Keep an eye on costs to avoid price increases

Managing costs can help you ride the storm of economic downturn, according to Nigel Scorey, managing director of procurement firm Procure4

First energy costs began to climb steeply then the food sector began to report rising inflation. With a credit crunch, sub-prime loans and jittery markets, it's no wonder the hospitality sector is worried that consumers will tighten their belts.

But this is no time to panic. You may expect market growth to slow, but that doesn't necessarily have to convert into a profits slump. Simply managing your costs can transform your business, and price increases in an inflationary market can be legitimate, so long as they're in line with that market.

First, take a step back and look at your cost base. If you expect there's less scope for growth, then explore how you can manage your supply chain better. For a start, it's highly unlikely that all areas of your business will be facing the same level of inflationary pressure. So it's crucial to identify where inflation is really unavoidable and where it's not.

Operators may be facing food cost hikes, but food is, in reality, only a small part of overall business costs. That means savings elsewhere can easily offset price rises in one area, however steep they appear to be.

Only after you've looked at non-inflationary areas should you go back to the inflationary items. Despite the stories in the papers, don't be fooled by the spin doctors. Not every category should be experiencing inflation, but to make sure you get the right deal, you need broad market insight. In other words, you can manage your way through a period of inflation: it is, after all, just the market correcting itself.

Of course, it's not good practice to jump on any bandwagon and push your prices higher, but you can make legitimate price increases in line with the market to maintain your margins in areas which are genuinely affected by inflation.

If you keep a proper handle on your costs, and can even reduce them, you'll be able to increase your profit margins without needing to pass on increases to your customers or investing heavily in marketing to achieve market growth.

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