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“Let’s Talk Turkey” on Price Increases

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Reading the latest business headlines makes for rather a surreal experience now. Previous predictions of financial freefall, mass job losses and overheating interest rates have been turned on their heads. The good news is that demand is well and truly back with a bang.

Consumers are revelling in post-lockdown freedoms and spending with vigour on everything from eating out to intensive retail therapy. But is demand outstripping supply?

The drop off in production from the pandemic lockdowns and subsequent ‘pingdemic’, then sudden return of demand has led to big headaches for ops managers and frustration for customers too. It’s true that input costs are climbing, and the spectre of labour shortages are becoming a reality, meaning supplies are either delayed, unavailable or eye-wateringly expensive.

Rather than facing growing unemployment, the UK and wider economies seem to be experiencing the opposite with one of the biggest labour deficits in recent history. The news headlines make mention of ‘no turkey for Christmas’, ‘Fear for food security’ and ‘Prisoners needed to run meat plants’. But the truth is, there is a real threat that seems to be growing in magnitude, of supply and demand drifting alarmingly out of kilter.

There are simply not enough lorry drivers, meat processors, and a multitude of other workers to keep the wheels turning on output. There’s no shortage however, of theories and explanations for the situation with everything from Brexit to changes in individuals’ career aspirations being blamed. But the bottom line is, it’s serious and it’s not the only threat to recovery for SMEs.

With so many variables in the mix – from pingdemic aftershocks to supply chain disruption, rising input costs and lingering consumer nervousness, it’s difficult to predict the real prospects for independent businesses.

Utility cost hikes and VAT increases – (e.g., the new rate of VAT for the tourist and hospitality industry will be 12.5% from 1 October 2021), add insult to injury and SMEs will need nerves of steel and some ingenuity as they hope for the supply and demand interdependency to find harmony again.

Coffee is one area that usually enjoys popularity and resilient sales even in economic downturns, but consumers may need to spend more on their daily ‘cup of Joe’ and not just because of labour shortages or rising shipping costs.

Stokes Tea & Coffee is a family firm that has mastered the art of coffee and tea perfection over the 119 years it has been operating. From sourcing to roasting and blending, this business has been putting a stamp of unrivalled quality into supplying the best products to both wholesale and retail customers. But even a company with over a century of know-how and strong supplier networks isn’t immune to the latest disruption.

Nick Peel is the fourth generation in the Stokes family to lead the company and he shared some insight into what’s going on in his sector.

He said: “The current situation is quite unprecedented. SMEs across the UK are being indirectly and directly affected by labour shortages and rising costs. But, in the coffee sector the pandemic and the weather are adding to the problems of achieving stability in the supply chain and there are growing concerns over global supply.

“We source coffee beans from farmers all over the world including Vietnam and Brazil. Tough Travel restrictions after a surge in cases of the Delta variant of the coronavirus in Vietnam and extreme weather in Brazil, including drought and unusually low temperatures have meant crops are failing or just not being harvested.”

Vietnam is the world’s second largest producer and exporter of coffee and a major producer of Robusta, used in some espresso blends. Wholesale Robusta bean prices have gone up 50% this year. Brazil is the world’s biggest producer of the premium Arabica coffee beans. The worst frosts in Brazil since 1994 have sent the cost of unroasted coffee beans to the highest level seen in seven years.

The hike in coffee prices will further raise the cost of a basket of shopping following increases for other items such as bread, vegetable oils and sugar. The United Nations food agency’s index of world food prices for July 2021 showed a year-on-year rise of 31%.

Nick added: “To date, my team and I have been doing everything we can to increase efficiencies, innovate and reduce costs to absorb cost increases and protect our customers from a general hike in prices for the last three years. But, to support long-term sustainability and ensure we can continue to supply our customers with the quality and service they expect, we have to review our pricing structure.”

Independent British businesses are facing challenges from a multitude of external factors outside of their control and price increases look inevitable across all sectors.

Faltering supply chains and huge spikes in input costs could stifle the strength and speed of any economic recovery for some time as industry leaders and business owners alike, grapple with ever-unfolding events.

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