Margins with stockist and retailers.

[smithster1]

I have a product that is ready to launch, I have put 10 months into the development and from building a bricks and mortar store, ecomm website and the branding and products themselves I am about ready to go as soon as updated packaging arrives in 1 week. It has been a busy time and I am quote confident.
I already have one retailer who is keen, they said it's a better product than leading brands.
I ma putting together wholesale pricing and offers and just wanted to ask a few questions.
The product is food / fmcg / health.

I am trying to work out the ratios now.
What is the general ratio you offer a retailer?
Let's just say retail price is £6.50.
I have worked out the overall cost, let's just say for ease it is £2 I would want to at least double up on wholesale so £4.50 cost to retailer. Then the retailer can make £2.
Is this sort of pricing realistic - or should I be taking a bit more off the table? Who usually gets the bigger mark up? I guess it varies store to store? I heard the big nationals like Ocado and Selfridges can be brutal and want 45% of the retail price.
I am planning on selling MOQ of 50 SKUs to stores to start off with, small I know but I am just getting going. I have 1,050 sku over 6 lines. I have my own bricks and mortar store, ecom store, but my main aim is to get 70% of stock into retailers on this first run. My restock time is around 4 weeks to get another 1000 products or more should I need it.

How does this all sound?

 

[fisicx]

Retailers will probably want to buy at around £2 each with further discounts for bulk orders. And they may even want sale or return plus 90 days payment.

60% markup isn’t unusual.

 

[thetiger2015]

If the RRP is £6.50, we wouldn't pay more than £3 per unit

Does your WSP and RRP include VAT?

Brutal? 45%? They'll want more than that. You sometimes have to pay for shelf space in the big retailers.

 

[FreddyG]

How does this all sound?

Quite honestly - ridiculous!

The time to find out how the food retail market works was about two years ago! And you do it from the inside, developing contacts and market know-how! Your job is to have 'developed' contacts who work as buyers. As you attend their kid's bar mitzvah, conformation, whatever, you 'mention' that you are launching a new product.

Your marginal costs (the cost to produce the last item) a tiny fraction of the wholesale and/or retail costs - and trust me - those costs are waaay higher than what it costs you to make those chockie-minty-health-vomit-protiein bars! And your marketing budget will be about DOUBLE those costs! Now, add distribution and the cost of renting shelf space.

I already have one retailer who is keen, they said it's a better product than leading brands.

This is your liferaft! This is your one customer that you can show to all the other retailers that your chockie-minty-health-vomit-protein bars actually sell!

"Gird him unto your loins with hoops of steel!" and use him/her as your beacon of hope/marketing!

Good luck and let us know how you get on!

 

[Mark T Jones]

Reflecting much of the above, you really need to do some cashflow projections here, with guidelines being:

- retail usually looks to market up 2-300%. Less than 100% would be rare

- VAT is a big part of your calculations

- retailers will always look for credit terms - between 30 and 90 days.

- big retailers will have all sorts of other terms built in

- irrespective of the quality of your product, what will really make it sell is placement, packaging and marketing - all of which cost money

On the face of it your figures won't work, but now is the time to get on top of it

 

[WaveJumper]

Can't really add anything of value thats not already been said here other than echoing your figures are way off and a proper business plan should have been drawn up before even contemplating getting this off the ground. You maybe be lucky to get into a few local niche shops but the bigger players are another matter altogether

 

[fisicx]

Another thing to consider is many retailers buy from distributors. Which means you need to get into the warehouses rather than pitch up at the shop.

 

[smithster1]

chockie-minty-health-vomit-protein bars

Trust me I can't stand these chemically loaded fake food products as much as you. You will be happy to know it's the total opposite of this.

 

[smithster1]

Thanks for the advice all. I love a bit of brutal honestly and reality check.
I have a lot to learn admittedly, and I have crunched numbers and do have a 3 page business plan with numbers but yes, time to enter the ring.

 

[fisicx]

You need to get your production costs way down. Your target should be under a pound.

 

[Socio South West]

For a small new business be very careful of the multiples. It's an increasingly complex minefield for the unwary small supplier with Pound notes in their eyes.

Not only will they screw you down on price, but you will be charged 'Marketing Plans' which tend to start at around £2k pa,
Then when the product is on offer the discount they take off the product in store is knocked off the price that you sell to them by way of a retro credit.
There are also fairly strict criteria on delivery standards and other items that you have to conform to or face penalties - eg £100 penalty for rejection of delivery owing to wrong pallet type etc (And then you have to get the pallet returned to you, and suffer a further penalty for failed delivery.... )
You also have to gear up for your team to understand an every increasing plethora of systems - often not linked or inter related - for various supply chain events from orders received right through to invoicing. EDI links ease this... but guess what.... you will get charged something into hundreds if not thousands to set up these links.

There are enough independent wholesalers for this type of product out there to be able to build a business without being in the jaws of the multiples, and until you understand their systems fully my advice would be to avoid.

 

[Socio South West]

PS The myth of 60 and 90 day payment is rapidly disappearing: If you conform to their invoicing requirements you will certainly be paid within 30 days - Waitrose are usually 17 days and Sainsburys even offer 7 days payment for first order initial shelf fill from new suppliers

 

[smithster1]

For a small new business be very careful of the multiples. It's an increasingly complex minefield for the unwary small supplier with Pound notes in their eyes.

Not only will they screw you down on price, but you will be charged 'Marketing Plans' which tend to start at around £2k pa,
Then when the product is on offer the discount they take off the product in store is knocked off the price that you sell to them by way of a retro credit.
There are also fairly strict criteria on delivery standards and other items that you have to conform to or face penalties - eg £100 penalty for rejection of delivery owing to wrong pallet type etc (And then you have to get the pallet returned to you, and suffer a further penalty for failed delivery.... )
You also have to gear up for your team to understand an every increasing plethora of systems - often not linked or inter related - for various supply chain events from orders received right through to invoicing. EDI links ease this... but guess what.... you will get charged something into hundreds if not thousands to set up these links.

There are enough independent wholesalers for this type of product out there to be able to build a business without being in the jaws of the multiples, and until you understand their systems fully my advice would be to avoid.

Thanks, yes to be honest the larger retailers are not on my list right now, I belive I have a product that can sell itself and no doubt those buyers will be begging me soon enough....
But realistically I am observing and the info here has been valuable and will certainly be absorbed and be part of my mindset when I am ready to approach larger retailers.

 

[Chris Ashdown]

What market research have you done, How many have you sold already,why should I buy from you what is special or different, Does it meet current food standards
These are questions any buyer will ask you

 

[smithster1]

What market research have you done, How many have you sold already,why should I buy from you what is special or different, Does it meet current food standards
These are questions any buyer will ask you

12 months of market research, 4 trips to the country where I have sourced from, I have a strong USP that I won't share on here as I am not sharing the brand so won't have relevance, meets all food standards and has been tested and certified and to date, have sold 75 units without even really launching (we launch in 2 weeks time when updated packaginf arrives), website is 100% complete, as is the bricks and mortar store.

 

[fisicx]

All good. But if you want to sell in retail outlets you need to get the costs much much lower and sort out distribution.

A friend owns a niche store and he gets everything delivered on a pallet from a distributor. Staff can then fill the shelves bung the overs in a store and chuck the pallet out the back for collection. That way she keeps full control over the inventory.

The exception is for new lines where she sells shelf space and the rep does the restocking.

 

[Paul Norman]

As stated above, for a product retailing at £6.50 I would expect to pay no more than £3.00.


And I would have questions about how quickly you were going to discount on your own site, too. Because the moment you start to discount, I have a shelf full of expensive stock. Assuming, of couse, that retail customers can buy directly from yourself.

 

[Paul Kelly ICHYB]

First, let's get the wrist slapping out of the way.

You are one week from having sellable stock and you are only now looking at pricing - this should have been done before you ordered anything.

Not understanding your clients requirements means you are open to 'abuse' from experienced people who will see you coming a mile away.

Now, onto the help.
Unless I missed it, you do not mention what the products are. Different categories deliver different margins. Branded consumer electronics/appliances gave retailers 25-40% ex VAT margin. Clothes can be in excess of 100%. Food & drink - 30-80%+.

Different distribution delivers different margins. If selling to distributors, they will need to make 5-20% margin and then retailers will need to make their margin on top.

Have you looked at trading terms? 30/60/90 days settlement is not uncommon. Settlement discount, marketing contribution, buying shelf space etc all eat into your margin.

What about returns? Customer service?

If you are launching with a massive marketing budget, maybe you could offer lower margins. If you buy marketing space (flyers, launch, email etc) you could offer lower margins.


How have you priced your product? There are 2 simple ways that work on most scenarios and by doing both, you will see the viability of your products.

Retail down

• Retail Price minus VAT
• Ex VAT minus margin requirements - this get you to your invoice price
• Minus additional support - A&P, settlement etc
• This gets you to your net selling price.

As long as your (landed/cleared/delivered) cost is below this, you have started well. Ideally, extend this by taking of admin, logistics and support costs (taken as a general/indicative %) to start building a better picture.

Cost Up

• Landed/cleared/delivered price
• Add admin, distribution etc costs for base price
• Add margin for minimum selling price
• Add retail margin & VAT to get to typical selling price - this should then be in the ball park of the market you are working in and positioning your brand.

If this is well above the market price, you have got something wrong, normally base cost or operational/import costs.

 

[smithster1]

First, let's get the wrist slapping out of the way.

You are one week from having sellable stock and you are only now looking at pricing - this should have been done before you ordered anything.

Not understanding your clients requirements means you are open to 'abuse' from experienced people who will see you coming a mile away.

Now, onto the help.
Unless I missed it, you do not mention what the products are. Different categories deliver different margins. Branded consumer electronics/appliances gave retailers 25-40% ex VAT margin. Clothes can be in excess of 100%. Food & drink - 30-80%+.

Different distribution delivers different margins. If selling to distributors, they will need to make 5-20% margin and then retailers will need to make their margin on top.

Have you looked at trading terms? 30/60/90 days settlement is not uncommon. Settlement discount, marketing contribution, buying shelf space etc all eat into your margin.

What about returns? Customer service?

If you are launching with a massive marketing budget, maybe you could offer lower margins. If you buy marketing space (flyers, launch, email etc) you could offer lower margins.


How have you priced your product? There are 2 simple ways that work on most scenarios and by doing both, you will see the viability of your products.

Retail down

• Retail Price minus VAT
• Ex VAT minus margin requirements - this get you to your invoice price
• Minus additional support - A&P, settlement etc
• This gets you to your net selling price.

As long as your (landed/cleared/delivered) cost is below this, you have started well. Ideally, extend this by taking of admin, logistics and support costs (taken as a general/indicative %) to start building a better picture.

Cost Up

• Landed/cleared/delivered price
• Add admin, distribution etc costs for base price
• Add margin for minimum selling price
• Add retail margin & VAT to get to typical selling price - this should then be in the ball park of the market you are working in and positioning your brand.

If this is well above the market price, you have got something wrong, normally base cost or operational/import costs.

Thanks great info.
No I have not just considered pricing, pricing was considered 12 months ago, from market research and determining the quality of my brand and product.
I only just sent the message on this group as I wanted to test my pricing, I think the correct way to look at it that maybe I have been sitting on my price model for a bit too long without testing it in the real world.
I am here to learn, hence why I put it out there.
Thanks for your info.

 

[smithster1]

First, let's get the...

I think one key piece of info I am looking for, and it may have already been answered, is, specifically with the larger retailers - they want the bigger mark up...
What about the intelectual time spent on developing the brand, fine tuning products, building suppliers and maintaining said aspects.. If it come to it, they'd want a 2.0 to 2.5 markup whilst I would maybe get 0.5 or 1.0.... It has to be sustainable and profitable for me and my brand too, not to mention the continued R&D and brand image maintenance.

 

[DontAsk]

How is you RRP determined?

If it's to beat the competition then you need to look at your costs.

 

[fisicx]

Retailers don’t care about you, your brand, research, costs or anything else. The only thing that interests them is if the product will sell and make sufficient profit when compared to the alternatives.

If a cheaper product sells in far higher quantities they will drop yours from their stock.

 

[smithster1]

How is you RRP determined?

If it's to beat the competition then you need to look at your costs.

I am not competing on costs. I am competing on quality and brand.
I have however identified three or four competitors who I belive I can sit amongst, given my brand, the quality of the product and other things.. I will be more expensive than two of them and around the same or just under the other two. I could easily price myself higher and back it up with marketing but I think I am comfortable where I am.
As you can see from my workings out, I was planning on making a 2 to 2.5 approx on gross at wholesale but I am happy to learn I may not be able to, I do have some favourable production and shipping costs though with no middle men. I am sourcing direct from producer abroad.

 

[fisicx]

I am not competing on costs. I am competing on quality and brand.

Your brand is unknown. Which means consumers will buy the products they already know. They might try yours if there was a promotion. But you pay for the promotion. In other words a 25% discount comes out of your pocket.

 

[BusterBloodvessel]

Your brand is unknown. Which means consumers will buy the products they already know. They might try yours if there was a promotion. But you pay for the promotion. In other words a 25% discount comes out of your pocket.

Yep - I have often told this story before, perhaps even on here. Someone i know owns a respectable sized small brewery, who got in conversation with one of THE big supermarkets once, to be listed in around 150 stores I think, as a first trial. They were obviously cock-a-hoop about it. Low margins, but it was workable, great chance to grow the business, brand exposure etc.

It was literally a 99% done deal and ready to be signed off, but at the last minute the supermarket said "to really get this going we're going to do a BOGOF promotion for the first 4 weeks"

"Great" said my friend....until he heard the words "....and you're going to finance it".

They essentially wanted him to lose money on every single bottle of beer he sold them for the first 4 weeks by giving them another one absolutely free. With no guarantee that they'd continue to stock it beyond those 4 weeks, no cap on the amount of freebies so his total losses, no long term contract etc. Thankfully he was sensible enough to recognise he simply didn't have the funds to finance that on the hope it proved successful so he walked away.

 

[DontAsk]

I am not competing on costs. I am competing on quality and brand.

Is this a new product for an existing established brand? Otherwise you do not, yet, have a brand to compete on.

Do you already sell branded products to the same retailers you are targeting for this new product? If not, what are you doing to promote your brand to them?

 

[DontAsk]

They essentially wanted him to lose money on every single bottle of beer he sold them for the first 4 weeks by giving them another one absolutely free.

It's a bit like 3 for 2 offers funded by the manufacturer. When the products reached sell by data and were sold off a fraction of RRP you would still be credited with the free product at full price. All paid for by the manufacturer.

Many is the time we made a profit from late night offer shopping

It doesn't seem to happen like that so much these days, the IT systems are more hard-nosed

 

[fisicx]

When you walk into a shop @smithster1 to buy a tin of Wizzo Baked Beans for your tea do you even look at the other beans on the nearby shelves? Most people don't unless the is some sort of promo.

And Wizzo will have paid the store for their beans to be at eye level and not on the bottom shelf where nobody looks.

The store isn't going to move Wizzo Baked Beans off the premium location, they are going put your tins off to the side with the other poor selling products. Unless you pay them. All of which comes out your pocket.

Just like the brewer, you may well be running with the thinnest of margins for many months before sales pick up. If you then factor in all the marketing and distribution costs that margin could be down to pennies.

 

[Paul Kelly ICHYB]

they want the bigger mark up...

Retailers do not work on markup, they work on (normally ex VAT) margin i.e. profit. Using the wrong terms/calculations exposes the fact that you are a

I will be more expensive than two of them and around the same or just under the other two

How are you justifying that? What's the USP? Will you be spending £££'s on marketing & advertising?

What about the intelectual time spent on developing the brand, fine tuning products, building suppliers and maintaining said aspects..

What about it? That's the cost of business. In most cases, you will make a fraction of the money the retailer makes, but they have a far greater investment than you.

 

[Chris Ashdown]

12 months of market research, 4 trips to the country where I have sourced from, I have a strong USP that I won't share on here as I am not sharing the brand so won't have relevance, meets all food standards and has been tested and certified and to date, have sold 75 units without even really launching (we launch in 2 weeks time when updated packaginf arrives), website is 100% complete, as is the bricks and mortar store.

Good luck hope it goes well

 

[fisicx]

Good luck hope it goes well

I'm sure we all hope this but their pricing model is wrong. The cost of the product is too high for an RRP of £6.50.

 

[smithster1]

When you walk into a shop @smithster1 to buy a tin of Wizzo Baked Beans for your tea do you even look at the other beans on the nearby shelves? Most people don't unless the is some sort of promo.

And Wizzo will have paid the store for their beans to be at eye level and not on the bottom shelf where nobody looks.

The store isn't going to move Wizzo Baked Beans off the premium location, they are going put your tins off to the side with the other poor selling products. Unless you pay them. All of which comes out your pocket.

Just like the brewer, you may well be running with the thinnest of margins for many months before sales pick up. If you then factor in all the marketing and distribution costs that margin could be down to pennies.

Well for a brand that has not even launched yet and secured a stockist who said the product is better than leading brand he buys in - I think we will do well. Hell I have no idea what I am doing in all honesty, no one does... I know I am more knowledgeable than 90% of the new brands that start, honestly the crap I have seen, advertised to me on socials as well as the low quality efforts I seen in Selfridges, I am confident here. But we all got to start somewhere... I have time on my side.. I have a lot of opportunity, every single person that has been in my store, strangers, have all said the same thing... "Classic looking, amazing quality and good price" - i mean what more do I need to start..

 

[smithster1]

I'm sure we all hope this but their pricing model is wrong. The cost of the product is too high for an RRP of £6.50.

I can get this down, I just need to increase orders on packaging, and ship packaging by sea, not air... I had to order the lower quantity and ship by air this time around, good chance with a much higher MOQ on packaging and using sea freight I can get costs down considerably.

 

[fisicx]

It's not about being better. It's all about marketing. You need to get people interested in trying your product. There are a whole load of studies that demonstrate how a mediocre product with great marketing will outperform a great product with poor marketing.

 

[fisicx]

I can get this down, I just need to increase orders on packaging, and ship packaging by sea, not air... I had to order the lower quantity and ship by air this time around, good chance with a much higher MOQ on packaging and using sea freight I can get costs down considerably.

Then accept you are going to be running at a loss until the product becomes popular.

 

[fisicx]

I have a lot of opportunity, every single person that has been in my store, strangers, have all said the same thing... "Classic looking, amazing quality and good price" - i mean what more do I need to start..

And did they all buy the product? Have they come back to buy more?

 

[smithster1]

And did they all buy the product? Have they come back to buy more?

Well as you know, the rate of people picking up a product and then purchasing it is not 100%... Sales are good considering I have not launched yet. Just sort of in beta mode till the new packaging arrives.
A person who has been in the food trade for a very long time told me to get ready because this produt will fly.
I am prepearing for the marketing release in 1 weeks time.
I am here, giving it my all, open to learning, fast.. What more can be asked for.

 

[thetiger2015]

I know I am more knowledgeable than 90% of the new brands that start..... - i mean what more do I need to start..

Humble yourself

You don't have a brand, you have an idea that, maybe, with lots of money and effort will become a brand. That would be great but you're not 'more knowledgeable than 90% of the new brands' - maybe start-up businesses but not 'BRAND'.

Start-up = anyone can do this, it can be anything from cleaning cars to selling shoes
Brand = has equity, value, aesthetic, investment, planning, price points, launch strategy and MUCH more

There's a LOT more to a brand than just a start-up!

You've got some great advice in this thread. Lots to be working on. Maybe selling in to retail isn't ideal for your launch strategy, as you don't have the margins or the network to pull it off. Work with the stockist you do have to hone your product and develop a strategy for the next 12 months - get those costs down!

 

[smithster1]

Humble yourself

You don't have a brand, you have an idea that, maybe, with lots of money and effort will become a brand. That would be great but you're not 'more knowledgeable than 90% of the new brands' - maybe start-up businesses but not 'BRAND'.

Start-up = anyone can do this, it can be anything from cleaning cars to selling shoes
Brand = has equity, value, aesthetic, investment, planning, price points, launch strategy and MUCH more

There's a LOT more to a brand than just a start-up!

You've got some great advice in this thread. Lots to be working on. Maybe selling in to retail isn't ideal for your launch strategy, as you don't have the margins or the network to pull it off. Work with the stockist you do have to hone your product and develop a strategy for the next 12 months - get those costs down!

Thanks, my strategy is to work with smaller independents - local stores in communities, as you say hone the product I agree on price, the next big order of packaging will be by sea and it will be a 500% increase on packaging units, I will run the numbers and see what % saving this will be.
And yes this is the advice I was looking for.
And I am humble, sometimes I just let my confidence burst out.

 

[smithster1]

Thanks all for the advice, I do appreciate it. I came here for all that has been shared.
When I am 100 stores and changing the world with my products I will come back and report here.
Sitting down with someone who is technical and knowledgeable in price strategy would be good though... I am definitely more of a right brain creative, I am the Steve Jobs and I need a Wozniac! I am sure that develop, otherwise back to the drawing board!