To combat suppliers' inflation tactics, you need to consider diversifying your supplier base and negotiating better contracts. But let's look into the details of these tactics. 

As I was reviewing the ACCC report on supermarkets, which discussed some of the inflationary pressures that retailers face. You can read it here.

While reading it, I thought of the problems that SMB retailers face. While we strive to maintain competitive prices for our customers, suppliers often use subtle tactics to increase costs. Here, I will list some to help you both identify these tactics, know the public discourse on the subject, and some actionable strategies to protect your business.

Here are the standard Supplier Inflation Tactics

They are generally subtle, as suppliers are accustomed to inflation and know how to adjust prices with minimal fuss. They try to raise prices without explicitly doing so, creating an illusion of price stability that is not true. Yet, these methods will significantly impact margins and reduce customer trust in you, even though it is not your fault.

Shrinkflation

It is now the most common method; shrinkflation occurs when suppliers reduce the size or quantity of a product while keeping the price unchanged. For instance, a cereal box might shrink from 560g to 495g, but the price remains $4.50. Often, the box size remains the same. This hidden cost increase erodes value for both you and your customers. I have spoken about it here.

Skimpflation

The most common term for this is "shitflation," but let's be polite. Skimpflation is lowering product quality without reducing prices. Examples include switching to cheaper ingredients or materials. Recently, a customer of ours reported that they are receiving complaints because the paper for a photocopier they supplied is not as good as it used to be. Here is a direct example of how these changes lead to customer dissatisfaction and affect their reputation.

Stealth Inflation

This tactic involves adding hidden fees or surcharges instead of raising base prices. For example, some suppliers have now introduced "handling fees", which inflate costs without appearing as a direct price increase on invoices.

Shadow Inflation

Here, we observe a decline in service quality with no corresponding price increase. Suppliers may send reps less frequently, have longer delivery times, take longer to repair, or reduce customer support.

Excuseflation

Suppliers may use general inflation as an excuse to raise prices. I had a beauty a few days ago when I complained about the price increase. One wanted to change me over to UPS. The supplier informed me that it was due to Trump's tariffs. I just laughed; what do you think? Are we that stupid to believe that? Those tariffs only apply to goods coming from some countries into the US. I am in Australia, so come up with another excuse to justify this price rise.

Actionable Strategies for Retailers

Here are some proactive strategies for mitigating the effects of supplier-driven inflation: Protect your margins while maintaining customer trust.

Monitor Product Changes

You will never do much about it if you do not know about it. Here is where a modern POS system can help you manage inflation impacts effectively:

• Tracking margin changes in real-time.
• Identifying trends in product specifications and Pricing.
• Comparing supplier performance metrics like delivery reliability and price stability.
• Integrating customer feedback data to assess how product changes affect satisfaction.
• I had a customer who, when he realised that the items were suddenly smaller, changed the old ones in stock at a slightly higher price. You should not do that, but he argued that the old ones were worth more now.

Negotiate with Suppliers

• Highlight with them effective price increases
• Request discounts, or they may have alternative products that offer better value.
• Demand advance notice of product changes.

Diversify Your Supply Chain

• Source alternative suppliers for key products to avoid over-reliance on a single vendor.
• Compare suppliers based on Pricing

Adjust Pricing Strategically

• You need to be aware of a price change has occurred Consider communicating with your customers about necessary price adjustments due to supplier cost increases. The ACCC wants this, but I am unsure if it's a good or possible idea. Some suppliers withdraw a previous product and make a new product, e.g., 12 pencils in a box become 10 pencils in a box. It certainly is vital that you know about it if it comes up.
• Offer value-added promotions like bundles or loyalty rewards to soften the impact of price hikes.
• I like introducing tiered pricing options with premium, budget, and cheap alternatives to cater to diverse customer needs.

Conclusion

The reality is that inflation is terrible now. We are all feeling it. It may cost the government the election, as many blame it on them. Whether that is true or not, I can tell you it's not our fault.

What needs to be monitored as it causes:

Margin Pressure

Hidden cost increases reduce your profit margins, forcing you to make tough decisions about pricing strategies.

Inventory Complexity

Product changes due to shrinkflation or skimpflation complicate inventory management and purchasing decisions.

Customer Trust Issues

Customers may attribute perceived price increases or declining quality to you rather than the supplier, which can damage trust in your shop.

Administrative Burden

Monitoring and responding to these tactics requires additional time and resources that could be spent on other aspects of your business.

Written by:

Bernard Zimmermann is the founding director at POS Solutions, a leading point-of-sale system company with 45 years of industry experience. He consults to various organisations, from small businesses to large retailers and government institutions. Bernard is passionate about helping companies optimise their operations through innovative POS technology and enabling seamless customer experiences through effective software solutions.

We have all seen firsthand firsthand how economic downturns can impact retail. We must accept that Australians face a significant financial challenge in the immediate future, and retailers must adapt their product offerings to these times. 
 

Here are the RBA Australian Economic Forecast: Labor Market, Consumer Spending, and Inflation Trends (2024-2026)

As you can see, unemployment is expected to remain stable, and wage growth will be less than inflation, so household consumption will be below inflation. As such, the consumer and, as such, the retailer are looking at challenging times.

Understanding Consumer Behaviour in Tough Times

During economic uncertainty, consumers tighten their belts and try to cut money where they can, but they don't stop spending entirely. Instead, they prioritise:

• Essential items
• Products that offer value for money
• Small, affordable luxuries

Targeting your inventory with these priorities can help weather the storm as a retailer.

I have seen firsthand how retailers in one field, like newsagencies, have moved successfully into totally unrelated fields like liquor, groceries and clothing, so accept an idea that is out of the box.

Top Product Categories to Consider

1. Children's Essentials

Parents always prioritise their children's needs, which they rarely cut down. Consider stocking:

• Children's clothing (especially basics) - Clothing, in general, has proven to be an item that most retailers can get into. Kids need a constantly changing wardrobe.
• Particularly, look at baby products.
• Educational toys and books
• Children art supplies

My experience talking to retailers Is that children's clothing maintains steady sales even when adult fashion retailers struggle.

2. Affordable Luxuries

People still want to treat themselves, just on a smaller scale. Look into:

• Cosmetics and skincare - Women do not cut down much on cosmitics.
• Gourmet food items
• Small home decor pieces

Tip: Create attractive displays of these items near your checkout to encourage impulse buys.

3. Home Maintenance Products

As people spend more time at home, home improvement spending goes up:

• Tools 
• Paint and decorating materials
• Gardening essentials
• House cleaning supplies

4. Health and Wellness Items

Health becomes a top priority during uncertain times. Consider:

• Vitamins and supplements - I wonder why more retailers overlook these products.
• Fitness equipment and books.

5. Pet Supplies

Pet owners rarely skimp on their furry friends. Stock up on:

• Toys and treats - particularly dogs
• Pet care items and books.

Pricing and Promotion Strategies

To make these product categories work for your business:

1. Emphasise value: Highlight cost-per-use or long-term savings.
2. Bundle products: Create value packs that offer slight discounts. Bundles work well in difficult times.

Leveraging Technology

Your point-of-sale system can be a powerful tool in navigating these challenges. Use it to:

• Track inventory trends
• Identify your best-selling items
• Manage promotions effectively

Personal insight: Our POS software has helped retailers quickly identify their product mix that sells now based on real-time sales data, which is a crucial advantage in rapidly changing markets. This information is not theoretical but honest facts about what is happening in your business. It takes you one second to find out, see here.

The Bottom Line

Success in retail isn't about being the past, but about the future, the most adaptable to change always win.

Adjust your product mix to the current times, emphasise necessities and affordable treats. Really dig into the information from your POS system - it's full of useful information about what your customers buy from you.

These approaches have helped many retailers I've worked with stay strong during tough economic times. You can do it too.

A supplier to newsagencies approached us about a range of sustainable products they are releasing, eco-friendly greeting cards.. This brought up the Sustainability Dilemma: what "Customers Say vs. What They Buy." Do customers want these cards? 

This is a frequent problem in retail, where people express their wants but act differently. A famous example of this is studied extensively in marketing textbooks, in the 1950s when Ford introduced the Ford Edsel. This is widely regarded as one of the biggest marketing failures in history. One factor in this failure was Ford's decision to listen to the public's feedback and create a car based on this. However, when presented to the public, the car was a flop. What the public had said did not align with their actual desires.

Now, as a retailer, you understand that consumer demand is critical. Yet, often, you need some intelligence. The fact that customers frequently support strongly eco-friendly products does not mean they buy them.

Here is a study that shows what happened when consumers and senior retail executives were surveyed on sustainable products. Two-thirds of consumers said that they would pay more for sustainable products. However, most retailers stated consumers do not pay more for sustainable products. The retailers based their claim on what they said the public was doing. Read the report here.

So Are Customers Truly Ready to Pay More for Sustainable Products?

Let's explore what it means for your business.

The Conflicting Picture

• The Vocal Demand: Surveys consistently indicate that consumers care about sustainability. They say they are willing to pay more for products that align with their values.
• The Reality: Retailers see that old habits and price sensitivity often reign supreme in the market. Sustainable options get much interest but rarely make it to the sale.

Understanding the Disconnect

Here's what might contribute to this gap between what the public says and their actions:

• The Cost Barrier: Even well-intentioned consumers balk at significant premiums for eco-friendly alternatives.
• Trust: People have been burnt before eco-friendly and need convincing that your product is eco-friendly.
• Established brands: People like the products they buy now.
• Change: Sustainable products are often different, and people often do not want to change.

What This Dilemma Means for Retailers

• Missed Opportunities: If you rely solely on people's comments, you will probably overestimate the immediate market for sustainable goods.
• Long Game: Consumer behaviour rarely moves quickly. You must educate, show value, and build long-term relationships with eco-conscious shoppers. This is not always possible in a shop.

Tackling the Challenge

• Start with Data: Use your sales figures to understand which sustainable options resonate with customers. Don't guess! Please use your sales reports. Facts do not lie.
• Transparency Wins: Build trust by being transparent about specific sustainable aspects of your products. Be prepared to have info to back it up.

The takeaway: Customer opinions about sustainability matter, but they don't predict sales on their own

. Innovative retailers keep a pulse on the public conversation while making strategic, data-driven decisions on where and how to invest, e.g. small test displays of sustainable products first.