because they import and export as part of normal operations. Third-party logistics (3PLs) can significantly reduce shipping costs, especially when using a provider specialising in consumer goods.
- Load consolidation lets smaller companies shift from LTL to full truckload shipping for significant savings.
- Cross-docking freight supports just-in-time inventory models and reduces warehousing costs.
Bracing for the upcoming year
Whilst consumer confidence is rebounding, the consumer goods and staples industry faces a turbulent period. Incorporating any (or all) of these five solutions can fortify your business against the rising cost of doing business.