BUSINESS: DELTA RULES OUT PRICE HIKES
DELTA Beverages has warned its suppliers to carefully manage their value chain and desist from the temptation to hike prices.
In a memo sent out by the company’s Supply Chain director Cynthia Malaba dated October 16, 2017, a copy of which The Herald Business is in possession of, the beverages maker notes that it has been inundated by appeals from its suppliers who are seeking to hike prices due to the increasing cost of foreign currency.
But the group has flatly turned down the proposals, which would have seen them passing the price hikes to consumers, rather saying the suppliers should manage their value chain or opt out of supplying the group if they can’t continue with current rates.
“Recently, a number of suppliers have approached us with proposed increases motivated by difficulties in sourcing foreign currency,” wrote Mrs Malaba.
“We would like to advise our valued suppliers as follows: We are unable to take selling price increases on our beverage portfolio. Instead we are continually searching for ways to improve our value chain to make our products more affordable to our customers.
“We urge business partners to carefully manage their value chains with particular focus on competitiveness as we are unable to absorb any input price increases outside the negotiated parameters.
“We value our relationship with yourselves as our suppliers. In the event that you cannot manage price and quality at agreed levels, we please request that you give us sufficient warning to enable us to make alternative arrangements,” wrote Mrs Malaba.
With just over a month before the traditionally festive month of December, Delta’s stance will be a welcome relief to beverage consumers who increase the uptake volumes in the last month of the year.
Already the group has reported a sustained recovery for the second consecutive quarter in Lager volumes, which has largely been attributed to improved disposable incomes in the agriculture and small-scale mining sectors.
In their trading update for the September quarter, Delta reported an 11 percent jump in lager beer volumes for both the quarter and half year to September 2017. Revenue increased by 1 percent for the quarter and is up 2 percent for the six months.
Some suppliers as well as retailers have been using the challenges they are facing in accessing foreign currency as an excuse for putting up prices. Recently the Oil Expressers Association had to issue a statement saying they had not increased their prices to warrant the price increases in most retail outlets.
Delta stands firm for the greater good
Suppliers have started to request adjustments to their procurement agreements with large volume manufacturers and processors. Typically, procurement arrangements between entities such as Delta and its suppliers outline binding pricing schemes, delivery schedules and quality specifications. This enables suppliers to be aware of the procurement expectations of manufacturers and processors, and to ensure that suppliers achieve execution of deliveries within manufacturer and processor inventory management plans.
Delta suppliers include glass bottling and plastic packaging. Other suppliers are involved in bottler-grade sugar and soft drink chemicals. With interventions such as SI 64, these materials are increasingly found on local markets. Having procurement agreements with blue chips such as Delta, suppliers have favourability with financial institutions to avail adequate funds for raw materials and production.
Notwithstanding having these privileges, suppliers are talking advantage of superficial sentiments of foreign currency shortages and opportunistically raising their prices. Delta’s memo to its suppliers reflects a responsible stance in giving heed that if current suppliers cannot increase their efficiencies to align with value chain demands, then other more competitive suppliers will win these procurement contracts.
Manufacturers and processors like Delta retain significant pricing power that effects the macro-economy. With wide distribution and large market share, if Delta was to increase their prices, unnecessary inflationary pressures will be placed on consumers.
Moreover, the beverage maker’s market competitiveness is leveraged on its consumers having favourability to its pricing regime. The stance taken by Delta is commendable and is warranted of a company with its economic stature.