“Margin means everything!”

Speciality Bites with

Paul Hargreaves

Chief executive of Cotswold Fayre

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Following on from my thoughts last time about the differences between the speciality food world and the convenience sector (and thanks for all the response on that), I want to focus this time on margin. Do bear in mind I have never run a retail outlet (yet!) so what I say is drawn from those that do, and clearly I base my thoughts on those that are expanding and doing well

Clearly, getting the margin right is about a balance between making as much profit as you can without impacting sales. It is obvious to say that when set correctly, the right pricing maximises the cash gross profit on that product during a whole year, so volume sold and percentage margin. Price items too high and your shop turns into a museum of dust-gatherers. Price too low and you could turn into a busy fool. Dare I say that within this sector we lean more towards the former rather than the latter? Maybe on some items but not others. Having varying margins across the store is essential. We have to face the facts that sometimes we will have to sell certain products at lower margin, but make more cash as a result. As a simple example, take an item at say £5. On this you may make £2 Margin at 40%. To take an extreme example, say we cut the margin on this line to 30%. Now we only make £1.50, so a 25% reduction in GP, but on a popular line, this could trigger a doubling of sales, resulting in an actual 50% increase in margin. We could even trigger this ourselves by doing a 2 for a certain price offer. You never know, your supplier may even help you with the margin reduction!

The other example I wanted to use was with high ticket items. There is a massive increase in gin sales at present. A bottle of gin takes up approximately the same space on the shelves as a bottle of large Elderflower Presse.  Many retailers use the same percentage mark-up on both these products. However, there is a large percentage of the value of a bottle of gin (around £8-£10) that goes straight to the government in duty. You are competing against local wine stores and supermarkets that take this into account and look at cash margin on items like this rather than percentage margin. You will still make far more cash margin on selling that bottle of gin than the bottle of Elderflower Presse. Cash really is king in this case.

Convenience retailers certainly think along these lines, and have you seen how busy they can be between 5:30 and 7:30 in the evening, when many farm shops and delis have closed for the day!