Markets/Grocers Acceptable Margins

[JohnD18]

Hey there,

This is for all the roasters out there that sell to markets and grocers and have their products in stores like a whole foods, or other similar retailers who would be interested in stocking delicious coffee and specialty products.

Have you found an acceptable markup/profit-margin that these retailers like to consistently target? I was thinking somewhere around 40% would be acceptable. I come to that conclusion from my own experience in similar retail environments, though I understand I may be off, which is why I am here asking. To clarify my question, for example:

If I sold a 12oz bag of coffee to a market/grocer for 7.59, and they sold it for 12.99 (17.32/lb) thats ~41% profit margin for them. Are they looking for higher margins on specialty coffee?

I understand different coffees sell at many different prices, but there must be some profit margins they're looking to hit for specific departments. What can be expected?

 

[John P]

Grocery stores typical margin is about 1.3% overall. If it's a small, specialty market, there are higher margins, but grocery stores are about volume, and repeat business.

$7.59 sounds like an extremely low wholesale price. Although I have no interest in that type of setting, I would charge them a lot closer to the selling price of your coffee. Do more research.

 

[expat]

I've found (in Ireland) that grocers have different margins for everything. On beauty products they may be looking at 50%, 60%, 70% or more markup, ditto for specialty items. Coffee though is quite a competitive range so they'll be more in the 25% to 30% range. But don't worry so much about their markup, what is the markup you need?

And then you've got to have some balance. John P. I think roasts on site and has, I'm sure, a very discerning clientèle. Also he's there on the spot and can explain the whys and wherefores of the coffee he's selling and make a more compelling case for the price of his coffee. If you're selling retail you can't do that. So you've got to have a great package; that's your salesman. And you've got to have great coffee because if they don't buy the second bag you're sunk. And you're looking for high volume. So while you want to get every nickel you can, you can't price yourself out of the market.

I try to be the most expensive coffee on the shelf, but not crazy expensive. Also I do my best to have my retailers keep the price high and don't discount or run a sale. Some don't listen, they mark the coffee down close to their cost -- and then they don't sell anything because I'm priced right along with the traditional brands and customers are loath to change unless there is a good reason. Like, 'hmmm, that coffee's a fair bit more money, must be good. I'll give it a go'. The 'good' high price works well most places, and the 'high' high price, unless it is right in the ritzy district in a bustling foodie emporium where people don't pay a lot of attention to price, moves too slow to justify servicing the store. You'll have to experiment. And just ask the retailer directly what margin he's looking for. Then see if he'll take a lower margin. They usually will.

Another thing. If you're doing the distribution yourself to start with you need to build in the margin to hire a distributor later when you don't have time to do it yourself. They're usually looking for about 25% but it would be good to talk to a US distributor and see what's typical. So figure out what you need to make a profit and then mark it up at least another 25%, that's what you sell to the retailer for. Oh, and don't forget that the distributor will want the coffee packaged in a box, like 8 bags to a box, to go on the shelf. And then you'll want to ship him a dozen boxes that all fit into a bigger box. The bag will need a barcode. The 8 pack box will need a bar code. And the 12 box outer case will need a bar code. That's lots of packaging materials, packaging labour, labels, etc. Add in all that cost now because it is tough to raise prices later in the retail game.

 

[JohnD18]

Thanks, expat. I agree with all of your points. The only reason I worry about their markup is because they're more likely to stock a product that allows for a fair margin. If I know what they're looking for, then I can go prepared. I had heard that markets will try to slash your prices, but I didn't know by how much.

Also, and perhaps I should start a new topic, but is it worth it to offer 8oz bags? Sometimes I see them being sold, but rarely. More often at actual coffee shops rather than markets. Anyone have thoughts on that?

 

[John P]

Offer one size, whatever you decide is best. Maybe 8 oz can be your niche.

Or think about it differently. You can probably fit 9 oz. in an 8 oz bag with no problem. Nobody is doing 9 oz. bags. Be bold!

 

[JohnD18]

Offer one size, whatever you decide is best. Maybe 8 oz can be your niche.

Or think about it differently. You can probably fit 9 oz. in an 8 oz bag with no problem. Nobody is doing 9 oz. bags. Be bold!

Yea, thats true. I saw a bag for sale recently that was 14oz. Thats a strange size.

 

[expat]

Thanks, expat. I agree with all of your points. The only reason I worry about their markup is because they're more likely to stock a product that allows for a fair margin. If I know what they're looking for, then I can go prepared. I had heard that markets will try to slash your prices, but I didn't know by how much.

The retail buyers will always try and get you to cut prices or do a $1 off promo two or three or more times a year. The coffee buyers are seldom coffee connoisseurs, they are usually money driven -- how low can you go. So don't go low. Don't do promos. You're artisan. Don't cheapen your brand. When they try and bend your arm to do a deal, tell them you were thinking you needed to raise your prices.

 

[JohnD18]

The retail buyers will always try and get you to cut prices or do a $1 off promo two or three or more times a year. The coffee buyers are seldom coffee connoisseurs, they are usually money driven -- how low can you go. So don't go low. Don't do promos. You're artisan. Don't cheapen your brand. When they try and bend your arm to do a deal, tell them you were thinking you needed to raise your prices.

Touche!
I will keep your wise words in the back of my mind when faced with such a situation. Thanks a lot.