Rising costs have impacted the channel in many ways – from the price of raw materials to the cost of energy and fuel to increasing inflation – but what effect it is having on businesses and how can they try to mitigate it? By Dan Parton
At the beginning of this year, there was something noticeable in the channel that hadn’t been seen since early 2020 – optimism. Dealers, resellers and manufacturers were beginning to look forward again, with the COVID pandemic – and the lockdowns – seemingly consigned to the past and a return to something akin to normal trading conditions and, with it, healthy growth in revenues on the cards.
This is where you need the dealer groups, suppliers etc working together to give as much assistance as possible to those smaller dealers to help them get through these times.
But, as with 2020, there was a problem lurking just over the horizon that was to catch businesses in the channel and across the economy unawares. When Russia invaded Ukraine, it sent fuel prices sky high. While this immediately impacted on prices at the petrol pumps – and made deliveries less profitable – the ongoing conflict has caused other effects that are now beginning to bite for businesses of all sizes.
Firstly, energy prices have risen hugely, and it has also helped to push the rate of inflation past 10% at one point – levels not seen in more than a generation.
In addition, the value of the pound has also fallen, due to several factors, including those mentioned above and Brexit, which makes imports more expensive.
All of this has served to push the price of raw materials up and, with it, the cost of many products, which are being necessarily passed on through the chain to the end consumer as businesses try to make a profit.
Scale of the problem
Mark Ash, chief revenue officer at Konica Minolta Business Solutions (UK) Ltd, outlines the scale of the problem of rising costs for the business. “From October, our electricity cost [was set to] increase by an estimated 400% over the previous year’s usage, which will have a massive impact on our business, and the sector as a whole,” he says. “This also comes at a time when office utilisation is at an all-time low.”
Many other businesses have faced similar hikes in energy prices, especially those coming off fixed price deals.
While the government has announced help for businesses with their energy bills, with the launch of the Energy Bill Relief Scheme in September, which will provide a degree of relief, it is only for six months, at the time of writing. The scheme caps a p/kWh discount on wholesale gas and electricity prices for all non-domestic customers, with the support equivalent to the Energy Price Guarantee for households.
The consequences of sustained rising prices for business, the sector and customers are various, says Mark. “Sustained rising prices result in higher cost (e.g. SG&A, financing cost) to the businesses and impacts profitability,” he says. “It also restricts our ability to deliver fiscal savings to our customers and indeed means that over time we are forced to pass an element of these through to our customers or partners.
“Ultimately many procurement exercises have been built upon achieving financial savings, which clearly becomes challenging, if not impossible. This is also true across the board, as rising fuel costs heavily impact both our sales and service organisation too.”
One of the worrying factors for many businesses is that there appears to be no end to the rise in costs in the short-term. “At this stage it is not possible to be certain [when prices will stop rising],” says Mark. “The current rate of inflation is 9.9% and the Bank of England expects that it will start to turn down in the next two years.”
Uncertainty reigns
Steve Carter, managing director of Advantia, agrees that rising prices are affecting every business in the sector. “Pretty much daily – certainly since chancellor Kwasi Kwarteng’s mini-Budget – there have been notifications coming through from manufacturers and suppliers about potential forthcoming increases in price,” he says.
“So many products are pitched against the dollar, and given what the pound is doing against it, prices are rising. But no one has a crystal ball to see what is going to happen, so all the manufacturers and suppliers can do is say there are going to be some price increases, but right at this moment, they can’t tell you what they are going to be until things become a little bit clearer.
“We are seeing this right through the chain, from customer, through dealer to supplier to manufacturer, it is affecting everyone’s business, but at this time no one can say by how much.”
Steve agrees with Mark that the Energy Bill Relief Scheme will “soften the blow” but by how much is debatable.
“Some chip shops are saying they might have to close for a couple of days a week in order to save money and stay open, but you cannot close an office products business down on a Monday or Tuesday, so we will have to be creative in how we mitigate the effects,” he says.
Closures coming
Steve adds that he expects that the current economic conditions will result in some businesses in the sector closing.
“It may lead to acquisitions or some mergers too, but we have already seen across the industry some of the smaller dealers have had to shut up shop, and I don’t think we have seen the end of it, unfortunately.
“This is where you need the dealer groups, suppliers etc working together to give as much assistance as possible to those smaller dealers to help them get through these times.
“We must try and work in collaboration. We do that at Advantia – we talk to dealers in the group, we pass that valuable information to Exertis and our other supply partners and we put things in place to try and help them.”
Control the controllables
One way that businesses are trying to cut costs is by reducing the number of deliveries they are making.
“We have so many 48-hour deliveries going through now and one of the reasons for that is it can help businesses to manage costs – if you are ordering products from other suppliers that are going to come in in the following day, you can put them in the van and do one trip. The last thing you want from a logistics point of view is going out with four out of five lines, then going out to the same place with the fifth line two days later – it all adds to the cost to serve and we have to make sure in that we maximise what we have available to us.
“You can only control the controllables. Do you want that van going out half empty? It needs a minimum of 30 orders per day to make it work. You can’t have 25 new orders and five back orders and make it 30 because it isn’t.
We have to try and work through the supply chain and work together, rather than against each other and put things in place to try and minimise the expenditure we have got. I have no control over raw material or energy costs, but what I can do is help our dealers to try and maximise what is available to them to minimise their outlay.
“You make sure you are working through the chain. We talk with Exertis daily and say: ‘can we do this?’ ’Is there a better way to do this?’ I feed into them, they feed into me, and we work on projects together.”
Steve adds that collaborative working should be encouraged across dealers that are part of a dealer group – perhaps by taking on deliveries or jobs that are outside one dealer’s usual geographic area.
Other ways to help include using and selling ranges with sustainable functionalities and technologies as standard, such as those from Konica Minolta, that can help mitigate these rising prices, Mark adds.
This includes its bizhub ECO offering, which can help the customer enhance the efficiency of the printing processes but also save valuable resources. “bizhub ECO offers customers an all-in-one service for sustainable printing,” says Mark. “There are many benefits to the customer including reducing energy and resources consumption due to utilising the eco settings.”
There are many other products on the market that are energy efficient and use less power
than older models, which can help customers to save energy and provide an effective sales route for dealers.
While there are tough economic times ahead for businesses in the channel, as the past three years have demonstrated, they are resilient and can adapt quickly when faced with testing market conditions – and with supportive dealer groups, suppliers and manufacturers then the hope is that many businesses will make it through to more favourable times when optimism can reign again.