With inflation reaching new highs, entrepreneurs resort to strict costing to keep afloat
But will it ever be enough?
In an unprecedented move, SM Markets announced a price hike of 33 percent for one of their key products. The price of SM’s turon was pegged at P20 on the first day of the “-ber” months. While consumers disagreed and took their dismay to social media, SM simply explained that the move was “to further ensure the high quality [consumers] have come to expect” of what they’ve dubbed as the national meryenda. With the rising prices of the turon’s ingredients—saba banana, sugar, wrapper made out of flour, and oil—the underlying cause is no less than the country’s great big inflation.
Inflation is the general price increase of goods and services in the market. The inflation rate surged to 6.7 percent in September, its highest in almost a decade, according to the Philippine Statistics Authority. Luis Abad of the Ateneo Department of Economics explains its cause: “Prices of raw materials have been steadily increasing since the start of the year due to several factors: rising global oil prices, depreciating peso, secondary effects of the TRAIN law specifically the increase in excise taxes, and the government’s mismanagement of the agriculture sector, especially the country’s rice supply.”
Looking by commodity group, the following have the highest indices: alcoholic beverages and tobacco (21.6 percent); food and non-alcoholic beverages (8.5 percent); transport (7.8 percent); housing, water, electricity, gas, and other fuels (5.5 percent); and restaurants, miscellaneous goods, and services (4.0 percent). All sectors directly affect the F&B industry and all these numbers point to an increase in the cost of raw materials, thus pushing the prices of food upwards.
“F&B won’t just be hit on the cost side; we can also expect revenues to go down. Household expenditures are going up, and there will be less disposable income for not-so-critical expenses like eating out and vacations,” warns Abad.
ADAPTING VIA INNOVATION
Business owners have been experiencing the predicament in different degrees; and the solutions have been as varied. With the cost of cream going up by 20 percent and sugar by 50 percent in the past year, Ian Carandang of Sebastian’s Artisan Ice Cream was left with no choice but to increase the price of his products. A regular scoop now retails for P125 “and that’s stretching it already because you can only charge so much for ice cream and [ours] is on the high end already.”
“You can’t safeguard yourself from rising food prices unless your restaurant has a menu that changes every week or two,” says Gino Gonzalez.
Adapting can also take a toll on the quality of the product. An easy way out is to keep the current price of a product, but lower its quality. This is, of course, a practice frowned upon in the industry. “Speaking for myself, I can’t [do that]. Adapting means using cheaper ingredients and compromising my recipes and lowering the quality. And I refuse to do that,” emphasizes Carandang. “It is not my style to scale down portion or scrimp on ingredients just to save a few bucks because quality will be sacrificed,” agrees Gino Gonzalez of Café Ysabel.
A different approach, though a gamble in itself, is to reengineer a menu. “You can’t safeguard yourself from rising food prices unless your restaurant has a menu that changes every week or two,” adds Gonzalez.
Even outside Metro Manila, inflation has taken its toll on food enterprises. “My restaurants in Davao have been affected and we don’t want to pass that burden to our customers,” shares chef Patrick Co of Asian Cow. “Strict costing and budgeting are key for me. Some chefs tend to go all out and make their dishes fancy with ingredients. But when we innovate and create dishes, I make sure it’s always profitable.”
“Temporary losses can be handled and addressed dynamically by reengineering menus or shifting marketing to promote more feasible and profitable items,” points out chef Myke “Tatung” Sarthou. But how sustainable can the practice be? How far can innovation take an enterprise when it gets to a point that operation deteriorates?
“It’s really difficult for food enterprises to safeguard themselves from sudden, unexpected surges in prices. The key is really having a sound financial backbone, good leverage, and a solid market base,” shares Sarthou. But having a strong financial foundation from the beginning doesn’t seem to be enough to withstand the beating. Such is the case for Belen Aleth Ocampo, purveyor of fine food at Aleth’s Kitchen. It has been her practice to add a certain percentage—a buffer of sorts—to the value of her items to avoid adjusting prices when cost goes up.
“But in the past months, the percentage I allotted hasn’t been enough; so like other chefs and restaurateurs, we absorb the losses hoping prices would go back to normal range,” shares Ocampo. And akin to entrepreneurs who’ve pledged to not scrimp on quality, she refuses make portions smaller to earn more profit. “If the quality isn’t good, I’d rather not serve it at all.”
Are alterations in volume more acceptable by the market than changing quality? Sarthou explains: “Portion size vs. price is tricky. It’s really a value proposition. There is no rule to this—you just have feel your way around what is acceptable to your specific market. Some markets are more portion and price sensitive than others.” At the end of the day, any entrepreneur would want to avoid disappointing customers, and if volume control isn’t deemed acceptable by a market, it’s only going to make matters worse.
Ocampo opens up on another plight: “It’s sad to say we are at the mercy of our suppliers.” Local suppliers, especially of vegetables, have been questioned for their inconsistency and lower quality of products. This doesn’t help much in covering for rising prices.
Chef James Antolin of Ikomai offers a solution: “We need to help, partner with, and educate our farmers; to produce what is in-demand and help them modernize systems of production. If we can help them produce efficiently and locally we don’t have to go elsewhere. We don’t need to spend dollars or euros to purchase our ingredients elsewhere.”
The farming industry is just as affected by the inflation surge. Producing high quality crops relies heavily on energy and gas; the upkeep and maintenance of farms have caused lower profits for farmers. Farmers can choose to further increase their prices; but they fear losing regular buyers in doing so.
“The best way would be to purchase the basic ingredients needed for their operations in bulk,” suggests economics instructor R. Lance Chua. For medium-sized enterprises, he suggests price-pegged contracts that last for 6 months to one year to help fight fluctuations; while bigger firms can always opt to import some of their raw materials from other countries.
“Inflation almost doesn’t affect production of crops because the materials used are readily available in the environment anyway. But it’s the lives of the farmers that are greatly affected by it,” shares chef-farmer Isaiah Ortega. Farming has become a survival of the fittest, with more and more farmers choosing to leave the trade because it no longer presents itself as a viable source of income.
“The government should offer support during this financial calamity. A safety program should be implemented at these times; like maybe invest more on food security and offer more ways for farmers to earn,” suggests Ortega. The cycle seems unnerving and unending, and the desperation only intensifies with the realization that only bigger—political—institutions can step in and make the change.
But there will always be hope, especially for Filipinos, who’ve been branded with a type of resiliency impalpable elsewhere. Isi Laureano of Chili Asylum remains resourceful at this time of dread: “I keep a good relationship with my suppliers so that even if the prices increase, they don’t end up suffering as much.” With a business that heavily relies on chilies, a produce whose price has skyrocketed, Laureano takes matters into her hands by growing her own ingredients. “You have to remain confident that you can still make good food even if you don’t have your usual ingredients.”
Her other solution has been to stock up on ingredients. “I usually do that, since I need my chilies and other ingredients to ferment anyway. I preserve ahead so that when food prices go up, I don’t have to deal with the effects as much.” It’s one move that even experts suggest, especially for small-scale businesses. “The best way would be to purchase the basic ingredients needed for their operations in bulk,” suggests economics instructor R. Lance Chua.
“You have to remain confident that you can still make good food even if you don’t have your usual ingredients,” says Isi Laureano.
For medium-sized enterprises, he suggests price-pegged contracts that last for 6 months to one year to help fight fluctuations; while bigger firms can always opt to import some of their raw materials from other countries. “The best way to deal with inflation is to be on the offensive side,” he adds. But, of course, doing so without sacrificing on the basic foundations, such as taste and quality, every business was built on.
Laureano admits to selling her products at a higher price, but does so with full acceptance that everyone—from suppliers to customers—has to do their part in keeping the industry throbbing. There’s no place for lonely people in the open sea.
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