With more chocolate lovers than ever, you’d expect candy producers to be on cloud nine. After all, according to Euromonitor International, global demand for chocolate rose 0.6% to a record 7.1 million tons last year, thanks in part to a 5.9% spike in Asia where chocolate consumption is surging. However, instead of elation in the board room, there’s the real fear of a chocolate shortage. That’s because cocoa production is down in places like Ghana, the second largest grower of cocoa beans in the world, due to rough weather and rotting cacao trees. As the Wall Street Journal reported on January 14, industry giants like Mondelez, maker of Oreo and Cadbury, and producers like Hershey and Mars Inc. are heading to the fields—to the tune of $1 billion—to help cocoa farmers develop better ways to space seedlings, among other sustainability efforts.
The story highlights the incredible pressures food manufacturers and distributors face every day. Whether it’s volatile commodity prices, rising energy costs, powerful customers or fierce competition, your pricing strategy and margins are under constant threat. When food supply chain issues threaten your business, what can you do to fight back? You can’t control the weather, but you can optimize your revenue potential to offset tough times.
The trend today is for food manufacturers and distributors to take a new, proactive approach to pricing to optimize margins by balancing price and demand within operational constraints.
Insight and agility are key. If it’s taking three weeks to update your prices and commodity prices shift rapidly, then your prices aren’t reflecting what’s going on in the supply chain and you could be leaking serious money. But with the right analytical tools and intelligence, you can make better decisions across the entire pricing process.
Below are five capabilities the food industry should be able to do on the fly:
- Analyze every item, daily, to understand which price drives overall profitability and sales
- Understand customers’ reactions and sales impact to the pricing actions of every item
- Adjust prices dynamically to account for shifts in underlying commodity prices, changes in market conditions, and up-to-date supply information
- Highlight opportunities for price adjustments, trade deals, and other promotions by having more visibility into supply and inventory
- Know what adds value to the business, whether it’s deals, discounts or promotions
In fact, according to Gartner, a successful price optimization and management implementation can increase margins by 50 basis points or more, and increase revenue by two to four percent. That’s a lot of bon bons.
Learn more about how to find the right ingredients for revenue and profitability growth in food and beverage.