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Cost Inflation – How can businesses take control?

Inflationary concerns are one of, if not the major headwinds, facing companies operating across the Retail, Food, Beverage, and Leisure industries.
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By David Tate , 

Retail, Food, Beverage and Leisure Industry Leader, UK & Ireland

20/04/2022 · 2 minutes read

Inflationary concerns are one of, if not the major headwinds, facing companies operating across the Retail, Food, Beverage, and Leisure industries. Warnings of further price rises expected this year due to geopolitical and economic challenges, supply chain concerns, rising raw materials and ingredient prices, and transport and machinery costs are now a reality.

People costs have increased with wage rises and additional incentives aimed at addressing talent attraction and retention across all skillsets and hierarchies. For some businesses the financial impact of the VAT regime change and increases in business rates – sometimes referred to as a ‘business destroyer’ – and supply chain inflation will mean that many do not have the sufficient cash reserves to survive against this current backdrop. Post-Brexit administrative changes have forced companies to use import agents to navigate the rules, paperwork, and suppliers – feeding additional costs into the machine when compared with going direct to the farmer or producer.

It comes at a time when the world finds itself in the middle of major turmoil — from political risk to climate change. Businesses are struggling to absorb increases, with increases hit double percentage points — and consumers are now feeling this pain directly. 

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As companies look to an unpredictable future, business models will need to be able to flex – for example holding more stock as customers make smaller orders, or changing and reformulating products when ingredients are unavailable or too expensive. It is therefore more important than ever for firms to consider:

  • Mapping out the road ahead to identify possible new risk landscapes.
  • Evaluating how to allocate risk and insurance spend between ‘traditional’ property and casualty solutions and ‘new’ cyber, brand, reputation, and non-damage business interruption solutions.
  • Assessing whether current business interruption protection has been updated to reflect supply-chain changes:
    • Supply dependencies
    • Changes to margin
    • Time to recover
  • Ensuring that for every pound spent on insurance protection is maximised by moving to risk-weighted insurance budget allocation.

Businesses need to step back and take a clean-sheet approach to risk financing. Many programmes are ‘backward’-looking - designed to protect historic activities and exposures, many of which have changed or have been replaced by new undertakings, markets, and risks.

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