Annual financial statement studies consistently show that 25% of Foodservice Industry distributors and manufacturers earn far more than the average company in their industry. These firms’ earnings are 3 to 4 times higher than the average. As you review the details, you find these companies do not have an advantage when it comes to expense management. Their overhead as a percentage of sales is about average.
The key difference is their profit margin. These successful distributors enjoy gross margin rates that are +1.5 to +2.3 points higher than their peers.
How do they do this?
The key is to focus on incidentals. Center of plate, or “protein”, items have to be competitive. Customers buy these items frequently and in volume. They know the price of these items and will notice if the price changes. The most successful distributors focus on items that are purchased only 1 to 3 times a year, and on which they spend an average of $200 per year. Incidental items are far less price sensitive.
Distributors that pay attention to price differentiation average a 12 to 15 point difference between center of plate sales and incidental sales. Overall margin for these companies averages two margin points higher than the industry. This two point margin difference enables these companies to earn 40 to 70% more than their competitors.
Are you leaving money on the table?
Here’s a fact from our practice: 80% of foodservice industry distributors have only a 5 margin point difference between their most price sensitive sales and their least. They leave money on the table. Why?
Because, unlike the local grocery store, our industry’s pricing challenge is more complex:
- You have to rely on your sales people to help you price. Unfortunately, they spend most of their time pricing high volume, price sensitive orders and simply don’t have the time to price incidentals.
Profit2’s pricing experts work with foodservice industry distributors every day to calculate optimum prices for their items based on these and other factors that influence price sensitivity:
- How often your customer buys the item
- How much they spend
- How important the item is to your customer’s business
- How similar items are priced
Profit2 has helped many large distributors and manufacturers build margin and earnings for over 10 years. Click Here to request full information on how you can increase margin by providing better pricing guidance to your sales people.