Food and beverage manufacturers have watched the last 12-18 months while the prices in raw materials have skyrocketed and placed pressure on already constrained margins. What’s more, it is not exclusively food and beverage ingredient prices that are swollen. Work shortages and increased labor expenses are a big part of the margin compression puzzle, not to mention fuel and distribution costs. Even the prices and availability of the wooden pallets that you use to pack and distribute your products are being squeezed.
However, it is not all desperation in the latest food & beverage industry trends and news from our clients. Many in the industry are reporting new and counter intuitive methods of not only surviving in the ‘new normal’ but finding innovative ways to thrive in sheer spite of it.
At Pricefx, we are assisting an ever-increasing number of food and beverage clients in embracing the unprecedented changes. By using AI (Artificial Intelligence) and machine-learning based pricing software, our clients are continuing to report surprising successes by pivoting real-time responses in their pricing strategies.
In this article we look ahead to which possible food & beverage industry trends and tips look set to become the fashion in 2022, and innovative pricing strategies to increase profit for the year ahead.
The Food and Beverage Industry Requires Flexibility in 2022
As a food and beverage industry company, your pricing strategy should be based on what makes your organization tick, the objectives of your unique business model and the value that your exclusive methods bring to your equally distinct set of customers. Of course, these objectives mean that there are a number of pricing metrics to track (see below) in order to keep your business thriving and keep your pricing strategy coordinated. However, more than the actual process itself that you will be looking to implement, an over-arching philosophy will set most strategic pricing plans apart in 2022. That over-arching philosophy? Flexibility.
In 2021, food and beverage companies that had adaptive and responsive pricing technology in place were able to roll with the punches. That’s why flexible pricing based on fluctuating commodity prices and navigating a labyrinth of supply and demand disruptions are anticipated secrets of pricing success for agile and progressive companies. While meeting unprecedented surges in demand, adapting to changing customer needs and pivoting to serve new unfolding market segments of the market should also lead to great outcomes.
So, if rapid and unprecedented rates of change are the new normal for the food and beverage industry, it would be great to be able to respond in a fast and flexible fashion, right?
Targeted and granular “what-if” predictions and simulations can help you to understand the potential impact of price changes, allowing you to clearly anticipate what things might look like for the next 12-month period were you to make certain price tweaks (like increasing prices for high-value food and beverage products like ethically sourced coffee or chocolate for example).
Drilling down and segmenting as much as possible into the different costs of your products will enable;
Quickly and intelligently responding to market prices and sudden changes, while continuing to honor (and update if necessary) your customer contracts
Setting of optimized pricing that your sales team will trust, using real-time market data; and
Uncovering profit margin opportunities for your business with a holistic view of product and customer pricing & profitability
In 2022, when the era of every food and beverage industry moment being ‘unprecedented’ is expected to continue unabated, targeted and granular pricing is an ‘obligatory must have’ power tool you really need in your pricing strategy ‘tool shed’.
The Most Important Pricing Metrics to Track in 2022 and Why
Now that you have an idea of how you can remain agile, you’ll want to know what key metrics to track.
Key pricing metrics in the food and beverage industry (such as costs, margins, sales, historical sales, labor expenditure etc.) will remain as ever in the year ahead. However, the way your business applies and uses them in 2022 may be among the greatest changes coming up. Additionally, we recommend paying particular attention to tracking the following contemporary trends in F&B industry shifts in 2022;
Lag (Lead) Time– In 2022, keeping track of your lead time at the most granular level possible will be critical. For example, some food service distributors are facing millions of dollars in the compression of their margins as they calculate lead times annually. Understanding, calculating, and acting quickly on changes in lead time can allow your business to maximize profit, cut losses and get orders out-of-the-door quickly and efficiently. For 2022, consider monthly or even weekly re-calculations of your lead times to keep pace with the amount of price fluctuation expected.
Lag Time to update contracts – Keep your contracts as up to date as possible. If your costs go up, inform your customers through a new contract to raise prices ASAP. The reverse applies if prices suddenly drop. Naturally, if the cost of your food or beverage ingredient prices drops, notify and reduce your contracted price to your customers ASAP. Failing to update your contracts with your customers ASAP will either lead to a loss of profit, or in the worst-case scenario, loss of your customer entirely if prices drop and they are not passed on.
Invoice Payment Times – Don’t fall asleep at the invoice payment wheel. Pay your invoices on time or even early. Don’t wait for an invoice to be re-issued at a higher rate (entirely possible at the rate of change expected for 2022).
Production Downtime – Is your production plant well-maintained, machines running smoothly and keeping up-to-speed with production?
Work Force – Do you have enough workers engaged to ensure your plant production is running up to the pace you require to maintain your food and beverage contracts?
Promotion Costs – If you have high demand for your chocolate chip cookie dough mix, does it really need to still be discounted? Or do you want customers to see it has value as a premium product?
Track products shifts from wholesale to retail – Consider the continuing anticipated shift from wholesale to retail as a food and beverage industry trend in 2022 as an avenue to potentially increasing prices.
The above are purely hints looking at overall food & beverage industry trends.
However,the best key food and beverage industry pricing metrics for your business to apply in 2022 will be specific to your organization, its products, and your unique set of business objectives.
Whatever the costs of your products are, they will always be a combination of single costs items. Furthermore, the costs can be specific by sector of the food and beverage industry. For example, you need to price 10 x 2.2lb bags of your sugar differently from the wholesale 22lb bag of sugar you sell wholesale to a commercial bakery. Demand is shifting continuously and being more granular in price settings is more necessary than ever before.
The more industry sector specific your pricing can be for the year ahead, the smoother your pathway to achieving your business goals.
Implementing a More Efficient Pricing Strategy for 2022
If you are looking to celebrate getting “back to normal” (or at least comfortable with being uncomfortable with rapid change) in 2022 by taking the accuracy of your pricing strategy up several notches, then your new company mantra should be ‘efficiency and flexibility’.
The 2022 food and beverage industry trends and tips above have been sourced through the data insight of Pricefx’s cloud-native AI-powered pricing solution and we hope you can use this advice to have a successful business year ahead.
If you would like to learn more about how to develop a more efficient pricing strategy in the wake of the unprecedented rate of change across the economy, check out our recent blog article:
Tim Shorter is the Chief Sales Officer at Pricefx. He has spent the last 22 years helping organizations drive digital transformation with an emphasis on pricing, business optimization, business intelligence and business process efficiency centered on improving bottom-line margin achievement. Tim, in his 11-year tenure within the pricing solutions industry, has focused his experience in partnering with customers to drive company-wide digital transformation and greater profitability.