How do I negotiate the cost/sale price with food retailers/shops?

[SarSpud]

Hi, I'm in the process of setting up a food/beverage company and would like to approach some local farm shops to sell my produce but I'm not sure where to start with pricing. Can anyone offer advice?

I have no idea if I have a recommended price I'd like the product to be sold for, how much a shop would expect to make from the sale which affects what I sell it for and therefore my profit. For example, if it costs me £2 to make and the RRP I think should be £4, I obviously want to make the most money possible from the sale, but how much really does a shop expect to make from selling things?

I'm happy approaching shops, demonstrating why the product is good and then negotiating but expectations around price and therefore my profits are leaving me stuck. Thanks in advance!

 

[Mr D]

A shop may want to charge more than double. They may have to charge more than double.

You need to have an idea what price you want to be paid, perhaps with discount for volume. You may have an idea on a retail price - too low and some retailers will turn you down in favour of stuff that does sell with a better margin.

You are competing for shelf space. If your product goes on a shelf then something else will come off - shops not usually going to have spare shelf space with nothing on it.
So make sure its a product that will sell and that price is right.

 

[KAC]

Is it a zero rated product for VAT as that may affect the shop selling price

 

[SarSpud]

Is it a zero rated product for VAT as that may affect the shop selling price

Yes it is zero rated VAT?

 

[Pish_Pash]

In your shoes, I'd work backwards.

let's say you want to sell a jar of jam.

Visit the target shops you intend to sell to & see what their current jam offerings are (in closest proximity to your own product) ...assuming your product has a USP, you should at least be able to get the retailer to sell yours at that same price. Therefore the retail price is going to be set by your competing products....not by you as a new start-up.

Once you have an idea of the competing retail price, you can then formulate some pricing.

I don't have any experience what food retailers typical markup is (it'll depend on the type of retailer...pile 'em high, sell 'em cheap ...or boutique type food shops) ...that's what you'll need to establish. I'm guessing you don't have a huge factory, so you'll probably be trying to sell to small independent shops...they'll probably want a chunky profit margin (i.e. double what they source from you). therefore if your aformentioned jar of jam is expected to compete (with other jams) at £5.00, they will probably expect to source from you at £2.50 ...you could always test the water with a punt at a couple of retailers say at £2.80 ...see what the reaction is...you'll soon get a feel how far out you are on pricing!

Remember to have price breaks...you wouldn't want to sell 5pcs at the same price as 100pcs.

 

[Chris Ashdown]

Have you fully worked out your plan including all costs, the wages you need to make, the likely cash-flow requirements and your budget.

After that you can do your research as to what the average retail selling price is for goods in the same area as yours,

You will by now know fully all your costs, you have enough money to carry you over the first say six months, and you can see how much you need to charge retailers then try and negotiate with retailers with your marketing plan explaining the benefits of selling your products and why you may be more expensive that there other suppliers

 

[Nochexman]

Pish_Pash is spot on.

...if it costs me £2 to make and the RRP I think should be £4, I obviously want to make the most money possible from the sale...

Also, if it costs you £2 to make and retailers are going to sell it for £4, that means that £2 is available to be split between you and the retailer. In this scenario I doubt whether the retailers would leave very much for you

 

[GTL]

Drop me a note if you like as I know thee sector well.

Most of the above is spot on.

But a retailer will want a minimum gross profit of 40% (not including vat).

In the industry, you should look for a minimum of 40% also. Eg if you are making biscuits, and the total cost to you is 50p, you’d be looking at selling them to a shop for 83.3p. The shop would then sell them for £1.39 (no vat on biscuits unless chocolate covered).

Why 40%? Because that’s where the industry has found itself.

Some manufacturers (eg walkers crisps) achieve 70%, but if you are a small producer, 40% is a good place to start.

I know companies which operate at half that, which have very high rrp’s and lose money.

So it is very sensible to start with your proposed retail sales price and work back.