When businesses run out of room to absorb rising raw material costs, banks are forced to withdraw assistance sooner than projected. This puts a market rally worth billions of dollars in jeopardy. As a result, business firms are impacted by the rising input costs and dissatisfied with their inability to fully pass on costs to customers.
However, the battle is for the corporations to safeguard margins, which are a key component of providing better shareholder value. The increasing inflation has not only affected smaller brands but also larger businesses, like that of Starbucks. Recently in 2022, Starbucks might raise its rates for the third round in order to find its way through the soaring inflation. Nowadays, food chains are raising their production rates and re-evaluating their business models. While McDonald’s is following suit by announcing a 5-10% price increase during the New Year, firms like Domino’s and KFC have already raised their prices slightly.
Businesses unable to live up to their full potential
While transferring all expenses to consumers may appear to leave a business largely unscathed, in reality, businesses will absorb a portion, if not the majority, of the additional prices to avoid losing customers. To combat inflation, businesses—small or large— are bound to raise prices in the near future and strive to streamline costs as much as possible.
When the number of consumers visiting the shop starts to decrease, businesses become compelled to deal with constant bills of maintenance and lower sales. For instance, Starbucks announced it will raise menu prices this year and reduce some spending in order to find its way amidst the inflation
There is a struggle to stay in business, whether they’re smaller or higher-end businesses. Customer interaction reduces and gets limited to the internet, with little true interactivity. In such circumstances, it is difficult to build the personal connection that generates a loyal consumer.
Can small businesses afford substantial price raises?
In the face of rising inflation and supply chain constraints, many major brands are passing on price hikes to customers. While large business brands like Starbucks can afford hiking prices, small businesses have limitations while making similar decisions. They make up for it by already selling at huge profit margins. Smaller companies can’t keep up with the price increases that big companies can get away with. People would simply ignore the seemingly marginal cost increase, and no harm would be done to the big firms.     Â
This majorly affects the smaller brands who depend upon selling quality products in their developing phase without the additional product value of a brand name. This is because small businesses are mostly attempting to maintain their market position. A majority of them employ unique initiatives, like new packaging, selling smaller-size packets for the same price or running promotions, to draw the customers’ interest.
However, most of them are informing their clients upfront that they may need to raise prices to cover costs, stay competitive, and maintain quality. While the brand value and position of larger brands like Starbucks remain unhinged irrespective of the situation, smaller brands are faced with the tough choice of upsurging and maintaining their market position.
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