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Business Strategy For The High Inflation Economy – Forbes

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Companies around the world are feeling inflation, and especially companies in the United States,. The cost of many goods is rising while the tight labor market is pushing wages up. Although it is always a good time to look at cost-cutting opportunities, that avoids the issue of what exactly is different about a high-inflation environment. Three business strategies become much more important with high inflation: quickly adjusting prices, prioritizing high profit-margin products, and shifting input as relative prices change.

Many companies are still hesitant to raise prices. Small and medium businesses, in particular, often miss on pricing opportunities, as noted in an article about opportunities to boost profits. The reason we have inflation is that massive stimulus, from both fiscal policy and monetary policy, has increased demand. Thanks to this higher demand, many companies can increase their own prices much more than they realize. Consumers have accumulated cash in their bank accounts thanks to stimulus checks and lower spending on vacations, restaurant meals and other socially-connected services. They can absorb price hikes.

In business-to-business sales, virtually all companies are used to price increases in a wide range of materials. Any particular item sold in the B-to-B space is often a very small part of the customer’s total cost of production, making price increases easier.

The second strategy for high inflation is prioritizing the most profitable products. Today many companies are constrained in their ability to meet customers’ demands. They cannot find the workers they need, and they cannot get increased deliveries from their suppliers. Businesses that need industrial, warehouse or laboratory space also find tight real estate availability.

The most common practice is not at all the best. Many companies simply give priority based on the date of the order regardless of profit margin. But most businesses have different profit margins across their product lines. If management believes that the market for certain products won’t accept price hikes to bring their profit margin up to what it should be, then lower their priority in delivery. Tell customers who order them that delivery will be slow. If possible, suggest that other products can be shipped more quickly. Ship the goods or deliver the services that are most profitable first.

Prioritizing high-margin products can have downsides. Some low-margin products enable the sale of more profitable accessories or follow-on work. The change orders on construction projects may justify low bids on the main contract. Although this sometimes is true, verify the assumption rather than blindly accepting the assertion that low-margin products must be sold before high-margin products.

The third business strategy for a high-inflation economy is to closely watch changes in relative prices. Not all prices increase by the same percentage. Especially when economic conditions are changing rapidly—as they certainly are now—price increases vary widely. News reports on consumer inflation highlight rising gasoline prices and used car prices. It’s not the case that these items are causing inflation; they are simply the first prices to rise, based on short-run elasticities of demand and supply, to use economists’ jargon.

With different rates of inflation for different inputs, a company should consider substituting one material for another. In manufacturing, for example, different metals are sometimes suitable for a particular product. Or an adhesive can sometimes substitute for a metal fastener.

U.S. inflation now runs higher than in most other countries, so substituting an imported good or service for domestic inputs may reduce the impact of rising costs. The decision, again, is not so simple, as many companies want to shorten their supply chains rather than lengthen them. The key strategy is still worth considering: look for substitutes away from the high-inflation products.

In the service sector, give consideration to the human talents needed to deliver services. Skilled technicians may not see wage increases as great as unskilled labor, for example, or vice versa. For many years computer prices were falling while wage rates rose, providing strong incentives to automate manual data entry. Today, though, that trade-off may be reversed, so do the arithmetic on what is the least cost method to produce whatever is being sold.

Business leaders struggling with high costs can understand economists’ concern about inflation: it distracts attention from fundamental business practices of serving customers’ greatest needs in the most productive way. Those fundamentals continue to be important, but now managing inflation effects is added to an already lengthy company leadership to-do list.

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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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