Nobody can spot inflation better than a retailer.
While the Office of National Statistics needs to put together huge imaginary baskets containing thousands of items, we simply look at our invoices, or tills and shelves to get a general feel for it.
To see the drastic rises over the past six months, look no further than soft drinks and confectionery. While suppliers have battled to keep high performing £1 PMPs at the same price, standard bars have crept up to the point where the £1 bars are cannibalising them.
In soft drinks, over the past six months I’ve watched Irn Bru go from 69p to 79p to 89p to 99p, while my sales have gone from 15 cases to 8-10 cases.
In stores like mine, where confectionery, tobacco and soft drinks are big sellers, it’s not just the impact on sales, but the impact on consumer confidence as well.
When prices rise quickly and repeatedly, customers notice, especially on everyday items. You can take steps to make sure customers know it’s not you pushing the prices up, such as increasing PMPs or countering it with strong promotional displays, but it’s not a perfect solution. Stores with a high focus on goods less affected by price rises, such as specialist cuisines and local produce, will be slightly more insulated from the impact of inflation, but this may change as discretionary incomes feel the pinch.
Stores would do well to apply the formula for price elasticity to different products in store and manage price accordingly.
Work out what price rises mean to you:
- Calculate the percentage change in sales on a product a week following a price change,
- divide it by the percentage change in price.
- Ignore the negative sign in the answer.
What does it mean:
- If the answer is 0, your sales are not affected by the price change.
- If the answer is 0-1, the change is generating more revenue. If the answer is above 1, the change is generating less revenue.