Categories:Funding & Financials
February 28, 2012
Gas prices are once again making the news and, as usual, it’s not because they’ve hit record lows. With gas prices rising, the question you should ask yourself is how those prices will impact your business. Yesterday we touched on a few ways you’re likely to see an impact and today we’re adding to that list with a few more to consider.
What Will Happen To Ingredient Costs?
This was the first question I had when I heard that gas prices were reaching record highs. An interesting article in The Nation showed a correlation between gas prices and food prices based on research from the 2007 – 2008 gas price hike. Between June 2007 and July 2008 gas prices increased 87% while, at the same time, food prices rose 40%. Part of that was due to the cost to run the machinery found on our farms (things like tractors which take gasoline to run) and partially due to the cost of transporting the food from the farms and factories to our store shelves.
What can an artisan food producer do if you want to maintain the quality of the ingredients you put in your products? First and foremost, since part of the rising cost of food is tied to the transportation aspect of the ingredients then I would suggest looking at the ingredients in your list and determining whether you can purchase any of those from local farmers or organizations. By seeking out vendors in your immediate area you may find that their costs aren’t going up as quickly since transportation is less of an issue for them.
The other option you face is a combination of raising your prices and/or decreasing your margins. It’s kind of a lose-lose proposition and not a decision you should make lightly. If you raise your prices you do risk pricing people out of your product and looking for a lower-priced alternative. On the flip side, if you compress your own margins you may hold onto those customers but you are making less money with every product you sell. Determining which path is best for you is a personal decision based on your specific personal and micro-economic situation.
Gas Prices May Impact Disposal Income
Gas is one of those things that most of us have a hard time cutting out entirely so when gas prices rise we all start looking at what else we can cut. Depending on your product this may mean that your product is at risk of getting cut from some customers’ lists especially if you’re product is a ‘nice to have’ but not a ‘need to have.’
One way you can try to head this off at the pass is by making sure your product’s main benefits and selling points are clearly conveyed to your customers. Whether you choose to use social media, traditional advertising, or even face-to-face meetings with customers during in-store demos or at farmers’ markets, make sure that you are clearly and concisely giving your customers’ solid reason why they should buy your product and not a lower priced alternative. Perhaps you produce a vegan, gluten-free, or raw product and you may want to tout the health benefits of your product to customers. Or perhaps you want to market your handcrafted jam, specialty honey, pickles, or cupcakes as an affordable luxury that everyone deserves from time to time.
Another option you have is to see whether you can repackage any of your items – if it’s not too prohibitively expensive – into lower-priced offerings. As an example, I used to sell a product in a gorgeous 12-pack box but when the economy first went south in 2007 I switched out to a four-pack instead. Sales on my box did decrease that year but the sales of the bagged items more than made up for it both in terms of volume and sales revenue. I had made it easier for my customers to justify buying the product because by repackaging it I made it more affordable to them without losing any margin for my company.
Well That’s All Doom & Gloom!
Between yesterday’s post and today’s I bet you’re feeling really optimistic right now, huh? The truth of the matter is that while it appears gas prices will rise it is certainly not set in stone. That being said, taking a little bit of time now to plan how any rise in gas prices might affect your business and what you can do now to prepare for it or what you will do if gas prices reach $X.XX means you will be ready to move quickly when and if the need arises. Like the Boy Scouts say, always be prepared!