Retailer Pricing

[proteinbar2020]

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.

 

[Mr D]

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?

 

[proteinbar2020]

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.

 

[proteinbar2020]

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

Cant post the link...

 

[proteinbar2020]

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

Cant post the link...

£1.90 would be 28%.

 

[ADW]

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.

 

[proteinbar2020]

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.

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?

 

[ADW]

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.

 

[proteinbar2020]

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.

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?

 

[ADW]

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.

 

[proteinbar2020]

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.

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?

 

[Mr D]

Walk first, then learn to run.

 

[proteinbar2020]

I've found £13.79 excl. VAT for 12. So £1.14 per unit to distributors.

 

[Mister B]

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

 

[Deleted member 59730]

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.

 

[The Byre]

We have a lot of capital available.

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!

 

[proteinbar2020]

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

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?

 

[proteinbar2020]

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!

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.

 

[The Byre]

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?

 

[thetiger2015]

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?
.

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.

 

[proteinbar2020]

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.

Thank you.

 

[fisicx]

I have a friend who has a product in Tesco. It took about a year to do the negotiations. He had to cut manufacturing costs right down to make it viable. Not going to give the actual prices but if it sells at £1, Tesco pay him 30p and he has to carry to cost of any promotions. He makes the product for 10p (1 tenth as explained above) and spends 15p on marketing - a chunk of that is paying Tesco for preferential shelf space.

So for your bar selling at £2.50, your manufacturing costs need to be about 25p.

 

[Chris Ashdown]

How many thousand bars can you make a week, have a look at the tv programs that show "Inside the factory" and you will see the large scale of the major suppliers of these sorts of items . 2 or 3 40 ton lorries of a single ingredients per day. that's how they can make and sell a bar for a few pence

Why would even a small shop or newsagent buy your product when they can guarantee to fill the space with a well known item they know will turn around in a few days

Far more research is needed I am sorry to say to make a profitable company

 

[Scottishgifts4u]

If someone told me their protein bar cost £1.10 to produce I’d assume they made them in their kitchen and sold them at craft fairs and markets .
As has been said above you need to get the unit cost way down.

Where is the high cost coming from? Ingredients, manufacturing costs, packaging and storage or is the scale of the product too small to benefit from bulk discounts.

 

[Mr D]

If someone told me their protein bar cost £1.10 to produce I’d assume they made them in their kitchen and sold them at craft fairs and markets .
As has been said above you need to get the unit cost way down.

Where is the high cost coming from? Ingredients, manufacturing costs, packaging and storage or is the scale of the product too small to benefit from bulk discounts.

Getting a 3rd party to produce a bar and getting them to produce packaging would drive up prices.
Go for a small order and would have higher per unit cost. Mess around with ingredients and with packaging also drives up cost.

Trouble is, a small order can work out too costly to be profitable. The producing company won't care, they get paid.

 

[BusterBloodvessel]

Just another tidbit on the subject of you financing promotions etc. A local brewery near me (of a decent size as small breweries go I.e. not set up in someone’s garage but nowhere near one of the big boys) somehow ended up in negotiation with Sainsbury’s years ago and they agreed to stock the product in a significant number of outlets for I think 8 or 12 weeks to begin with. All was agreed including pricing, marketing, returns etc which was a major squeeze but they deemed viable.

at the very last minute as everything went to be signed Sainsbury’s turned round and said “by the way - we’re going to launch this with a 4 week BOGOF campaign”

when the brewery asked who would be financing that, the answer was very simple - “you will!”

That was the end of that opportunity!

 

[proteinbar2020]

So I've managed to get this to 0.72p now POS. Includes manufacturing, labelling, boxed in carton of 12, printing, packaging.

I need a little help with pricing please....

Without factoring in VAT and Tax, I was thinking along the lines of ranging from £1.25-£1.40 to distributers depending on volume. Thats between 72-94% not taking into account VAT/Tax.

Competitors are coming in at £1.10-£1.38 from researching wholesalers online.

Please advise.

Thank you.

 

[The Byre]

Your first priority has to be to gain some tiny sliver of market share. Shops have to get to know you and to accept whatever it is that you are selling. That means that you have to be as cheap or cheaper than the competition. Lidl and Aldi are growing at the expense of the established chains because they are simultaneously cheaper and better. That is an unbeatable business proposition!

Nobody makes a profit when they launch a product. First things have to come first - establish the brand THEN get your marginals down so that a profit is possible.

That means playing the long game. It is a process that can take a year or two - or even five or ten. As this is a 'penny-product' you should be aiming at getting your marginal per bar down to one-tenth of RRP.

So in answer to your question - if the established competition is selling at £1 a bar, you have to be better than them and charge less.

One thing is certain - do not expect to be making any kind of gross or net profit for a long time!

 

[ExoPaul]

I am not going into the figures as there are much better people on here for that, but to me your entire focus seems a little skewed to me.
I would be less worried about profit margins to sell to Tesco and instead get my production costs down, add in a large marketing cost and get noticed by smaller brands or retailers that will bring in some capital.
With that capital, I would re-invest to get more brand name marketing out there and push the product even further, working hard with social media campaigns in the fitness and dietary realms to make your brand fashionable, trendy and highly sought-after.

Once you have that you have a stronger position with major retailers like Tesco who will negotiate rather than bully you.

To be completely honest, I think I would rather have 10,000 people selling 20 of my bars a week at a nice healthy margin for me, than to focus on 10 stores trialling my bars at such huge cost to me that I end up putting the company on the line of bankruptcy trying to get noticed amongst dozens of other similar products.

And as for what to charge, that is one of the easiest decisions, don't price it higher than all your other brands unless you have literally got Dwayne Johnson promoting your product as a "must have" because people will only buy premium if its trendy. Instead price it towards the cheaper third of the market to capture people who may want to try a new protein bar product and will try the new brand that is a bit cheaper than half the others on the shelves. By going cheaper but not too cheap means you will sell a few more which may counter out your lower price point.

What I also do not see from any of your posts is "future plans". This Protein Bar shouldn't be a product, it should be a brand. And Brands don't stick to just one product. Get your protein bar on shelves and being advertised, noticed and bought, even if it means a lower profit margin. Because it is a Brand you should be preparing for the next product in the range too, a product that you may be able to at a slightly higher price point because you are selling on the back of the brand rather than as a newcomer.

As with Tesco, you are going to get bullied slightly less, and treated more fairly from the biggest retailers if you have a multi-product brand that is already selling and you are trending, than you are with walking in with a brand new, one product brand that has yet to sell more than a few dozen bars. I am not saying you have to be Apple and have retailers begging for you to let them sell products, but the more established and more brand awareness and range you have, the stronger the clout you have in negotiations.

The only piece of advice I would have is to forget about the really big supermarkets with their very bullying, and very poor supplier conditions, and instead focus on selling to the target customers who will buy your brand, and then focus on heavy marketing and brand building with them. Selling your soul to the devil might seem like instant success, but there is always a price to pay in the end and as examples above show, very few smaller brands manage to, or even want to get on supermarket shelves when they are expected to go bankrupt for the sake of the retailer not wanting to take a gamble.