Food Buyer’s Roundtable Q&A #2: Food Industry Margins

Your Questions Answered: Q&A 2nd Round of the Food Buyer’s Roundtable: Food Industry Margins

Time to dial into the 2nd installment of the last in our NewPoint Emerging Food Brands Conference workshop Q&A series. We began this journey with Social Media Marketing, attacked Vetting a Co-Packer, and followed that up with a Financing for Growth roundtable and workshop. Now we dig into the roundtable that set the whole conference in motion a year ago: The Food Buyers Q&A. Here’s how this works:

Emerging food brands always seem to ask the same question – how do I get on the retail shelf? In their eyes, the retail shelf represents the most significant “win” they can imagine. Smart emerging food brands know to chase more than one channel to increase sales. They and at all their options including specialty vs. mass retail, bulk, foodservice, and online sales but that is a post for another day. This year’s buyer’s roundtable brings together five professional food buyers and managers from retail and food service who offer advice on how to best get them to “buy” an emerging brand’s food product.

Questions about talking to a retail or food service food buyer? The content of this Food Buyer’s Roundtable (and all program content at our conference) was submitted as questions during registration by the 64 food company/brand attendees.  Our expert presenters then addressed the questions—and more—in their programs. In the coming weeks, we’ll be posting each presentation to the “Intel” section of our website. So check back often!

Our Expert Food Buyer’s Roundtable:

Tom Coleman, Director of Retail Dining with Purdue Dining & Catering, Purdue University. Responsible for the oversight of 25 retail operations on campus. These operations consist of street brands, private brands, and convenience stores.

Eric Wine, Grocery Specialist for Fresh Time Farmer’s Market covering all Indiana stores. Fresh Thyme Farmers Markets provides a healthy and fresh new way to grocery shop.

Bob Baesler, President of Baesler’s Market in Terre Haute and Sullivan, Indiana. In business since 1894, Baesler’s Market strives to maintain fast and friendly customer service, as well as the finest cuts of meat, premium produce, and delicatessen.

Rick Hopkins, Director of Food & Beverage at Market District responsible for the fresh departments of our Caramel, Indiana store. Market District is dedicated to blending all of the excitement of a gourmet specialties boutique with all of the freshness, value and everyday products you’d expect from us as your trusted local grocer.

Brian Moore, Director of Merchandising at Sysco, Indianapolis. Sysco is the global leader in selling, marketing and distributing food and non-food products to restaurants, healthcare, and educational facilities, lodging establishments and other customers around the world.

Food Industry Margins – Hard Numbers

Question: Are you more flexible on the hard numbers when deciding whether or not to place a new product?

Eric Wine: For local, yes. We are. Generally, the local is generally high priced than most conventional brands in any of our stores. We generally will take a smaller gross profit margin for local items, for Fresh Time.

What that local item is, depends a lot. Whether or not we will carry it a lot, and again, what it offers to our customers, what’s unique about it, what are you guys bringing to it, as far as, again, marketing, sampling, things like that.

Rick Hopkins: I would fully agree. That’s exactly the approach that we take, also, is if there is a compelling reason to stay focused on the number, it’s because it’s common. It’s in a category that doesn’t have a lot of differentiation to it. If it’s local, if it’s new and innovative, if it’s a great attribute that we can call out, there’s a lot more flexibility to that process. It gives us a chance to get in on the upswing of the product lifecycle.

Once it becomes commonplace, once it becomes in every store, once it becomes a little more conventional, we see the pricing dip. It becomes less significant to us, and then the percent might adjust a little bit.

Question: What do you expect from the manufacturer when you carry their product?

Brian Moore: For us, maybe a little different. What I would like to see, number one, is in our case, consistency. The product has to be consistent. Then, the other side of that would be education. It’s very important that you have the ability to educate us on your product, so we can turn around and educate our customers on your product. Those are the two main factors, but consistency is probably the big thing. Make sure that you have a production process that keeps that product that looks the same every single time we open a box.

Rick Hopkins: Again, especially for some of the smaller manufacturers out there. I see just a lot of familiar faces of folks that have a great, local product. Coming in the stores, be prepared, tell the story. Nobody sells your product better than you do. Nobody tells your story better than you do, and the old adage of, if they try it, they buy it, is no truer today than it’s ever been.

You got to get some good product in their mouths. You got to let them know why it’s important to try it and sample it. Tell them how to use it properly, and that turns into usually some very strong, repeat sales.

Bob Baesler: As a small retailer, I would have to say we probably don’t expect a whole lot, because we know that the manufacturers are small. We tolerate out of stocks much more with local items that we do with major manufacturers.

We do hope that there will continue to contact with the vendor or the manufacturer on an ongoing basis, but because these items are unique and because a lot of times we know that companies are learning, it’s a learning curve for them, as well, we are definitely a lot more tolerant. We don’t expect quite as much.

Eric Wine: As he said, consistency. Fairness between both parties, and communication between both parties. We’ve had some instances where the communication is just not there. Where it literally becomes not viable for us to continue that relationship. Communication and consistency, as he said.

Tom Coleman: I would say probably communication. Follow up. Don’t just drop the product off, but follow up. Help it go through the cycle, and a little bit of sampling. We wouldn’t expect to take advantage of you, we just need to get it into our customer’s hand. Anything we can do, here at Purdue we actually operate four different markets or convenience stores. We have a lot of opportunities to meet that goal, in terms of getting it in the consumer’s hands.

Food Industry Margins & Percentages

Question: Do you work with margins or mark up and/or what percentage do you look for?

Tom Coleman: Our margins differ a little bit, depending on the product. If it’s a frozen product, it may have a different margin than if it’s just something that’s more shelf staple, should we say.

Eric Wine: For us, it’s the same. Our expected margins for dry grocery are going to be different than they are for dairy, going to be different than they are for frozen. However, even dealing with local, we generally will take a lower gross profit margin, as compared to what’s schematic for our store. There is a base margin that we’re going after, all the time.

Bob Baesler: We actually work with margin, although we’ve had meat managers and product managers that worked off of markup. You know the difference, it can be considerable. Retail business, for the most part, it is margin. We have backed off of the margin we used to think we needed to get on specialty and local items. 35% is sort of the number, we’ve backed down at 30%. Every business is different. In retail, it’s close to 28. Talking about supermarket retail. Now as I said, that varies all across the board. We also have changed our philosophy a little bit on items we used to take the stand that we wanted to see how much we could make on a certain item. We’ve changed that a little bit to see how much we can sell. That affects what our margin’s going to be, by taking that approach.

Rick Hopkins: Basically, to echo what we’ve already heard, there can’t be a more unique time to be coming into the retail or grocery business, then there is right now. Everything we know about margins and markup is being challenged and changed by the difference of non-personal products and personal products. The shrinking labor force that we have to work with. The introduction of innovation, the Amazon’s out there, the home delivery programs out there. Everything we currently know about the grocery store, if you’re going to operate the same way next year, next month, it’s being challenged every day.

So margins are constantly at play. We’re looking at what makes sense. We talked a little bit about the life cycle of a new product. With the new product coming in, it’s new and innovative, new and unique, we certainly get to ride the wave of a little bit higher price point, a little bit higher margin, typically for a while.

That goes away after a period of time when we have to start looking at compromising those margins and seeing how that product still plays in the mix. It’s in a very unique time. Anything we tell you today would be different a month from now, a year from now, and over the next couple of years, as we continue to have to get more aggressive to figure out how to continue to make as much as possible, on an ever more challenging basis of product.

Brian Moore: Our situation’s, again, different. We’re really looking to be as fair a market price as possible, depending on the product. Margins don’t play as big a role with us as far as an upfront discussion, but it’s really about making sure your product can be offered to our customers, at a fair market price.

This is the 2ndin our series of “Food Buyer’s Roundtable” posts. The Food Buyer’s Roundtable continues in our next post: Food Buyer’s Roundtable Q&A #3: Help Sell Your Food Product

We Need to Say this…

Just like in our first three workshop Q&A series (Social Media Marketing, Vetting a Co-Packer, and Financing for Growth), this needs to be said:

I’d love to hear from you if you have questions about preparing for a food buyer meeting, how to reach a buyer or just want to talk about something in this post. Contact me at patrick@dev.newpointmarketing.com.

And, as always, Keep Moving Your Brand Up the Food Chain!

Patrick Nycz
Founding President