Inflation rates are cooling globally signaling a return to stability after years of record highs. In the UK, inflation has already seen a significant drop, down to 1.7% in September this year.
As a result, price-sensitive retailers and consumers are expecting more price stability.
However, for wholesalers facing fluctuating commodity costs, as well as high labour and shipping costs, pausing or minimising price changes may risk eroding profit margins, writes John Moss, pricing expert and CEO of Flintfox International.
To protect profits while retaining customer loyalty, wholesale businesses will benefit from data-driven pricing strategies and more sophisticated price adjustments.
Understanding the pressure on wholesale pricing
The recent period of high inflation saw wholesalers implementing regular price increases to offset rising costs. This era of frequent price hikes, however, has left lasting effects on consumer expectations. Today’s consumers, having experienced the pinch of higher prices, have grown more price sensitive. As inflation slows, many consumers expect price increases will end and are even hoping for price cuts on some products. This pressure on retailers creates a ripple effect, driving them to seek more competitive pricing from wholesalers, who then face the challenge of striking the right balance for prices that ensure profitability without alienating customers.
This challenge is compounded by the volatile cost of raw materials, which remains highly susceptible to factors such as extreme weather events, fluctuating energy prices, and geopolitical tensions. For example, while the cost of wheat has declined, reaching its lowest level since the first quarter of the year in November, olive oil prices have increased sharply, resulting in as much as a 42% uplift in price at major UK supermarkets over just twelve months. Navigating these unpredictable patterns in commodity pricing, whether we’re seeing sudden spikes or sharp downturns, means wholesalers need to remain agile and ready to adjust their pricing strategies at pace, ensuring they can protect their margins against changing market conditions.
The challenge of volatile commodity prices is made more complex by high labour and shipping costs, and ongoing supply chain disruption caused by strikes and conflicts in Europe and the Middle East. Combined, these factors create an uncertain market, impacting supply and demand and threatening to drive inflation rates back up. For wholesalers, understanding the potential for surges in inflation is essential, reminding businesses to avoid knee-jerk reactions when it comes to decisions around inventory, pricing, and long-term strategy.
Pricing as the most powerful profit lever
For wholesalers facing these pressures, pricing remains the most powerful lever to maintain and grow margins, delivering an outsized impact on profitability. According to research from McKinsey, a modest 1% increase in prices can yield as much as a 22% boost in margin for wholesale distributors – far more efficient than volume growth, which would require a 6% increase to achieve the same margin impact.
However, as inflation cools and remains low, wholesalers will naturally be tempted to pause price hikes or even reduce prices. While this reaction might align with consumer and retailer expectations in the short term, it risks undermining profitability in the long term with wholesalers who adopt a more reactive approach to price changes at risk of eroding margins.
Instead, a proactive approach grounded in reliable, real-time data allows wholesalers to adjust prices with precision, adapting to market conditions while adhering to strategies for growth and resilience. This data-driven approach helps wholesalers minimise loss and better positions them to withstand future market shifts.
Preparing for future uncertainty
As we move into 2025, we are expecting a year of continued market fluctuation. To successfully navigate this, it’s time for the wholesale industry to focus on pricing and its unrivalled ability to deliver sustained margin growth.
Pricing complexity has long been the standard experience for wholesale, with the industry tasked with managing pricing and rebates on both the buy-side and sell-side while dealing with huge volumes of transactions, products and customers. These challenges are only amplified by a changing, unpredictable economic landscape.
To thrive against this backdrop, adaptability will be key for wholesalers and, to achieve this, they will need the right tools in place. By investing in advanced technology solutions such as pricing automation, wholesalers can ensure they have the flexibility and capacity to execute large volumes of price changes in real-time, accounting for external pressures such as spikes in inflation or shifting commodity prices.
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