By Bobby Hesano, MIRA Chairman
As we head into the summer season, I am reflecting on economics 101 – supply and demand. Let’s not overcomplicate our industry; it’s quite simple. We know inflation has affected the supply and demand. Yet we know that the economy is cyclical. For sure, the COVID-19 pandemic put all of us in foreign territory, but in recent months we are starting to see a pre-covid economic climate return. We are getting a glimpse of a healing process in the supply chain, so retailers in the food industry can make note of this healing.
Prices in stores need to reflect the supply and demand economic principles or you risk losing customers and ultimately revenue. Inflation continues to affect demand, which has decreased, and supply is up which will force prices to go down, that lowering of costs should be reflective in what you as a retailer charge for that item.
If a customer can get a box of cereal for $4 at the big box chain store and you as an independent retailer have not lowered your price on that same box of cereal, you could lose that customer permanently, thus negatively impacting your bottom line.
So, we must adjust to the marketplace and take our cues from the supply and demand philosophy. We can also look at the car industry as an example of what happened in the pandemic. Cars sat for months unable to sell because of the lack of chips. However, the demand for cars was still there and so the prices of cars increased because the demand never decreased. Auto dealers and car companies stopped advertising at the level they used to before the pandemic. We are now starting to see a shift in that industry as well as the industry solving the chip shortage issue. The demand is still there, but now the supply of cars is catching up.
In the food industry, we are seeing a decrease in demand because of inflation, this should bring costs down and as retailers, we must adjust prices to reflect the decrease in costs.
As business owners, we know everything is about numbers. Economics 101 is simple and when we follow basic business principles, our revenue is healthy and our businesses thrive.