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Supply Chain

Managing Volatile Commodity Prices A 'Delicate Dance' For Retailers

Retailer pricing strategies need to be optimised to navigate the current inflationary headwinds says John Moss, chief executive of Flintfox.

Over the last six months or so, the grocery supply chain has been affected by a number of external pressures, from the war in Ukraine to unseasonably hot weather in India, which have coincided to create some of the most volatile commodity prices we’ve seen in recent years.

Inflation continues to rise across Europe, and while the UN food agency FAO Food Price Index dropped slightly in the last month, it is still over 20% above last year’s corresponding value. At the same time, global fuel prices continue to soar, and these increases are passed on along the supply chain.

Unsurprisingly, these factors are already translating into higher retail prices, with analysts suggesting that the worst is yet to come. Even though commodity prices may well have reached their ceiling, the knock-on impact throughout the supply chain is likely to continue for several years.

Tackling Volatility

For retailers, distributors and manufacturers, these rising costs place an even greater pressure on the need to have a pricing strategy in place to properly manage the volatility in a way that protects their business but is also sensitive to the circumstances of their customers, many of whom are facing extremely challenging times.

One key way to do this is to ensure pricing decisions are made on sound data. Research we recently conducted with Forrester showed that nearly half of businesses feel unable to keep up with the real-time cost fluctuations occurring in the market.

Without having up to the minute, accurate visibility of costs and their impact on margins, decision makers risk errors – under clubbing price rises and leaving themselves short of the target margin or being too heavy handed and risking revenue.

Balancing Act

With the cost of living crisis deepening and the prospect of supply chain challenges worsening, pricing has become an even more delicate dance.

These are clearly challenging times for everyone in the industry, with much more disruption likely on the horizon. Those decision makers able to act now and use technology to power up their pricing strategy will be the ones able to manage the volatility in the best way possible, protecting margins to drive profitability well into the future.

© 2022 European Supermarket Magazine – your source for the latest technology news. Article by John Moss, Flintfox. Click subscribe to sign up to ESM: European Supermarket Magazine.

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