The new Grocery Tariffs are a Golden Opportunity to Rethink Pricing Strategy!
Proposed to commence July 1st, 2018 Canada appears to be on track towards implementing a +10% tariff on many consumer products sourced from the United States. The tariffs are Prime Minister Justin Trudeau’s direct response to the aluminum and steel tariffs announced by President Donald Trump. While the initial reaction from both Canadian manufacturers & retailers could easily sound like “Oh no, another COGs pressure”, this adversity could be an opportunity in disguise for Canadian CPG manufacturers.
A lengthy list of all the directly impacted goods can be found on the Canadian Government website using the link here.
With the potential of a trade war on the horizon, many products retail prices should be thoroughly revisited. This does not just apply to regular price, it will also mean adjusting aggressive feature pricing, shallow instore discounts, and promotion frequency. While Canadian manufacturers typically face resistance from retailers in taking price increases “without significant COGs proof”, this pending +10% increase would certainly qualify as such, and provide plenty of justification to revisit all existing price & promo strategies.
Hopefully progress is made over the coming weeks and Canadian Manufacturers, Retailers & Consumers will not be impacted by a trade war. However, that seems less likely coming out of the G7 meetings. The recent comments from both the Prime Minister & President should be taken as a call-to-action for Canadian companies to plan your business accordingly & seize this unique opportunity now!
Golden Opportunity for Category Leaders
Canadian Packaged Goods companies can leverage this opportunity to completely overhaul their existing pricing strategies in order to do what is right. Everything is on the table when COGs MATERIALLY change.
While some products will be impacted by tariffs, others will not, and new competitive realities will arise on the shelves of grocery stores. Some products will be breaking through historic price thresholds, while others will benefit from new levels of price competitiveness.
5 Considerations for CPG Manufacturers
- Move Regular Price up by >+10% and Hold Promo Prices flat: Creates wider bandwidth and higher promo lifts, but also increases % on Deal and Promo dependence
- Move All impacted Price Points up by ~+10%: Simplicity of execution, but this “cookie cutter” approach does not consider variable price elasticities
- Move prices up on impacted items to a lesser degree, but also move prices up for non-impacted items across the portfolio
- Cut promotional frequency to “effectively deliver” a price increase that covers the COGs pressure
- Cut all promotions & run EDMP (i.e. “Every Day Medium Priced”?)
The Bottom Line…
- Do your homework… Leverage Pricing Analytics & Tools
- Different approaches & optimal solutions exist for different product portfolios
- Turn this latest COGs pressure into an opportunity to drive positive change!
For more information on Potential Tariffs & Impacts:
- Retail Council of Canada: Understanding the Impact on Retailers in Canada
- The Globe and Mail: Why Ottawa’s countertariffs could boost the country’s food industry
- Canadian Grocer: Trump’s trade war with Canada and the impact on grocery
- Canadian Grocer: Dollarama looking at price hikes in response to Canadian retaliatory tariffs