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Businesses to push back on costs as price competition heats up

22-May-2023 - Last updated on 22-May-2023 at 11:49 GMT

Suppliers could face tough renogiation on contracts as businesses predict inflation to fall

Deflation is real and businesses that don’t push costs back down could lose out to competitors, according to procurement and supply chain management consultancy Inverto.

Sushank Agarwal, managing director at Inverto, urged businesses to renegotiate with their suppliers to bring prices down or risk losing out to their competitors as price competition heats up.

“The coming months are going to see significant price competition as costs come down, especially in certain commodities,” said Agarwal. “Those businesses that are unable to cut prices in line with the rest of the market could lose out significantly.

“Some of the major supermarket groups are already starting to compete more heavily on price – milk is one product where we’re seeing price cuts. This trend is going to be repeated across a whole range of industries.”

Negotiating prices

Agarwal lamented that a lot of businesses have fallen out of the habit of negotiating prices down over the past of year and need to get back to doing that quickly.

Inverto’s observations were based on evidence that costs had already started to noticeably fall across a range of products, despite the Consumer Price Index only falling 0.3% from February to March. This included the aforementioned milk, down 7% from its peak in 2022.

Agarwal argued that businesses must proactively engage with suppliers and put pressure on them to cut their prices, just as suppliers put upward pressure on prices when inflation was rising.

More businesses should now be looking to renegotiate and structure their contracts in a way that allows prices to decrease as inflation falls, rather than only moving in one direction.

Businesses pushing back

“Every business in the UK will have seen its costs rise over the last 18 months, with suppliers blaming inflation for their own prices going up. Now that period is over, businesses have to push back in the other direction,” he continued.

“Businesses can take a lot of the stress and time out of these price negotiations by agreeing transparent pricing mechanisms in their contracts with suppliers. These mechanisms can ensure that customers know they aren’t being taken advantage of in pricing, while suppliers know that they will get a fair margin even when prices start to come down.”

However, Premier Foods suggested prices UK consumers are paying were unlikely to come down to pre-inflation levels once the current cost pressures begin to pass.

Speaking at a media presentation for the manufacturer’s annual results, chief executive Alex Whitehouse said: “It does look as though we’re not going to see prices rising as quickly anymore. We’re not expecting to have to increase our prices any further this year.

“I don’t anticipate overall we’re going to see net deflation but I do expect that we’ll see a much more normalised level of inflation.”