With prices of food and clothing staples rising due to lower production yields and unprecedented demand in Asia, the industry has a cost conundrum. Either companies find ways to reduce costs or pass the increase in costs over to consumers to protect profit margins. Many companies are trying out different ways and means to solve the riddle. They are hedging or forward buying, shaving costs, reformulating products, substituting lower priced commodities and passing prices on to their customers. Listed below are some examples:
- Unilever has made the processes of producing goods more flexible to enable ingredient substitution. They have managed to reduce the oil quotient in its mayonnaise with lemon peel to reduce costs. More importantly, the taste stays the same.
- Some grocers are keeping prices such as breakfast cereal constant but reducing the amount packed in a box.
- Clothing suppliers are increasing the use of cheaper synthetic fibers in lower priced garments.
- Other retailing brands are adding new designs and features to their clothes in the hope that consumers will pay more for them.
Traders believe that even a bumper crop will not cut prices significantly as inventories are currently low.
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