Help with Food Product Margins? - Possible Million Dollar Account

[TryHardTriad]

Hey Fastlaners,

I would really appreciate some help from someone who knows a thing or two about food product margins.

I have a food product and pretty much every customer who tries it loves it. I decided this week to start wholesaling it to help get it in the hands of millions of people. I will be meeting a person on Monday who buys for a massive national coffee retail chain and other big brands.

My product currently costs $1.20 to make and most are happy to buy it at $5. However I think the majority of people would like it as a daily item for $4.

If I sell it to them at $3 each and they sell it at $4, I would be working on a 60% profit margin and the retailer would be selling it at a 25% margin/33% markup).

Am I being too greedy? Is it a good idea to suggest this as the initial offer?

I heard retailers want 33-50% markup on all their products? Is this true?

...If I play my cards right I might just enter the fastlane with this deal!

Thanks in advance

 

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[Raoul Duke]

@G-Man @Scot

 

[G-Man]

What’s the shelf life of the product?
Would you ship directly to retailer or through a distributor?

 

[TryHardTriad]

What’s the shelf life of the product?
Would you ship directly to retailer or through a distributor?

Freshness is good 5 days. I am still very new to the cafe/coffee game but I believe many have freezers and I plan to manufacture, freeze it, ship it so it can last up-to 3 months in the freezer then be defrosted before consumption.

I might be offered an exclusivity deal with the large coffee chain, so it would be direct to them and they'd help with set-up and distribution.

If not i'll have to use distributors, the one with heavy interest ships frozen products routinely to cafes. So this sounds promising logistically.

Only problem is that I don't want to be taken advantage of in terms of margins! So would love to know an industry standard/range to at least know I'm not signing up for a bad deal.

A quick google shows markup should be:

20% Distributor
40% Retailer

Not sure what margins the food industry usually runs by.

Thanks a lot @G-Man and @Raoul Duke

 

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[G-Man]

20% Distributor
40% Retailer

This is roughly accurate, but the thing missing from your margins is the amount of product that will end up in the trash. With a 5 day shelf life, there will inevitably be a lot of spoilage, both at the retail and distributor level, and anything that goes in the garbage gets billed directly to you, often even at the full retail price.
At a $5 ring and $3 to the retailer, and without a distributor, you’re going to need to get the landed cost of the unit under $1.

 

[Raoul Duke]

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[TryHardTriad]

Ok sure thanks, will keep it as close to those numbers as possible.

If my plans work out, it'll go straight from the truck to their freezer, then they can just defrost what they need for the day? So in theory there shouldn't be much wastage?

For sure, I'll defo be reducing the cost of ingredients if we achieve the volume they are looking for.

Thanks for your time @G-Man

 

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[Jet130]

This is much more complicated than you think. I currently sell to Publix, Walmart, Costco, Fresh Market, Sprouts, and many more and price architecture is very dependent on channel, route to market (direct, DSD, distributor), promotional frequency and depth. For example, Publix is a high-low pricing strategy while Walmart offers their customers an every day low price. You can find yourself in hot water by offering different price points to different customers. Happy to help, I've made every mistake in the book.

 

[WJK]

Hey Fastlaners,

I would really appreciate some help from someone who knows a thing or two about food product margins.

I have a food product and pretty much every customer who tries it loves it. I decided this week to start wholesaling it to help get it in the hands of millions of people. I will be meeting a person on Monday who buys for a massive national coffee retail chain and other big brands.

My product currently costs $1.20 to make and most are happy to buy it at $5. However I think the majority of people would like it as a daily item for $4.

If I sell it to them at $3 each and they sell it at $4, I would be working on a 60% profit margin and the retailer would be selling it at a 25% margin/33% markup).

Am I being too greedy? Is it a good idea to suggest this as the initial offer?

I heard retailers want 33-50% markup on all their products? Is this true?

...If I play my cards right I might just enter the fastlane with this deal!

Thanks in advance

Where are you talking about selling this item? The grocery stores are totally different from other outlets -- they have shelving fees. Have you approached a food broker or distributor? What about the legal and insurance issues of production and resulting product? Food, in general, has heavy liability issues for everyone in the supply chain. Is your product regulated through the FDA? There's a ton of questions to answer before the pricing ever comes up.

 

[Vigilante]

This is much more complicated than you think. I currently sell to Publix, Walmart, Costco, Fresh Market, Sprouts, and many more and price architecture is very dependent on channel, route to market (direct, DSD, distributor), promotional frequency and depth. For example, Publix is a high-low pricing strategy while Walmart offers their customers an every day low price. You can find yourself in hot water by offering different price points to different customers. Happy to help, I've made every mistake in the book.

This.

people spend a lifetime honing a craft of retail price and promotion discipline that you can’t distill down to a simple question.

find someone to help you that knows how the entire lifecycle of a perishable product work in mass market retail.

 

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