Entering 2019, starting with baijiu price increases, food and beverages, condiments, paper products, chemicals, building materials, and pork followed suit, triggering a wave of price hikes. The increases have not stopped and continue...
Lay's and Luzhou Laojiao to Raise Prices from May 1st
Recently, PepsiCo Foods (China) Co., Ltd. issued a price adjustment notice: Due to varying degrees of increases in packaging materials and labor costs in recent years, our products face enormous cost pressure across the board. Despite our many efforts to overcome the pressure from rising costs, we still cannot avoid price increases to maintain our consistent excellent brand and attentive market service. After careful consideration, we have decided to increase the prices of our puffed food products from May 1, 2019.
Recently, Luzhou Laojiao also announced a price increase notice: From May 1st, the settlement price for all degrees of the company's Laojiao Tequ products will increase by 10 yuan per 500 ml, with prices for other specifications adjusted proportionally, and the price system for all channels adjusted accordingly.
Paper Companies Including Chenming, APP, Sun Paper, and Huatai Jointly Raise Prices Again
Shandong Chenming Paper: Effective immediately, the selling price of our coated paper products will increase by 200 yuan per ton based on the current execution price. From May 1st, the selling price will increase again by 200 yuan per ton!
Gold East Paper (China) Investment Co., Ltd.: From April 16, 2019, the prices of CCBU paper grades will be uniformly adjusted again: 1) Coated paper prices will increase by 200-300 yuan per ton, with JH low-grammage increasing by 300 yuan per ton and others by 200 yuan per ton; 2) Offset paper prices will increase by 200-300 yuan per ton, with 78-118g increasing by 200 yuan per ton and 68-70g by 300 yuan per ton. In addition, due to further increases in raw and auxiliary material costs for subsequent production, new orders from May 1st will see a price increase of no less than 200 yuan per ton.
Shandong Sun Paper: Effective immediately, all coated paper brand products will uniformly increase by 200 yuan per ton based on the current execution price. From May 1st, coated paper brand products will increase again by 200 yuan per ton on the above basis.
Shandong Huatai Paper Co., Ltd.: Effective immediately, the prices of all types of coated paper will increase by 200 yuan per ton. From May 1st, new orders for all types of coated paper will see another price increase of 200 yuan per ton!
Pork Prices in the Second Half of the Year May Rise by More Than 70% Year-on-Year
Affected by production capacity reduction, pork prices stopped falling and rebounded in the first quarter. In March, the average wholesale price of pork in the national market was 19.48 yuan per kilogram, up 6.3% month-on-month, 2.1% higher than before the African swine fever outbreak in August last year, and 7.6% higher than the same period last year. The average price in live pig markets rose 14.3% month-on-month and 20.5% year-on-year.
However, the current rise in pork prices is just a prelude. In the second quarter, pork prices are expected to maintain a fluctuating upward trend, with limited room for significant increases. After the breathing space of the second quarter's fluctuating rise, pork prices may reach a peak in the second half of the year. Experts have preliminarily estimated that pork prices in the second half of the year may rise by more than 70% year-on-year.
Zhu Zengyong, associate researcher at the Agricultural Information Institute of the Chinese Academy of Agricultural Sciences, gave a more specific forecast, stating that next year's New Year's Day to Spring Festival will be a peak for pork prices.
Cement, Chemical, and Other Industries Also Raise Prices
In the past two days, a large wave of cement price increase notices have been issued, with many starting to raise prices from the 20th.
After the explosion accident in Xiangshui, Jiangsu, with the vigorous rectification of the chemical industry, many small and medium-sized chemical enterprises face the crisis of exiting the market, and large enterprises have also begun to suspend production for maintenance. This phenomenon will further accelerate the speed and magnitude of increases in chemical raw material prices, and for a long time to come, domestic chemical raw material prices will remain high.
Price increases across all industries have become the norm, and the 2019 wave of price hikes will continue.
Rising raw materials, packaging, transportation, and employee costs—for manufacturers, any controllable or uncontrollable reason is a reason for price increases. Distributors, on the other hand, always face uncontrollable factors and can only passively accept price increases.
Every price increase presents both challenges and opportunities for distributors.
Challenges Brought by Price Increases to Distributors
1. To "advance" or "retreat"?
Facing rising costs, if manufacturers raise prices, most distributors, under pressure from market terminals, dare not or find it difficult to raise terminal retail prices, squeezing their original profit margins further. In addition, market share competition is basically based on price wars. Distributors, who already have weaker price competitiveness, face the strong offensive of e-commerce platforms. After digesting existing inventory, many distributors have to seriously consider whether to "advance" or "retreat." Most distributors have to face transformation or simply exit the market.
2. Creating a False Impression of High Market Demand
Distributors may blindly stock up under the temptation of manufacturers' price increase policies, but actual market demand has not truly improved. If retail prices are raised, market demand will further shrink. This "inventory hostage" situation may cause distributors, especially small and medium-sized ones, to pay for manufacturers' price increases. It seems that manufacturers' shipments are very large, but in reality, the products are piled up in distributors' warehouses and cannot be sold. At this time, distributors need to correctly estimate how much policy they need to take, how much inventory to hold, what products to stock, and when to stock. What is their actual throughput capacity? They need to maximize their own interests while minimizing their risks.
3. Channels Being Hijacked
Many small and medium-sized manufacturers lack brand strength; they cannot survive without raising prices, but raising prices risks being undermined by competitors. Therefore, more and more companies want to bypass distributors and face terminals or even consumers directly. The role of distributors has been greatly weakened, and some distributors have even transformed into delivery roles, with their voice in channel control gradually being weakened.
Opportunities Brought by Price Increases to Distributors
Challenges and opportunities coexist; where there are challenges, there are bound to be rare development opportunities. For many distributors, this is actually a good opportunity to break through the status quo and build a new marketing landscape.
1. Accelerating Traditional Distributors to Seek Change
Price increases compress profits and costs rise further. Distributors should adjust their thinking in time and complete the transformation of their roles. They should no longer rely on how to make money from brand owners, but instead seek sales volume and profits from the market. This forces traditional distributors to further think and explore ways to change, using a more efficient model to replace the traditional one. This is the path of transformation and upgrading to the Internet that we often talk about for distributors. Isn't it also a process of building oneself and getting rich again?
2. Building Core Competitiveness
Distributors who no longer have much competitive advantage in price must now be "faster," "more cost-effective," and "provide better service." Doing these three things well builds their core competitiveness. Among these three, "service" is particularly important, as any development cannot be completed without supporting services. This requires distributors to have limited personnel better serve customers, do good customer relationship management and visits, and improve single-store output capacity.
3. Resource Combination and Channel Reconstruction
A clear product line combination with highs and lows, primary and secondary, is the foundation for distributors' survival. Price adjustments will inevitably eliminate low-price, low-quality products and enterprises, which is beneficial to the overall market environment and further integrates and upgrades industry resources. Facing this situation, distributors must be rational and reasonable in choosing products to represent. Comprehensive distributors with complementary multi-brand, multi-category combinations will become one of the templates for future development. At the same time, team integration and channel reconstruction are imperative. Not only should they hold onto existing channels, but they can also open new incremental channels through Internet means.
Distributors should not only see the new challenges, new situations, and new problems facing the industry but also see the new opportunities, new momentum, and new demands brought about. They should follow the inherent, essential, and inevitable laws of the market, while continuously creating conditions and leveraging their advantages of fully understanding the local regional market to fight a beautiful summer sales battle!
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