InduSTry CoMMEnT: BHETA Will Jones


PRICE INCREASES: SEVEN ESSENTIAL POINTS FOR SUPPLIERS AND BUYERS


Jamie Fisher N


A viewpoint from Will Jones, Chief Operating Officer of BHETA – the leading UK Trade Association for manufacturers, importers, and distributors who operate in the home Improvement and garden sectors. With contributions from Jamie Fisher, Sales Director of Monument Tools, and a member of BHETA’s DIY Committee.


egotiating price increases is always complicated and a feeling of mutual success between the parties requires


certain skills in any supply chain. Today, we find ourselves in an especially challenging place – an inflationary market after many years of low inflation (largely below 5% for the best part of thirty years). And frankly, that means that many retail buyers and suppliers’ sales teams simply have never had experience of the intricacies of putting through price increases successfully during inflationary times.


To help the


industry, BHETA has set out the factors that suppliers and buyers really need to understand: Here are the


statistics: UK


Consumer Prices Index (CPI) rose by 8.8% in the 12 months to January. and in many DIY categories the rate is higher: power tools up by 13.4%, hand tools by 9.0%, and garden products by 16.8%. We all know the background. Inflation is the story of the world economy post-Covid, with the cost of energy, raw materials and labour shortages, war and OPEC all playing a part.


So, BHETA suggests seven key points that need to be covered in any meeting about price: 1. Proportionality – product costs are made up of many elements, including raw materials, transportation – locally and internationally - labour, energy, and processing


costs. For highly


process-driven products energy costs could represent 60% of the product cost, while


raw materials only


represent 20%. It is important both parties understand what is involved in production, and the suppliers tell the story well to retailers. Here’s an example:


The price of wheat in the 12 months to February dropped by -4% whilst the price of bread rose by 16%. The difference was the rising costs of heating the ovens, which had a much


20 DIY WEEK FEBRUARY 2023


bigger impact than the raw material price drop. 2. Lags – while prices of raw materials may spike up and down quickly many suppliers spot buy large volumes of materials which they use for many months. A raw material price dropping 20% in the last three months might be irrelevant for a manufacturer who bulk bought stock six months ago. 3. Country of origin – for large and heavy products imported from the Far East, the cost of freight can be highly significant, far outstripping the raw materials costs. Many such products only have a small number of units per container and became uneconomical to ship from China in 2021/2 when container prices rocketed.


4. Exchange rates – Many UK business pay in dollars for imports. UK Sterling lost 12% of its value against the dollar during the 12 months to February. A commodity bought in dollars may have dropped in price by 10% but the dollar rate alone may mean that an individual product price increased by 2%. 5. Notice periods – many commercial agreements between buyer and supplier have a notice period. For


example, this could be four months when a supplier sells to a wholesaler who then sells to buying groups. In an inflationary market the supplier needs to be able to price four months’ worth of future inflation into the price agreement. 6.


History – when considering


proposed price increases from a supplier, retail buyers need to consider the historic price changes made by individual suppliers for individual products, and not impose blanket bans. For example, some manufacturers have actively avoided annual price changes, but when input prices have risen to the point where a price increase is imperative, they have then been hit by blanket price increase rejections.


It is important


not to penalise companies who have held off from standard annual price increases when circumstances dictate genuine need. 7.


Specification of


of steel is widely available. However, the price of ‘raw steel’ from a foundry and the price of ‘specified steel’ which has been worked into a form usable for product manufacture can be radically different. ‘Specified steel’ is often formed using energy intensive processes, meaning the price might be three times that of raw, with the largest element of the value being the energy needed to transform it. The price of the ‘raw steel’ can be totally misleading.


One final point for both suppliers ‘commodity’


items – retail buyers need to be aware that there is often a huge difference between the price of ‘commodities’ quoted on websites and exchanges, and the specified version of that commodity that is then actually used in products. Steel is a great example. The fluctuating commodity price


and retailers - price increases are not necessarily all bad news for the market. Real supply chain partners need to make money mutually to deliver profit, shareholder value and longevity. Price increases are inevitable in an inflationary market, and for retailers who have negotiated rebate structures, price increases drive real added value for those receiving the rebates! This is all about communicating the facts effectively.


• For more information about BHETA, BHETA events and BHETA services, contact the BHETA Member Services team on 0121 237 1130 or visit the BHETA website www.bheta.co.uk.


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