How do some of our C-Store Champions keep business profitable in the face of rising wholesale prices? Read on to find out
Nigel Dowdney: Yes, especially in the past six months.
Atul Sodha: Prices have gone up on every single delivery.
Sunder Sandher: The cost of goods is going up, as are fuel costs and wages, but the good thing is they are steady.
Dave Newman: Wholesale prices have been going up at an alarming rate over the past few months. Only last weekend my milk wholesaler increased his prices for the fourth time in the past six months. The increase was about 10% this time, so I have no option but to pass this on to my customers. There is rarely a day when I return from the cash and carry to find no price increase on my invoices.
ND: We've already done it, but it's an ongoing situation.
AS: Every week costs have risen so we've had to increase our prices. When you've got things like minimum wage increases and rising energy costs to contend with as well, the extra money has got to come from somewhere. As much as I have to put prices up, I do lower them where I can. For example, I've just put the price of lettuce down because they came in a bit cheaper.
SS: To stay ahead of the game I must raise prices, but I do special offers that are as good as the big boys'.
ND: Our customers have been less price sensitive in the past couple of years, but it will probably become more of an issue in a credit squeeze.
AS: I have to portray a value perception and I know I'm cheaper on my four-litre milk than Tesco and the other multiples. We need to be competitive on the core items. We have a hard time trying to convince people we are good value, though. The latest rise has been a manufacturer increase on cigarettes, by 10p. I already premium price cigarettes, but I need to decide whether this increase, plus my premium price, is going to be detrimental to my overall business.
SS: If you interact with your customers by sponsoring schools, getting involved with My Shop is Your Shop, local charities and so on, customers aren't so price sensitive - there's a trust element - but you have to be sensible with pricing.
DN: Customers seem prepared for the increases due to the amount of publicity that the issue is attracting.
ND: We need to be reasonable, but the margin depends on the item.
AS: There is a limit to how much you can charge. You've got to think about how you would feel purchasing a product at that price. It's silly to charge too much. I can charge 45p for a Mars Bar, for example, but could I charge 55p? I don't think so.
DN: The only positive I can draw from the situation is that multiples are also having to increase their prices. This means that I can maintain a reasonable price differential. For instance, I'm selling Kingsmill for £1.15, which was less than a pound last year, but my local Morrisons sell the same loaf for £1.09. If the difference was 20-30p then I would lose sales as customers would go to Morrisons and likely buy several loaves and freeze them.
ND: Customers don't seem to notice price increases on individual items, but they do notice an overall increase on the cost of a basket. I don't think any of my customers could tell me the price of a Mars Bar or a packet of crisps, but those who shop for a basket of goods say they don't seem to get as much for their money.
AS: I've heard people say that on confectionery, if the rrp starts with three, increase it by 3p. I don't think people would mind spending 3p more, but if it started with a nine and you put it up by 9p, they might. I don't follow that rule myself; I'm quite methodical about how I work out my margin. I tend to work on fives and nines - I think that looks better on the fixture.
SS: I tend to increase prices along with the budget and blame the government.
Do you always try to match or get within a certain percentage of the multiples' prices, or do you set your own?
ND: It depends on the item and how cost sensitive it is. Overall, we tend to work towards a set margin.
AS: You've got to try to keep a fine balance to maintain your margin, but you can't be seen to be profiteering - if you increase above your margin, that's profiteering. I work on the fact that every delivery I get in, I've got to achieve a certain margin - 22-23% overall. Some products will reflect a higher margin, some lower. It also depends how much you have on promotion.
SS: I always set my own pricing above rrp. I did a survey in my store and found that customers who used PayPoint mainly bought cigarettes as well, so I increased 20s by 20p. The customers are happy to pay the increase for convenience.
DN: My retail prices are based upon margin, so to an extent rising prices mean increased profitability for me. However, costs are always on the increase, so this year, for example, I have rising fuel and energy prices, the increase in annual holiday entitlement and annual wages rises to budget for. As in any business it's about keeping ahead of these costs and I have to admit this is the first year for some time that I'm approaching it with some caution.
ND: We are constantly looking for items that the supermarkets don't sell, or lines that they have de-listed - we're often asked to put in lines that have been dropped by Tesco. We've recently added loose frozen fruit and veg, which has been a great success. We stock a wide range of local produce and have had a great deal of success with winter socks, hats, scarves and gloves. We've put in an ordering system by which our customers could order top-of-the-range local and free-range turkeys and hams for Christmas, without us having to stock or display them. We intend to carry on doing this through the year and also pass the system on to other Redorange members.
AS: I make sure I look at every invoice that comes in, each and every line, and if I've got to put a price up, I put it up. If I can afford to put a price down, I put it down.
SS: The greatest profit-makers in winter are bottled gas and coal. In summer it's plants, and I also sell local and organic products to offer something different from other stores around me.
DN: The big question is, will the customer who has been spending £100 week with me but now has to pay £110 for the same goods, have the extra £10, or will they simply buy less? More worrying is if that basket of goods rises to £120, will they more likely turn to the multiples?
Has the cost of buying goods risen?
Nigel Dowdney: Yes, especially in the past six months.
Atul Sodha: Prices have gone up on every single delivery.
Sunder Sandher: The cost of goods is going up, as are fuel costs and wages, but the good thing is they are steady.
Dave Newman: Wholesale prices have been going up at an alarming rate over the past few months. Only last weekend my milk wholesaler increased his prices for the fourth time in the past six months. The increase was about 10% this time, so I have no option but to pass this on to my customers. There is rarely a day when I return from the cash and carry to find no price increase on my invoices.
Are you going to have to raise retail prices this year, or have you done so already?
ND: We've already done it, but it's an ongoing situation.
AS: Every week costs have risen so we've had to increase our prices. When you've got things like minimum wage increases and rising energy costs to contend with as well, the extra money has got to come from somewhere. As much as I have to put prices up, I do lower them where I can. For example, I've just put the price of lettuce down because they came in a bit cheaper.
SS: To stay ahead of the game I must raise prices, but I do special offers that are as good as the big boys'.
To what extent are your customers price sensitive?
ND: Our customers have been less price sensitive in the past couple of years, but it will probably become more of an issue in a credit squeeze.
AS: I have to portray a value perception and I know I'm cheaper on my four-litre milk than Tesco and the other multiples. We need to be competitive on the core items. We have a hard time trying to convince people we are good value, though. The latest rise has been a manufacturer increase on cigarettes, by 10p. I already premium price cigarettes, but I need to decide whether this increase, plus my premium price, is going to be detrimental to my overall business.
SS: If you interact with your customers by sponsoring schools, getting involved with My Shop is Your Shop, local charities and so on, customers aren't so price sensitive - there's a trust element - but you have to be sensible with pricing.
DN: Customers seem prepared for the increases due to the amount of publicity that the issue is attracting.
Is there a limit to how much you can charge?
ND: We need to be reasonable, but the margin depends on the item.
AS: There is a limit to how much you can charge. You've got to think about how you would feel purchasing a product at that price. It's silly to charge too much. I can charge 45p for a Mars Bar, for example, but could I charge 55p? I don't think so.
DN: The only positive I can draw from the situation is that multiples are also having to increase their prices. This means that I can maintain a reasonable price differential. For instance, I'm selling Kingsmill for £1.15, which was less than a pound last year, but my local Morrisons sell the same loaf for £1.09. If the difference was 20-30p then I would lose sales as customers would go to Morrisons and likely buy several loaves and freeze them.
Are there any tricks of the trade you use when increasing prices?
ND: Customers don't seem to notice price increases on individual items, but they do notice an overall increase on the cost of a basket. I don't think any of my customers could tell me the price of a Mars Bar or a packet of crisps, but those who shop for a basket of goods say they don't seem to get as much for their money.
AS: I've heard people say that on confectionery, if the rrp starts with three, increase it by 3p. I don't think people would mind spending 3p more, but if it started with a nine and you put it up by 9p, they might. I don't follow that rule myself; I'm quite methodical about how I work out my margin. I tend to work on fives and nines - I think that looks better on the fixture.
SS: I tend to increase prices along with the budget and blame the government.
Do you always try to match or get within a certain percentage of the multiples' prices, or do you set your own?
ND: It depends on the item and how cost sensitive it is. Overall, we tend to work towards a set margin.
AS: You've got to try to keep a fine balance to maintain your margin, but you can't be seen to be profiteering - if you increase above your margin, that's profiteering. I work on the fact that every delivery I get in, I've got to achieve a certain margin - 22-23% overall. Some products will reflect a higher margin, some lower. It also depends how much you have on promotion.
SS: I always set my own pricing above rrp. I did a survey in my store and found that customers who used PayPoint mainly bought cigarettes as well, so I increased 20s by 20p. The customers are happy to pay the increase for convenience.
DN: My retail prices are based upon margin, so to an extent rising prices mean increased profitability for me. However, costs are always on the increase, so this year, for example, I have rising fuel and energy prices, the increase in annual holiday entitlement and annual wages rises to budget for. As in any business it's about keeping ahead of these costs and I have to admit this is the first year for some time that I'm approaching it with some caution.
What steps are you taking to improve profitability?
ND: We are constantly looking for items that the supermarkets don't sell, or lines that they have de-listed - we're often asked to put in lines that have been dropped by Tesco. We've recently added loose frozen fruit and veg, which has been a great success. We stock a wide range of local produce and have had a great deal of success with winter socks, hats, scarves and gloves. We've put in an ordering system by which our customers could order top-of-the-range local and free-range turkeys and hams for Christmas, without us having to stock or display them. We intend to carry on doing this through the year and also pass the system on to other Redorange members.
AS: I make sure I look at every invoice that comes in, each and every line, and if I've got to put a price up, I put it up. If I can afford to put a price down, I put it down.
SS: The greatest profit-makers in winter are bottled gas and coal. In summer it's plants, and I also sell local and organic products to offer something different from other stores around me.
DN: The big question is, will the customer who has been spending £100 week with me but now has to pay £110 for the same goods, have the extra £10, or will they simply buy less? More worrying is if that basket of goods rises to £120, will they more likely turn to the multiples?
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