How suppliers can navigate the thorny issue of cost price increases with demanding retailers

Nothing brings out the nervousness of suppliers like taking a cost priceincrease (CPI) to large customers. Buyers have always demanded to seea justification for CPIs, and suppliers have always mumbled responses aboutforeign exchange, transport costs or the global price of raw materials. Untilnow. Recently buyers have made demands for line-by-line, component-by-componentbreakdown of input costs on spreadsheet forms.

These new forms demand access to some of a supplier’s most commerciallysensitive information, and they come from customers who run competitiveown-label products or may be interested in gaining leverage via another brandedsupplier. It’s one thing to assist a retailer by providing publicly availabledata conveniently in one place, but entirely another to share the intimatefinancial details of the business model detailing commercials through thesupply chain.

To navigate the thorny issue of CPI, suppliers should start by ensuring themove is realistic and appropriate, then be clear and specific in itscommunication, especially the applicable date. Make a clear choice on what datacan support the justification of price increase. These new forms createa challenge, as inevitably the information will later get used against thesupplier – yet suppliers have been told “you have to share all the cost detailsbefore I’ll consider your cost increase request”.

I now advise them to complete the ‘cost price increase request’ template, butonly include publicly available market information. Just enter ‘commerciallyconfidential’ in the delicate parts and wait for the call. In the end, it’s thesame battle of wills it always was – the cost price is effective from the firstof next month, and if you don’t confirm agreement, deliveries will stop.

Interestingly in Australia, where two big retailers dominate, their GroceryCode of Conduct (the equivalent of our GSCOP) was updated in 2020 to include:“The retailer or wholesaler must not require the supplier to disclosecommercially sensitive information in relation to the following: (a) the priceincrease; (b) negotiations about an increase in the price for the groceries.Nothing in this clause affects the rights of a supplier to determine the priceof groceries that the supplier supplies.”

The retailers have 30 days to respond to the notification, to accept or enternegotiation, at which point the code insists: “A retailer or wholesaler thatenters into such negotiations must engage in the negotiations in good faith andtake all reasonable steps to conclude its position on the negotiations withoutdelay.”

This last piece contrasts greatly with our UK panto, where the typicallyreverent 12-week notice is met with a flat refusal followed by hiding undera rock for 11 weeks. I’m rarely a fan of intervention in our business world,but maybe it’s time to consider such inclusions in GSCOP to clear up this keyarea of tension once and for all.

Sentinel Management Consultants deliver sales, negotiation, planning and finance training courses for our clients worldwide.