Brumby’s felt the wrath of the Australian Competition and Consumer Commission yesterday after trying to blame price rises on the carbon tax, but the bakery franchise could easily have avoided this sticky situation.
It’s pretty clear now that Brumby’s managing director Deane Priest shouldn’t have sent a letter to all its franchisees telling them to start increasing prices as early as June and July, and to “let the Carbon Tax take the blame”, but what should Brumby’s have done?
Here are five things Brumby’s should have done:
1. Be truthful
The corporate watchdog is on the lookout for companies which are misleading consumers, so honesty is the best defence.
ACCC spokesman Duncan Harrod told SmartCompany that businesses need to be “reasonable and truthful with customers” about the impact of the carbon tax.
“It’s business as usual and if you have legitimate reasons for price increases, of course you can increase prices, but you shouldn’t seek to mislead consumers.
2. Calculate the electricity price increase
It’s not too hard to calculate any increase in electricity prices, so Brumby’s should have been able to work out any price increase flowing from that.
Iain Smale, managing director of carbon tax consultancy Pangolin Associates, told SmartCompany it is “a fairly simple calculation”.
“Brumby’s should have looked at the amount of electricity as a per cent of overall spend on a typical store and model on the fact the carbon price is around 9% of electricity bill. If electricity costs 3% per store you would be looking at a 0.29% increase.”
3. An in-depth study of the impact on key ingredients
For a large business like Brumby’s, Smale says it may be worthwhile doing a more in-depth study of the impact of the carbon tax beyond energy costs on things such as key ingredients.
“If they don’t do that, the only price rise they could attribute to carbon tax is due to electricity and they need to substantiate saying electricity is a certain percentage of the carbon bill. They need to be very clear in identifying what part of price increase is part of the carbon tax.”
4. Consider engaging a consultant
Businesses which are concerned about cost increases other than electricity may want to consider seeking expert advice to calculate the carbon price impact.
“If Brumby’s is just looking at electricity it can probably do that internally; as long as the impact is clear, it is a fairly simple calculation,” says Smale.
“But if Brumby’s wants to look at the impact of the carbon tax on flour, eggs, and milk, it makes sense to get an external consultant to look at that, as it provides some protection of having a fall back to third parties.”
Smale says the modelling Pangolin Associates has done shows an expected price increase in goods other than electricity in the order of 0.1% to 0.5%.
5. Review energy contracts
Finally, Brumby’s could have re-examined its energy contracts to see if costs could be reduced despite the advent of the carbon tax.
“Look at your energy contracts and explore ways to reduce energy cost; technology is changing,” says Smale.
“There are lower prices to implement upgrades and retro fits like changing lighting.”