In a warehouse in Melbourne’s northern suburbs, parcels of dog treats are being prepared for delivery around the country — but, as of the start of July, it’s coming at an added cost.
Key points:
- Australia Post shipping costs rose by as much as 10 per cent this month, with other couriers lifting prices by similar amounts
- Around a quarter of small businesses are raising prices to cope, with many more taking a margin hit
- Analysts warn many small online retailers may fold under the pressure of rising costs and falling demand
This small Business has chosen Australia Post as its parcel carrier of choice, after weighing up the reliability of different services.
A few weeks ago, Australia Post increased some of its prices by up to 10 per cent.
“With the cost of living crisis at the moment, consumers are very price conscious … so we don’t want to be just passing on every single cost that we get increased at the same time,” Tricia Ong, the general manager of Laila and Me, told The Business.
But after being “hit left, right, and centre” by price rises — from the meat they use to manufacture their dog treats, to energy, rent, and the interest on their business loan — they made the difficult decision to increase delivery costs for customers.
“Although we are a premium product, I do believe that our customers are still price sensitive,” Ms Ong said.
“A lot of our customers, they really understood and, where we can absorb the price we definitely will, but, unfortunately, we’ve had to pass on this one.”
Delivering a price hike
In a statement, Australia Post said the price rises, which came into effect in July, are necessary to help the business deal with its own increased costs.
“Like all logistics businesses, Australia Post is operating in an environment of increasing inflationary pressures and rising energy, fuel and labour costs,” a spokesperson said.
“We carefully consider any pricing changes and the impact this has on our customers.”
Unfortunately for businesses relying on parcel delivery, it isn’t an isolated instance.
“We’re seeing a broad-based change across the carrier industry,” said Rob Hango-Zada, the co-founder and joint chief executive of Shippit.
“Australia Post is probably the more public-facing one, but we are seeing similar price increases across the rest of the carriers within the industry.”
Shippit’s software platform gives business customers access to multiple courier services, and Mr Hango-Zada sees price hikes typically coming into effect in August or September each year.
The cost of passing on costs
The choice facing retailers is whether to take yet another hit to their margins or increase the costs for their own customers, at a time when many shoppers are reconsidering purchases due to the rising cost of living.
“A lot of these small businesses are competing with the juggernauts like your Amazons of the world, where free shipping is an everyday possibility, so passing on the cost of shipping is not as straightforward as it could be,” Mr Hango-Zada observed.
“We’re seeing this as a time of the haves and the have-nots — certainly those that have more scale in their operation can weather the storm a lot more.
“Unfortunately, small businesses shipping online out of one location, with a very limited product set, are going to find it really challenging.”
Laila and Me has communicated the change in delivery costs to customers via an Instagram reel and is hoping the transparency will pay off.
“They’ve seen us from when we first started the business … they’ve seen our operations expand from just being a small little treat company to now having our own manufacturing premises,” Ms Ong said.
“That’s one way we’re trying to mitigate the risk in terms of consumers jumping to the next cheapest alternative — we’ve got a very loyal brand following.”
‘Crunch time’ for small businesses as demand falls, costs rise
The Australian Retailers Association and American Express Small Retail Index, based on a survey of around 400 small and medium retailers, found 24 per cent were passing on higher costs to customers.
Another 35 per cent had reduced their margins or found business savings to address cost concerns.
“Small businesses are already operating on some pretty small profit margins,” Council of Small Business Organisations Australia boss Luke Achterstraat said.
“It can be a pretty thankless existence when your profits are being eroded by these increasing costs but you’re not in any position to pass on those rising costs yourself.”
Mr Achterstraat believes the next three to six months will be a “crunch time” for operators grappling with rising costs and falling demand, and urges big corporations to work with their smaller clients to make it through.
“We’re looking for support from their customers, looking for support from their banks, looking for support from the suppliers, and from government and regulators as well.”
The COVID-fuelled e-commerce boom saw many new small online retailers enter the market, which has relatively low barriers to entry.
According to IBISWorld, there are now more than 83,000 online shopping business in Australia, an increase of 13.9 per cent from last year.
But the realities of the post-pandemic market could see some close up shop.
“It’s never been easier to start an online business … accessing and sourcing products from overseas, merchandising online and shipping it out has never been simpler,” Mr Hango-Zada said.
“But I think what’s coming home to roost is really the cost of doing business, and the economics of doing that in an environment where demand is quite pressured through the rising cost of living for the average consumer.
“And then on the flip-side, those rising costs have now made it almost impossible for some small businesses to keep going.”
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