Did you notice that the last time you had a box of Smarties there were fewer than you remembered as a child? While the current packaging is much bulkier than its predecessor and the box is now divided into three sections, a closer look at the box reveals that there are actually fewer smarties. Each of the three sections is 15 grams, making a totally of 45 grams in what used to be a 50 gram box. While the price has stayed the same, you just lost 10% of your Smarties. Assuming you do not believe Nestle sectioned the box for portion control, this begs one simply question- why?
As a consumer you may feel deceived, but as accountants we realize there is more to the numbers. Why do businesses feel the need to alter packaging and volume? The answer comes back to basic economics. If you need to maintain your margins while your costs are rising, then you have a few choices: raise your prices, change your inputs, or put a few less Smarties in the box. Unfortunately Nestle, like many other companies in the changing market, has been forced to be creative in finding solutions to maintain profit.
Raising your prices is a very viable option, especially when the marketplace is particularly accepting. For example, let us look at the Ontario government’s plan to raise minimum wage to $15 per hour. Most of this cost will be passed onto the consumer; as consumers, we have been well warned of this reality and are relatively accepting of it. Unfortunately, the marketplace is not always well informed or sympathetic of your rising costs, which could result in lower business when your prices are raised. Be sure to consider whether you can justify your price increases because you provide superior service, higher quality products, or/and unique experience.
If increasing your price will not be sufficient to maintain your margins, then making some changes to your inputs, the process of getting your products to your customers, may be your best solution. Take time to analyze your supply chain (do you need to switch manufacturers/wholesalers), operational structure (are you overstaffed?), inventory mix (focus on higher margin products), and your workflow (is it time to update your technology to improve efficiencies?).
With some creative marketing like Nestle, a few less Smarties may also be part of your solution. As a business owner, you must continue to creatively refine your business to maintain your margins/profits. Status quo is unacceptable but a few less Smarties is.
