There’s no need to spell out how tough suppliers have it in Australia now the major supermarkets are battling each other constantly on prices.
However, small businesses are still able to survive – and thrive – in the current environment. Jacqueline Arias, the founder of Republica Coffee, has been able to do just that. Despite a harsh trading environment, the company is turning over nearly $4 million and grew by 30% in the last year.
Arias spoke to SmartCompany about how the company has adjusted to doing business amid a supermarket war – and gives some great advice on how to convince suppliers to stay on your side.
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The past year has been both good and bad. My main channel is through groceries, through the main supermarkets Coles and Woolworths, and that space has become increasingly competitive.
I don’t just mean supplier to supplier. Competition between Coles and Woolworths has increased pressure on margins and promotions, so they’re constantly competing against each other. It’s made it a very tough market.
But it’s made us a lot more focused. We’re more focused in terms of what we need to do to survive and stay on those shelves. We’re up 28-30% from last year.
There are a number of elements at play here. If you give away margin to one of the chains, then your cost of goods effectively goes up. We’ve also had the issue of the Aussie dollar going down, and because we buy raw materials from overseas that’s had a negative impact.
The combination of those two things means we have to be clever about how we do things.
Our space is all about volume. It’s not so much driven by margin because you don’t back margin, you back dollars. That’s been a really interesting lesson.
One of my mentors recently told me something: Stop believing your brand is precious, and just play the best game that you can. If you’re being asked to do promotions, you’re resistant because you want to value your brand.
But not everyone who walks into a supermarket is going to believe the same thing.
Entrepreneurs can be hard-headed. But I’ve really seen the return on changing the strategy and understanding volume versus margin.
Inevitably, nowadays, you’re going to see up to 60% of products at the supermarket on special. That’s what attracts people. You’re constantly working in that environment.
Prices in Australia are expensive compared to the rest of the world. Australian marketplaces are adjusting to what the real price of anything is. We’re in a global marketplace and we need to adjust to that.
The first thing I did was change the cost of goods. I went back to suppliers and said, this is the reality of the marketplace, this is what we’re paying, and if you want to continue this relationship we need to have a conversation.
When you have that conversation, you’ll be amazed as to how much you can actually save and regain in terms of what you’re giving away.
I think most business owners get lazy. We get lazy, but it’s something we should be doing every year – always evaluating and reassessing what we’re paying. Can we pay less on some products; can we get a better deal for a three or four-year long relationship?
I always say our business is about ethics. We trade in coffee, but my vision is to build the most ethical food brand in Australia. I’m confident about that because we’re behind Fair Trade.
Fair Trade is the fastest growing ethical trend on the planet. If you go to the UK, for example, not to be Fair Trade is to be out of the mainstream. All over the planet Fair Trade is being adopted.
This is the thing that gets me – 70% of the food we consume in the first world comes from third world countries. Those farmers represented half the hungry people on the planet. They harvest their food to make produce for us, yet go hungry themselves.
So when I think about the future of our business, given our position, I think there’s plenty of opportunity – a blue sky of opportunity.