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Retailer Pricing

Discussion in 'General Business Forum' started by proteinbar2020, Apr 30, 2020.

  1. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Hi,

    We're going to be launching a new protein bar soon and the cost to us is £1.10 per unit.

    This includes the ingredients, manufacturing, wrapper and storage/POS box, shipping.

    What % profit margin are the big retailers/supermarkets happy with like Tesco, Ocado, Morrisons, etc... in this niche of food bars, protein bars?

    The RRP of the bar is £2.50.

    If we make 45% gross profit this leaves us with £1.59 per bar (49p profit per bar). This then leaves 54% exclusive of VAT if the bar retails at £2.50 to the retailer. Is this too much?

    Please advise on pricing?

    Thank you.
     
    Posted: Apr 30, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #1
  2. Mr D

    Mr D UKBF Legend Free Member

    22,888 2,757
    Look at what your competitors are selling for in the supermarkets. That will give you an idea of price point the supermarket is selling at.

    You may want £1.59 per bar - what if they want say 5000 bars at £1.25? You could have a price point per bar but reduce that for volume.

    You should have proof of sales at a particular price point to show the retailer its worth getting rid of something else that sells to make room for this on the shelf.

    And if the retailer decides to buy say 5000 bars and pay you 3 or 4 months after delivery?
     
    Posted: Apr 30, 2020 By: Mr D Member since: Feb 12, 2017
    #2
  3. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Firstly, thank you for your reply.

    The main brand is Grenade which is £2.50 rrp. Box of 12 on Amazon is £18.99. On their site its £2.50 per unit or 12 of £30.99.

    Tesco and almost all retailer stock them for £2.50 rrp. Right now they're on offer at £2.00.

    Yes, we can withstand a heavy order and not get paid for months, thats not an issue. We have a lot of capital available.

    This is going to be volume, not big margins, but I'm curious if Tesco would be happy with 30% for example which would improve with volume. That way our profit % is higher.
     
    Posted: Apr 30, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #3
  4. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    This thread is stating the POR is 20-25% so what would our sale price be to the retailer?

    Cant post the link...
     
    Last edited: Apr 30, 2020
    Posted: Apr 30, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #4
  5. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    £1.90 would be 28%.
     
    Posted: Apr 30, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #5
  6. ADW

    ADW UKBF Enthusiast Free Member

    1,259 202
    Have you sold to any other smaller outlets before going to the big supermarket chains? You will likely be biting off more than you can chew as they will stack the risk on you with SOR and minimal margins. Have you got any advertising campaigns running alongside? There are many protein bars trying to break onto market so you will need a realistic plan. Marketing will be key. Endorsements are good if you can get some names from different sports to tag.
     
    Posted: May 1, 2020 By: ADW Member since: Oct 25, 2007
    #6
  7. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Not yet, we're a start up.

    I know and approaching them will not be a priority until we have a lot of other sales in the bank.

    I guess my question applies to any retailer, small or large. Perhaps we should aim for 60-70% return and then adjust down.

    I saw on another thread here that food is 20-25% POR with supermarkets, can you confirm this?
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #7
  8. ADW

    ADW UKBF Enthusiast Free Member

    1,259 202
    Take a look around some of the Cash and Carry's out there as this will give you a good indication of what smaller retailers are buying in at. You will likely see items similar to yours and know what you are up against.
     
    Posted: May 1, 2020 By: ADW Member since: Oct 25, 2007
    #8
  9. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    I will register and set up as a merchant on some of these.

    I spoke to someone that sells dietary supplements with these wholesale distributors and he said they're happy with 30%.

    But it still doesn't tell me what the major retailers would be happy with? Could it be less as they're volume and lower margins?
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #9
  10. ADW

    ADW UKBF Enthusiast Free Member

    1,259 202
    Supermarkets will dictate terms which will likely include promotions and sor. As you mentioned previously, Grenade bars are regularly discounted in the big chains along with other brands so you will need to calculate equivalent offers into your pricing. Margins will obviously be lower than smaller outlets. Tesco own Booker C&C so you can imagine how much lower again they buy in at when you check pricing on there. I wouldn't get distracted yet by the big chains. Work on the basics first and start to establish a foundation and brand. To many look to the big chains and regret it. Boots is an easier company to deal with I found but this was several years back.
     
    Posted: May 1, 2020 By: ADW Member since: Oct 25, 2007
    #10
  11. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Thank you.

    Registration is suspended on Booker right now due to COV19.

    I have more pending accounts with distributers so I'll be able to see their pricing soon.

    So you're saying Tesco wont buy in higher than Booker?
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #11
  12. Mr D

    Mr D UKBF Legend Free Member

    22,888 2,757
    Walk first, then learn to run.
     
    Posted: May 1, 2020 By: Mr D Member since: Feb 12, 2017
    #12
  13. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    I've found £13.79 excl. VAT for 12. So £1.14 per unit to distributors.
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #13
  14. Mister B

    Mister B UKBF Ace Free Member

    2,448 567
    I used to head up the buying function at a major outdoor retailer, and I can tell you for nothing that you will have an uphill struggle.

    Looking at it from the point of view of Tesco, you wil not even get a foot in the door, never mind a telephone conversation unless you can illustrate:

    1. An acceptable level of margin. Food supplements have historically been low margin but for the volumes Tesco will talk about, they will want the shirt off your back.
    2. Some sell through amongst smaller independent retailers, and at the very least, a dedicated social media following. Instagram, facebook etc etc.
    3. A coherent marketing campaign. They wil not be expecting to sell the goods, they will be expecting you to show them how you are going to sell the products through. This marketing campaign could be online or offline, normally a combination of both.
    4. Sell by dates on the bars. Will you buy back unsold stock once it hits the sell by dates?
    5. Promotions to boost volume. 3 for 2 and all that malarkey.

    So, coming back to your original point, you need to ensure that you have enough margin to finance the above. If you do, and you can meet their target margins, then you may be onto something. Even if you do get a foot in the door though, they'll want you to start in a smaller way and give you maybe a ten store listing to see if you can walk the walk and get the goods sold through.

    If it were me, I would start with small independents and wholesalers. As others have said, start small and work your way up.

    Good luck with it.

    Mister B
     
    Posted: May 1, 2020 By: Mister B Member since: Aug 31, 2007
    #14
  15. atmosbob

    atmosbob UKBF Ace Free Member

    4,377 1,033
    Going back a few years so the amount would be greater now...... I know of a product about 6 inches wide who were told by Sainsbury to spend £1million on advertising to establish that space on their shelves for six months.
     
    Posted: May 1, 2020 By: atmosbob Member since: Oct 26, 2009
    #15
  16. The Byre

    The Byre UKBF Legend Full Member

    9,985 4,062
    Then may I suggest that you use some of that capital to hire someone who knows their way around retail. You are asking fundamental questions about the retail market that you have to thoroughly understand BEFORE you even think about a type of product.

    The big boys like Nestle and Pepsi spend 5-to-10 years and many millions establishing a food brand. Nowhere in your calculation do I see a marketing budget! It is far from unusual for a mass product to have marketing as their largest cost. In other words, if your product unit costs are £1.10, then about 60p should be advertising and 50p to make and package the thing.

    Start small, sell to local shops and expand from there. Build up a war-chest until you can do some serious advertising and try for shelf space at the smaller chains.

    You haven't even got a product yet and your costing looks seriously out of whack to me and you are fretting over how to approach the one retailer nearly all small UK manufacturers who want to stay in business studiously try to avoid!
     
    Posted: May 1, 2020 By: The Byre Member since: Aug 13, 2013
    #16
  17. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Thank you very much for your detailed reply.

    What profit margin or POR do you think a major retailer like Tesco would be happy with as a minimum in this niche?
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #17
  18. proteinbar2020

    proteinbar2020 UKBF Newcomer Free Member

    12 0
    Thank you for your reply.

    Yes, thats the plan, hit the smaller retailers first and independent stores, then distributers and retailers.

    I have been in the supplement industry for 7 years and have turned over millions of pounds, so I understand. Although I have no experience dealing with retailers, hence my question.

    What profit margin or POR do you think a retailer would be happy with an RRP price of £2.50 in the protein bar market?

    Thank you.
     
    Posted: May 1, 2020 By: proteinbar2020 Member since: Apr 30, 2020
    #18
  19. The Byre

    The Byre UKBF Legend Full Member

    9,985 4,062
    I know Sweet Fanny Adams about protein bars, but I do know how to cost a product and your costing just does not look right to me. The rule-of-thumb is that a manufactured product (i.e. not hand-whittled and bespoke) usually has a marginal cost of manufacture that is between one-tenth and one-fifth of RRP. Cars are about one-fifth to one-eighth and Jumbo-Minty-MacFilth bars about one-tenth.

    That means that the one-millionth VW Passat with a RRP of €35k to leave the factory cost VW about an extra €7k to knock-out and the one-billionth 20p Mars Bar that Little Jimmy will try to feed to the cat cost Mars about 2p to make.

    Of course, that does not include the origination costs. A VW factory costs about €1bn to build and set-up, so Passat number one will cost €1,000,007,000 and Passat number two €1,000,014,000 - and so on. And then VW has all sorts of other costs such as R&D and getting their top executives out of prison. It all adds up!

    As I said, I have no idea what goes into a protein bar, but most of the gunk that gets boiled down into submission for one of those Jumbo Minty MacFilth bars cost between £100 and £200 per ton. Sugar, flour, milk solids, coconut fat and peanuts - nothing expensive there. I'm sure protein bars have more expensive ingredients.

    (I just paid £67 per liter for a bittering agent and I tried one drop in a glass of water - it nearly blew my head off. When the dry-heaves subsided, I did the maths and it was one gram for 100 liters of end-product! Serves me right for not doing my homework!)

    A retailer's margin depends on volumes sold. They work by profit per shelf space, so if a product is slow to move it has to have a far higher margin than if it lasts one day on the shelf. Aldi and Lidl try to not have anything that takes longer than two or three days to get out of their shops. But then some of the stuff that is 'Middle-of-Lidl' is sold at cost-plus-costs (i.e. purchase price and a thin mark-up to cover transport and stocking). They are there to pull people in, not to earn money.

    So if your product takes a week to walk out of the shop, it has to earn twice as much as a product that takes three days to go walkies. Only an existing sales record can tell you what the margin has to be. Protein bars sounds like a slow-mover, I mean, beer and loo-paper it am not! If dust starts to settle on them, it matters little how high the margins are, they'll come back to you like trusty homing pigeons!

    So my remaining question to you has to be - why are your costs so high? £1.10 marginal for a choccie-bar? How are you intending to make them and in what quantities?
     
    Posted: May 1, 2020 By: The Byre Member since: Aug 13, 2013
    #19
  20. thetiger2015

    thetiger2015 UKBF Regular Free Member

    334 92
    How long is a piece of string?

    Your costs per bar are too high. You're entering a very competitive market, with established brands, who have spent millions on branding and marketing.

    RRP doesn't really mean anything. In a competitive market, nobody will be selling at RRP, they'll be selling at a % off RRP to get customers through the door, because everyone else is selling the same type of product.

    You need to seek the advice of someone in that sector, who has a decade or so experience in B2B sales across multiple retailers and wholesalers OR you need to start with some small, local retailers and get the data yourself, so you can make decisions based on real life pricing data and feedback from retailers.
     
    Posted: May 1, 2020 By: thetiger2015 Member since: Aug 29, 2015
    #20