Australia’s Coles overwhelmed by suppliers’ requests to raise prices

As Australia’s inflation accelerated to a 32-year high, the higher cost of doing business is eating into suppliers’ profits and threatening their survival as customers are not willing to accept higher prices.

With inflation rising to 7.3% in the last quarter, supermarket chains Woolworths and Coles are facing tremendous pressure from food and grocery suppliers to raise the shelf prices of their products, but the chains are hesitant to do so due to fear of falling sales.

Since the pandemic began, Australian businesses have been struggling to deal with the rising prices, and the ongoing supply chain issues drove the inflation even higher.

Coles, Australia’s second-largest supermarket, recently notified its suppliers to cut their costs rather than asking for price hikes for the products supplied to the group.

While the supermarket may approve or reject suppliers' price increase requests on a case-by-case basis, it has clearly specified that it will consider raw material or packaging in price increase requests but not higher marketing costs.

At the same time, Coles believes the softening of commodity prices will reduce some cost pressure on the suppliers, which it expects to be reflected in cost reduction to the company.

In a note sent to suppliers, it said: “All businesses will incur impacts to the cost of doing business at some point. Every business needs to turn its mind to how it can remove costs from its operations. This is something that Coles continually does and is a fundamental part of our strategy.”

“Even where you can substantiate increases to cost of doing business including rising cost of inputs, Coles may not accept your request for a cost increase in full or at all. Coles must balance customer needs, Coles value proposition and the competitive environment. Your organisation needs to be continually reviewing how you operate to offset costs,” it continued.

So, how can small businesses fine-tune their business practices to counter the increase in costs and improve their cash flows?

Small firms typically have lesser cash reserves than larger corporations and are often the first to feel the effects of a recession.

With dwindling hope, SMEs must focus their working capital, particularly accounts receivable, in order to improve their cash flows.

In addition, internal invoicing processes and maintaining customer relationships are also crucial to survival.

At RIABU, we have developed a concept called the Virtuous Revenue Cycle (VRC), which is discussed in our book Let the Cash Flow, focuses on continuous improvement in service culture, findings ways to delight customers by anticipating and responding to their every need, and ensuring that you get paid on time.

The VRC includes understanding mutual expectations through written credit policy, proactive customer service, and engaging the whole team to identify and resolve unmet customer expectations and assure timely payment.

We believe that by taking an active and pre-emptive approach towards managing cash flow, SMEs can greatly improve their odds of surviving and thriving.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com