SMEs are cranking up their prices
An article by Cameron Research
Recently, Cameron Research reached out to a host of SMEs across the country. A key theme that emerged is that those that CAN increase their prices ARE increasing their prices. Inflation here we come.
Some have raised prices in an effort to pass through increases in the cost of inputs into their business, whereas others have done so ‘because they can’ – that is, demand in some industries is running so strongly that they can increase prices and get away with it.
Those that aren’t raising prices tend to be SMEs that either have no pricing power (often smaller businesses), or those that are doing it very tough in their business. Their challenge is survival, not profit maximisation.
Regardless of the reason, many SMEs are taking, or have taken, the opportunity to increase their prices, particularly medium-sized businesses, which are those that tend to have the greatest pricing power:
- “Demand is exceeding supply and this is the first time that’s happened for a very long time, so we’re pushing through price increases of 5-10%. Over the summer months, demand was at an all-time-high.” (Self Storage, 450 full-time employees (FTEs)
- “Absolutely we’re increasing prices. Our suppliers increase prices regularly and continuously, like every month or so. And freight is double what it used to be“. Plus there’s 3 weeks lead-time to get any freight booked – and then of course the factory is slower … “The net result is that we’re carrying about 8 weeks more inventory than we used to – we used to carry about 45 days’ worth of stock and now it’s up to 3 months.” (Import/Wholesale/Retail, 90 FTEs)
- “We’re increasing prices. We see (increasing prices) as a discipline and we need to maintain that discipline. If you explain the rationale and can show value then people don’t argue about the price because you’re talking about value. And we’re largely B2B so if we can reduce the workload of that customer then it’s a value-add.” (Business Services, 300 FTEs)
- “We’ve increased the price of the mechanical work. We were always the cheapest in the market but it was crazy cheap so we’ve increased the basic service by $40 – from $139 to $179 – but that still makes us really cheap.” (Mechanic, 7 FTEs)
- “I’ve increased the prices slightly in my city stores and in one of my suburban stores based on the demographics – nobody has really noticed and if they have, they haven’t said anything. That in itself was a huge job because we had to re-price every single item.” (Pharmacy, 40 FTEs)
- “We’ve increased prices in some of our venues and our pub was already at the top end of the market in terms of pricing anyway.” (Hospitality, 40 FTEs, 200 casuals)
SMEs are well aware of the increasing costs that they face in their own businesses – via higher raw material prices, transport costs, wages, etc, and so some feel that they have little choice but to pass some or all of that increase through to their customers. It is noted that this doesn’t necessarily lead to increased profits …
- “I’m increasing prices but not necessarily making more money! Cattle prices have gone through the roof, so my costs are up about 30% compared to last year, especially cows. Pork is okay but cows are way up. So I’ve increased prices by 20% but I have to carry that 10% increase in my margins.” (Wholesale butcher, sole trader)
- “Yes, I’ve had to because of postage. I spent more on postage than rent last year. How nuts is that? Postage cost me $65,000 and that was before any packaging, and my rent was $55,000.” (Chocolate artisan, sole trader)
- “We’ve pushed up our pricing a little bit but that mainly corresponds to us being more sought after. I’m only doing it with the clients who are less price sensitive. It doesn’t exactly match the increase in wages which isn’t very business savvy!” (Communications consultancy, 20 FTEs)
- “We’ve increased prices on the installations by about 20%. With the actual hardware itself, that’s largely driven by the suppliers and we’ve kept our mark-up the same there, although the actual stock is costing the customer more.” (Curtain design/installation, 5 FTEs)
- “We’ve been putting up our prices. Retail, in general, has been increasing prices, and the cost of goods inflation is upwards of 25%. GDP in the world is going up so that’s putting pressure on the manufacturing in China, and there’s a lot of stuff that comes in from China. Plus, freight costs have increased considerably.” (Pet store retailer, 80 FTEs)
Conclusion
Recently, some commentators have expressed the view that inflation is on the rise. Many of our panellists struggle to believe that anyone could think anything other than this. They are experiencing significant cost-pressure in their own business and they are passing that through to customers in the form of increased prices. As noted above, some are simply taking the opportunity to increase prices ‘because they can’. Regardless of the rationale, prices are going up. For inflation to NOT rise, there must be corresponding falls in other price categories – which would surprise business owners as they don’t see it.