Usa Today: Prices Starting To Creep Higher

Business By indydebi Updated 18 Feb 2011 , 1:28am by luckylibra

indydebi Posted 5 Feb 2011 , 7:03am
post #1 of 36

"Businesses hit point where they can't absorb higher costs"
http://www.usatoday.com/money/economy/2011-02-04-inflation04_ST_N.htm

In a nutshell, businesses that have been afraid to raise their pricing for fear of scaring off customers just can't absorb it anymore.

- One grocer reports the price of cooking oil going up 14%.
- UPS will raise it's fuel surcharge (this will affect your delivery of any online purchases)
- Tire costs are up due to price of rubber. This will affect delivery expenses for your cake deliveries and for your inbound deliveries.

Be aware that 2010 may have been the year of "let's see how it goes" but 2011 may be the year that businesses have to bite the bullet and raise their costs regardless ....... all of which will affect a caker's cost.

This is posted to urge fellow CC'ers to really watch their pricing on their supplies and services and not get caught in the red if/when pricing goes up without notice. usaribbon.gif

35 replies
cheatize Posted 5 Feb 2011 , 8:08am
post #2 of 36

I really have to update my pricing matrix. I haven't done it in a year and half and have been tacking on a bit more to hopefully cover my increase in costs.

Gee, so many prices have already either gone up or the product quantity has gone down. I was looking at a "great deal" on cereal last week. The box looked huge. I looked one shelf up to a much smaller looking box and the difference in weight was only 3.5 ounces. That "great deal" was no deal. We'll have to watch the weight on stuff, too.

indydebi Posted 5 Feb 2011 , 8:18am
post #3 of 36

cheatize, that's a great argument for one of my peeves .... recipes that are written as "1 can" or "1 box" of something with no indication of the actual size. What was a 16 oz can when gramma wrote the recipe is now a 10 oz can for all of us today. And then we wonder why gramma's tastes better! icon_biggrin.gif

Hubby likes to buy that frozen Banquet brand fried chicken. He asked me to throw it in the oven for him the other day and I yelled in, "you got 2 breasts, 2 thighs and 2 legs ... no wings." He was shocked that there were only 6 pcs. There were usually 8.

A half gallon of Breyer's ice cream is now 1.75 quarts.

So pricing is not the only thing that needs looked at. When I had my pricing spreadsheet, I had to track unit price (price per cup, per 4 oz serving, per lb, per ounce, per slice, etc).

So good advice, cheatize, to also watch size of supplies. we need to be aware and not be fooled into thinking our prices are staying stable when the packages are getting smaller! thumbs_up.gif

Evoir Posted 5 Feb 2011 , 10:13am
post #4 of 36

I remember when they did that with beer here in .au. They used to have these 350mL bottles, then all of the sudden they were down to 335mL!!

Good point Deb...but I reckon there are many "too timid to raise prices" category in the cake decorating business, unfortunately. I have recently updated my pricing structure and have noticed a downturn in bookings for jobs after enquiries. I am stickign it out though, and hoping everyone else int he local industry gets their numbers up to date!!

homebasedbaking Posted 5 Feb 2011 , 7:02pm
post #5 of 36

Great post indydebi...thanks for sharing this info! Long overdue.

jason_kraft Posted 5 Feb 2011 , 8:00pm
post #6 of 36

The last few years of near-zero inflation are an aberration, I wouldn't be surprised if the Fed starts aiming for higher inflation in the near future. The current fiscal situation is very restrictive for the Fed, since they can't lower the fed funds rate (the interest rate large banks get for their money) below its current level -- zero -- as a means to help control the economy, so they have to rely on monetary levers instead (i.e. printing money).

Here is a relevant article:
http://www.reuters.com/article/2010/10/07/us-usa-fed-targeting-idUSTRE6964O020101007

warchild Posted 5 Feb 2011 , 8:52pm
post #7 of 36

Watch the size of the products you're buying also. I've noticed it this past year, as well as my DH. Products we buy regularly have been downsized, but the price has remained the same.

We just had a consumer report segment about the change in product size, how its happening to so many products, and why no information about the size change is given to consumers. The companies excuses were they didn't want to raise the prices for fear of consumers getting upset, so they downsized the product instead.

Somehow, they seem to think thats okay. thumbsdown.gif

classiccake Posted 5 Feb 2011 , 8:52pm
post #8 of 36

We raised prices this year. I hadn't changed the base price of wedding cakes in 2 years. I knew it was coming, but had no doubts when I saw our year-end cost/profit margins.

kelleym Posted 5 Feb 2011 , 9:34pm
post #9 of 36
Quote:
Originally Posted by warchild

Watch the size of the products you're buying also. I've noticed it this past year, as well as my DH. Products we buy regularly have been downsized, but the price has remained the same.
We just had a consumer report segment about the change in product size, how its happening to so many products, and why no information about the size change is given to consumers. The companies excuses were they didn't want to raise the prices for fear of consumers getting upset, so they downsized the product instead.
Somehow, they seem to think thats okay. thumbsdown.gif



Here is another recent, relevant article about that.

http://www.nydailynews.com/money/2011/01/05/2011-01-05_as_food_costs_rise_retailers_keep_prices_stable_by_shrinking_package_sizes_quant.html

We're all going to be spending a lot more for the things we buy in the coming years.

warchild Posted 5 Feb 2011 , 10:49pm
post #10 of 36

Oh glad you posted the link, I forgot to add what was said about coupons. That consumers who'd complained about the downsizing were getting coupons to keep them happy. I guess the companies decided to send them as a form of hush money, but instead of money, they're sending hush coupons! shhh.giftapedshut.gif

costumeczar Posted 6 Feb 2011 , 12:48am
post #11 of 36

I just raised prices a few days ago, and I might have to go up a little more. The ingredients that usually end up being 10% of retail were closer to 20% last week. Not good.

jason_kraft Posted 6 Feb 2011 , 1:09am
post #12 of 36

In the long run I wouldn't be too concerned...even if avg prices increase by 10% year-over-year in 2011, that still averages out to 3.75% annually when you look at the past 3 years of CPI increases. Inflation in the 3-4% range is healthy for an economy since it gives the Fed some room to work with to avoid deflation (which would be much worse) without relying solely on money supply controls.

Historical CPI-U (Consumer Price Index Urban) figures are linked below, the last column shows the year-over-year change in average inflation.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

We increase our prices by about 5% every year so we don't have to make a huge jump when inflation starts catching up, and we get to capture increased profit in the meantime.

jason_kraft Posted 6 Feb 2011 , 1:13am
post #13 of 36
Quote:
Originally Posted by warchild

The companies excuses were they didn't want to raise the prices for fear of consumers getting upset, so they downsized the product instead.
Somehow, they seem to think thats okay. thumbsdown.gif



I don't see the problem with decreasing product quantity instead of increasing prices, the net effect is the same. OJ manufacturers recently changed their standard carton net weight from 64oz to 59oz, my response was to reduce consumption of OJ by 10%. icon_wink.gif

People should be shopping by unit price anyway and not per-package price.

indydebi Posted 6 Feb 2011 , 1:40am
post #14 of 36
Quote:
Originally Posted by jasonkraft

Quote:
Originally Posted by warchild

The companies excuses were they didn't want to raise the prices for fear of consumers getting upset, so they downsized the product instead.
Somehow, they seem to think thats okay. thumbsdown.gif


I don't see the problem with decreasing product quantity instead of increasing prices, the net effect is the same. OJ manufacturers recently changed their standard carton net weight from 64oz to 59oz, my response was to reduce consumption of OJ by 10%. icon_wink.gif

People should be shopping by unit price anyway and not per-package price.



You're right, the monetary effect is the same, but its the psychological effect that seems to make people feel they are getting "ripped off". People seem to deal with a flat out price increase (more money for same amount) much better than they do with qty decrease (same money for less amount).

When then-Pres. Nixon issued a price freeze, companies did the same thing and I remember all the moms complaining about their laundry detergent bottles/boxes getting smaller and the jist of their opinions were how the "big companies" were "getting by" with a price increase that was "disguised" by making smaller quantities.

The monetary effect is the same .... but the consumer feels ripped off anyway.

jason_kraft Posted 6 Feb 2011 , 1:56am
post #15 of 36
Quote:
Originally Posted by indydebi

You're right, the monetary effect is the same, but its the psychological effect that seems to make people feel they are getting "ripped off". People seem to deal with a flat out price increase (more money for same amount) much better than they do with qty decrease (same money for less amount).



I agree, if you're talking about post-purchase behavior. If I were selling my products at retail next to competing products that looked like they were a similar size, and I decided to increase price instead of reducing quantity, my sales would plummet because it would look like I was more expensive. People don't feel ripped off about increased price for the same quantity because they don't buy the products with higher prices, instead choosing the competitors with reduced quantities (which may even have a higher unit price).

In a saturated, competitive market where my competitors have similar cost structures -- essentially zero-sum -- I would rather have a percentage of pissed-off consumers than a huge drop in sales, since all my competitors will either reduce their quantities (incurring wrath from their customers), increase their prices (which will increase my sales), or go out of business.

Good thing most of us compete on quality rather than price. icon_smile.gif

indydebi Posted 6 Feb 2011 , 2:02am
post #16 of 36
Quote:
Originally Posted by jasonkraft

In a saturated, competitive market where my competitors have similar cost structures -- essentially zero-sum -- I would rather have a percentage of pissed-off consumers than a huge drop in sales, since all my competitors will either reduce their quantities (incurring wrath from their customers), increase their prices (which will increase my sales), or go out of business.

Good thing most of us compete on quality rather than price. icon_smile.gif



also agree!! thumbs_up.gif Its all part of knowing your market, your customers, and your business! thumbs_up.gif

mommachris Posted 6 Feb 2011 , 3:40am
post #17 of 36

I had the 'customer price shock' a while back.
I'd been making cake truffles for this little old lady and only charging a pittance above cost.

Well, dh took me to task and made me list the price of ingredients in today's prices.....I'd been charging the same price for three years.
Yikes, that was an eye-opener.
I raised my prices.

She got miffed.
Told me if I wanted to sell them for the old price again to give her a call.
I said, "Eggs cost what they cost."
Needless to say I don't make truffles for her.

No matter how many times she has called me in the last year. I'm too busy for someone who thinks I'm a charity.
She made me mad and now she's out of luck.

It's a shock to see the prices keep climbing but the reality is that stores just can't suck it up any more or they'll have to go out of business.
That and the dollar just isn't worth a dollar anymore.

mommachris icon_rolleyes.gif

sari66 Posted 7 Feb 2011 , 8:18pm
post #18 of 36

Take a good look at your sugar if you're buying the 5lb bags you may notice like I did about a month ago that the bag is now 4lbs and it's the same price! I thought I was going crazy till I went to wal-mart and saw the same thing. You can still find the 5lb bags at some stores like I saw in Aldi's but I bet those will be gone too.

scp1127 Posted 7 Feb 2011 , 8:44pm
post #19 of 36

I think the public is anticipating everything to go up in price in the coming months. Don't worry about a price increase, do it and stand by your decision. Your customers' rising grocery store bills are a testament to the need of a price increase.

indydebi Posted 7 Feb 2011 , 9:03pm
post #20 of 36
Quote:
Originally Posted by scp1127

I think the public is anticipating everything to go up in price in the coming months. Don't worry about a price increase, do it and stand by your decision. Your customers' rising grocery store bills are a testament to the need of a price increase.


I remember when gas when to $4/gallon a few years ago and I had to keep REMINDING people that food and gas prices were going up .... some came in expecting me to cut my price because THEY were having to pay more at the grocery and gas pump ergo I needed to lower my price to help them out.

Some people's logic just isn't very logical sometimes. icon_confused.gif

beenie51 Posted 7 Feb 2011 , 9:25pm
post #21 of 36

I had sticker shock when buying for wedding cake 2 weeks ago. Since I am a home baker and I work I limit the amt of lg cakes I do. Cake supplies and food stuffs have been going up and with the gas increasing I only see it getting worse.

People do not seem to realize that if groceries are going up for them, that the same should apply to bakeries ect. icon_rolleyes.gif

scp1127 Posted 7 Feb 2011 , 11:58pm
post #22 of 36

It is true that money will be getting tighter. I am already working on smaller quantities of things to start offering if I need to in the future. What we sell in any form will never make it to the necessity category, so brace yourself, get your expenses as small as pssible, and be aggressive in your marketing. But most of all, offer the best product you can. When money is tight, value goes to the top of the list.

LindaF144a Posted 8 Feb 2011 , 2:24am
post #23 of 36

Yesterday I ran into a guy I know who owns a coffee shop. He had been after me before to do some wholesale baking for him when I had my home processing kitchen at home. Now I moving into a store and he talked to me again about it. Only the way he did was to complain that the lady he orders his muffins from raised her prices twice in one year (smart lady!) and he didn't like it. He told her that he was going to shop around for another source. After all he can get muffins at Sam's Club for $.60 a piece so why can't he get that price from her. The nerve. And what he was doing was hinting to me that he wanted me to sell him for $.60 a piece. I may be a rookie, but I am not stupid. I won't even glance at my ovens for that price.

What I said to him was this. You buy a lot of dairy for your coffee shop don't you? Then you must know how much the prices for baked goods has gone up this past year. Sugar alone went up another $.20 for a 2lb bag at our local grocer. I can completely understand why she raised her prices. And it is only going to go up again. He hemmed and hawed and then asked me again to contact him once I get my business opened. Um yeah, I'll get right on that. I have no intention of making muffins, especially at $.60 a muffin.

I predict that this round of price increases may put a few established people out of business. I know this guy is walking a thin line of profit, but he sure is not going to do it off my back.

cheatize Posted 16 Feb 2011 , 4:23am
post #24 of 36

I'm starting to update my pricing matrix and noticed that the price of eggs are all over the place. I'm used to the price going down near Easter, but I think it's too soon for that.

Aldi prices for a dozen large eggs (cheapest grocery store around here):
Jan. 3: $1.08
Jan. 10: $1.39
Jan. 17: $1.17
Jan. 24: $1.19
Jan. 31: $0.88
Feb. 9: $0.88

This is at four different locations within 30 miles of my home and there's no pattern like the smaller towns have lower prices. According to today's news, the World Food Bank says groceries rose 29% last year. The news story reminded me that I need to update my prices before I hand out one more quote.

Anyway, I thought the fluctuations were interesting. Any guesses why it's happening?

indydebi Posted 16 Feb 2011 , 4:49am
post #25 of 36

cheatize, it will be interesting for you to track this weekly for the next two months and see if the prices consistently drop down to their lowest level during the first week of the month. If they do, that is code for 'stock up at the first of the month'! thumbs_up.gif

ccalvin Posted 16 Feb 2011 , 5:37am
post #26 of 36

Better to charge more than to work for free,right?Depends on how valuable your time may be.. Especailly if you own a business that you have to sit down and figure out all of the overhead that your paying on and what percentage of the price of that cake is going to your overhead. Or wheather or not YOU would finally like to get paid for what you do ,and your customer wants to bargin with you on a custom design item that has not even been made yet !
Knowing what he/she really wants to pay isn't even going to cover the cost of your overhead.This isn't a garage sale or 1924,things are very different and explaining that to some may be easy or not(especailly those still around since 1924)Sorry if I offend anyone-sometimes its just fustrating that some cannot understand,young or old.
For the fact people want their cakes to have the same look and quality of those out of high end bridal magizines and expect you to give them a grocery store price or lets say out of somebodys home that will basically do it for free and makes the business owners look bad because,well,their to expensive,,well sh** I have to be,I have OVERHEAD to pay...and I don't want to waste my time...P.S food distributors,i.e sysco,cashwa,u.s foods ect...are not any cheaper if not more expensive than what walmart or sams or even kroger
has to offer.

KSMill Posted 16 Feb 2011 , 6:34am
post #27 of 36

There's an article from the World Bank just posted 7 hours ago that global food prices have risen 29% in the last year. We will all need to watch the prices very carefully. If they continue to raise at that rate my guess is there will be a much lower demand for baked goods all together.

http://www.foxnews.com/us/2011/02/15/world-bank-food-prices-dangerous-levels/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fnational+%28Internal+-+US+Latest+-+Text%29

ccalvin Posted 16 Feb 2011 , 6:36am
post #28 of 36

Sorry for the above rant.If you feel like you need to adjust your prices for whatever products you offer,out of sake that your lively hood depends on it,then do so than to not.I supose your only option would be to explain to your customer what it is that you had to do and why.
Better yet,really REALLY research where you getting your products and at what best prices you can get them at.Keep a price guide list of what products you get from certain suppliers or stores at the best known prices and keep it updated constantly.
At our restaurant,we have to daily,keep up with the constant changing of prices on the same products that we can get through each supplier.Sugar may be $$$ through supplier A this today,but its $$$ through supplier B tommorw,or maybe supplier C will give me a better price on friday ect..
.Same thing goes for ordering paper supplies,cake boxes,good lord the shipping alone cost more than the boxes!
I know here they had a sale that ran for 4 days on DH mix for .77 a box,normally its around $1.16,thats a .39 cent difference.Best to stock up right?
For the most part,I believe people understand,even those of your loyal customers,if you had to raise your prices on your account to ensure the quality of their product is consistent if not better.After all, isn't consistency and quality in your product what makes your product stand out from others?

jason_kraft Posted 16 Feb 2011 , 7:08am
post #29 of 36
Quote:
Originally Posted by KSMill

There's an article from the World Bank just posted 7 hours ago that global food prices have risen 29% in the last year. We will all need to watch the prices very carefully. If they continue to raise at that rate my guess is there will be a much lower demand for baked goods all together.

http://www.foxnews.com/us/2011/02/15/world-bank-food-prices-dangerous-levels/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fnational+%28Internal+-+US+Latest+-+Text%29



Food prices tend to be cyclical, and local phenomena like bad weather and political instability can have an impact on the global market. You'll notice that even with the 29% jump, food prices are still 3% lower than they were in 2008.

If prices get too high, demand will drop and prices will start falling. Once the price is low enough, demand will pick up again and push prices back up. This holds true for any commodity with a relatively stable production pipeline. If food prices were to start rising 29% annually in the global market on a long-term basis, selling cake will be the least of your worries.

jason_kraft Posted 16 Feb 2011 , 7:19am
post #30 of 36
Quote:
Originally Posted by indydebi

cheatize, it will be interesting for you to track this weekly for the next two months and see if the prices consistently drop down to their lowest level during the first week of the month. If they do, that is code for 'stock up at the first of the month'! thumbs_up.gif



The USDA already tracks this information, here is a graph showing weekly prices for eggs in the US for 2010 and Jan 2011. There does not seem to be a correlation between price and whether the week was at the end of the month.

http://www.ams.usda.gov/mnreports/pywgraph1.pdf

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