In our December blog, we recommended taking a rest, a healthful break from your business so you could recharge during these uncertain times. As we start 2023, it’s clear that we’re not done with volatility yet – inflation, talk of recession, the news is full of stories on consumers concerns with rising costs. Are there still opportunities for your business?
From our clients, our recent workshops and food business events we’ve attended, there is a collective conversation about this new challenge that we have. Farm Food Drink can’t solve the economic climate, but we can offer some thoughts on how to strategize for the next six to twelve months.
Inputs, Outputs, and Margins
You already know you need to track your costs, really understand where your money is moving to and from. The results will calculate into your profit margins which should be your top KPI (key performance indicator) for each product and SKU (stock keeping unit).
SUGGESTION ONE:
Regularly track, analyze, and manage or adapt to those results. Make action-oriented decisions.
While tracking those margin levels and cost expenses, it may mean having to increase your price to the consumer, or even removing products that you offer.
A story recently came to us about a baker who was known for her customized cakes. She detailed all of her costs, from ingredients, labour, even the cake boards and boxes required to present her creations. It turns out she was losing over $15 per cake by doing this custom work. She has since informed her clients that she can no longer provide custom cakes without overcharging them. A tough decision, but an essential one for her business.
SUGGESTION TWO:
Assess and eliminate losing categories.
The cake story is hard-hitting, but she has other baked goods products that she can offer that have decent margins. If you don’t have that luxury, and only have 3 or 4 products, have a hard look at your costs for each one and their respective margins. If you have a flag-ship product that’s foundational to your business, be careful with price increases, as the grocers or consumers may question it.
SUGGESTION THREE:
Simplify and reduce to your core, top performers.
Instead look at your other SKUs and see if they warrant a price increase (and consequent higher margin) because they’re perhaps perceived as a higher value item – e.g., using macadamia nuts instead of peanuts. You can then put more effort into promoting the higher margin items.
SUGGESTION FOUR:
Increase prices on items that have a perception of higher value.
Be Lean. Be Collaborative. Be Creative.
Before you increase your price, or in tandem with this, consider adopting Lean principals to evaluate and manage key processes of your business. Where in your business can you:
- reduce costs
- find better use of equipment
- incorporate new technology
- improve processes
- adjust labour capabilities
- revise inventory management
- establish distribution improvements
- elevate marketing campaigns
The efficiencies realized in any of these areas could lead to better returns. Your approach will depend on your type and size of business, but you may also qualify for help from a funded BC Ministry of Agriculture and Food program focused on Lean business principals. Look at the program here, where Farm Food Drink is recognized as a Qualified Business Consultant for the initiative.
SUGGESTION FIVE:
Get lean, improve tracking, improve process, increase efficiency and effectiveness.
We have a vibrant food and agriculture community in BC. Talk to other business owners. Share ideas and perhaps see how you can come up with collaborative ways to improve efficiencies together, or share costs of some part of your operation or processes.
- A client of ours sources potatoes for one of their product lines. They recently discovered a new supplier with peeled and precut potatoes that significantly reduced labour and length in their production process. This was a significant cost saving measure.
- Contact local food suppliers who may be able to supply or share resources, product, or ingredients.
- Our friends at Small Scale Food Processors Association have an email distribution resource (list serve) where you could post a request to place an order for something to share in costs.
- As discussed in our recent Salt Spring Island food business workshop, find who you could partner with to share the cost of packaging that still meets your environmental principals. Because you usually can’t order smaller amounts from these suppliers, you could collaborate with someone to maintain a cost-effective price for this necessity.
SUGGESTION SIX:
Don’t work in isolation. Uncover opportunities to share resources, or things like ingredients, distribution, even marketing initiatives.
Amplify the Value of 'Local'
When you as a food business owner are working to reduce costs and consumers are trending to more bulk purchases from discount grocers, it’s essential that we collectively promote the importance and value of buying local food.
This positioning and communication can come from your specific marketing channels, and from everyone as a BC food producing community. This is not a one-time conversation with your consumer, but an ongoing narrative through inflationary times, and beyond.
Many pundits have been recommending to consumers that they do bulk buys to reduce costs. While that may seem like a good way to reduce household costs on the outset, consider that only 2/3 of those food purchases are consumed. The rest is thrown out.
The message to support local food providers is that there may be better dollar savings by purchasing only what you need versus buying in bulk and figuring out where to store it. Don’t fill the refrigerator to the max, just buy what you expect to use in the next few days. In Europe and other countries, this approach to buying only what you need is a normal way of shopping. There is significantly less food waste and the food is fresher.
Explain that buying in smaller amounts and choosing to purchase from a local farmer or food producer or processor, know that your food will be:
- Fresher longer
- Better quality
- Healthier
- More nutritious
- From a trusted source
- Supporting local families
SUGGESTION SEVEN:
Talk up your value, always!
We need to double-down on that message together. Buying local food supports your community – your local dollars support your local families, children’s sports programs, seniors activities, the local economy as a whole.
While all of us are working to reduce costs, let’s work together to put a spotlight on the VALUE of local food. You can be empathetic to rising food costs and family budgets, and at the same time promote local support as a fellow community neighbour in your commitment to keep prices fair and deliver products of good value.
Now is the time to promote together, share costs where you can, and shout from the rooftops the value of BC local food.
We realize we’re suggesting some generalized statements or approaches. For some this will make obvious sense, for others it will depend on your business, and where you’re at in it.
SUGGESTION EIGHT:
Reach out for support from Farm Food Drink.
If you have questions about any of these concepts, feel free to contact us for support or ask us about our new Lean Marketing Program that focuses on an efficient but nimble marketing system to improve results for small “lean” food businesses.
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