Not long after the UK voted to leave the European Union, I wrote about how our industry was about to face an epic price war. Just days after the vote to leave, some of our industry’s biggest businesses who left themselves exposed to big swings in the exchange rate were passing on some eye watering price increases.
This led to an early battle between companies who were raising prices versus those who were holding or absorbing prices. Those keeping prices stable were quick to cash in on the PR front, with advertising making it very clear that they wouldn’t be passing on price increases in the short term.
The market though has changed a little. Home owner demand has remained strong, if not stronger than expected. But Sterling has continued to fall. This has heaped further pressure on to suppliers who had previously held off raising their own prices.
So, pressure has won out and we’re now seeing a raft of suppliers who had held, now raise their prices. Only by a small margin though. 4% seems to be the level most are aiming at.
This is where the battle lines are being drawn in what is going to be a potentially nasty round 2 in the industry price war.
Small v large
There is a price war ongoing right now. You may not see it, but it’s a subtle one quietly being waged whilst most installers are getting their heads down during silly season.
But the war might be about to get a bit more interesting. The industry is splitting into two. Those who are passing on some quite serious price increases, 17% in once case, versus those just creeping them up.
4% in the grand scheme of things isn’t all that much. 4% increase on the material cost of a £500 composite door slab and frame is £20. Given that inflation has generally been avoided on prices in our industry for the past two decades, I think we can handle that one. I would expect installers to be able to pass that extra £20 down to the customer without harming the chances of a sales.
What about conservatory roofs? A 4% increase on a £2000 conservatory roof is an additional £80. Again, not a massive jump, and one that shouldn’t harm the chances of a sale.
But what about those with double digit increases? Lets take the most extreme example I have seen. According to reports, one composite door supplier has raised prices by a whopping 17%. If this is true, then a 17% increase on the material cost of a £500 composite door set is £85. Just on the materials of one composite door. Most homes have two doors, so lets double that to £170, then add VAT for the home owner and that’s suddenly £204 extra on the cost of two doors.
A 17% rise on the cost of a £2000 conservatory roof to the installer would add £340 before VAT. These are quite steep price increases. Are the companies passing down double-digit increases doing so to recover lost ground on their margins over extended years? Or were they caught napping when agreeing their purchasing terms on their raw materials and failed to hedge before the EU vote?
PR dream for some
Most suppliers are now increasing prices to some degree. We all have to come to terms with that. But for those only inching their prices up, there is some serious gains to be made.
You can justify a rise of 4% to most installers, and they will understand and just get on with it. Anything above 10% and they will start to get more than a little peeved. So I fully expect fabricators and manufacturers that are implementing small increases to make a very large, loud point about doing so.
There is a great opportunity here for companies to really stick the knife into others who are imposing much bigger, and perhaps opportunistic, price increases. These statement will be made crystal clear, in public, in the trade press, on social media, to reach out to potential new business. Installers who are decidedly unhappy with their current supplier’s hefty uplifts.
On the side lines, we can watch this unfold. There is a new middle ground of installer business to be won, and one half of the industry will be very keen to cash in on the impending second round of an epic price war.