Often, we see producers and processors very concerned about the retail price of their products. It is understandable, as the retail price often determines if consumers will buy the product and where it is perceived to fit within the category. The reality, if you are selling into the large retail chains, is you should not and cannot really determine the retail price. You can influence it, which we will talk about later, but you really cannot tell them what the price will be. Google can provide definitions, but it does not always help you understand the importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Manufacturers Suggested Retail Price (MSRP) is a term used to describe the retail price a supplier would suggest for their products. This is more common practice in general merchandise and in the specialty channels of the food industry.
Retailers set retail prices
To clarify we are talking about the regional and national retailers. Smaller specialty stores will generally welcome input about pricing. They will ask what price the product is in other stores and sometimes will ask what you think the right price is. When selling into specialty stores you should always have a suggested retail price in mind. I still would not recommend putting it anywhere like a sell sheet or an email but you should be able to answer the question. Too many things can change and one price is not always right for different stores or markets.
As much as suppliers might disagree, there are not a lot of really enjoyable tasks left for regional and national retailers. The competition is stiff and the pressure to deliver results is constant.
Yes, they are the final step in the value chain and they use that leverage over suppliers. One of the few things they really believe they control in retail, is the retail price. So, we must let them see that they do control it and not try to argue or criticize their decisions.
When you tell a retailer how to price your product, they will get their back up. I have seen it before and perhaps might have even got a little frosty myself, back in the day.
In Canada retailers believe the law prohibits them from discussing retail pricing with suppliers. I am not a lawyer so I will not weigh in on that conversation. I would advise you to make sure you do get proper interpretation from someone who is qualified in that area of law. It is complicated and you want to make sure you know how far you can go. As they say, “perception is reality” so we will move on, assuming retailers are not allowed to talk to you about retail pricing.
What can suppliers do about retail prices?
The two most important factors in a retail price are cost of goods (delivered to the retailer) and the category margin they are trying to hit. You should get a good sense of retail margins if you are selling into retailers. You know what they make on your products. You can also slide that into the conversation to see what their targets are. Some will share, others will not. If you have any sense of another competing product’s cost you can look at their retail to see how close the margin is to the margin on your product.
Suppliers control the cost of goods, but not the margin.
I appreciate margins are frustrating but remember that is not the bottom line for them. They will not budge on the margin and it is what they are held accountable for delivering.
The biggest influence suppliers have is cost of goods. If you know your customer needs a 30% margin in grocery and you believe the right retail for your product is $3.99 you will have to deliver it to them for $2.78 or less.
They might stay at $3.99 if you were to be at $2.85 but as soon as your cost goes above this your retail price will be over $4.00. If they only make 28% margin on your product with a 30% target they will need to make 32% on a product that sells equal volume to meet their target. So in this case if you want the retail to be $3.99 you need to get it to them for $2.78 or less. In that sense you are influencing the retail price.
Another factor to consider is promotions. Depending on your customer, some retailers really see value in the multi buy strategy. If we go back to our example they might see a nice volume lift in 2/$7.00 or $3.99 each. To ensure you allow for this strategy you need to build some .25 off deals into your trade spend.
If your costs are changing and you will go above the $2.78 then you will be over $3.99 or perhaps it is time to reduce the size and maintain the retail under $4.00.
It is important to consider where you fit within the category. If everything moves up by .50 because of inflation then your $3.99 ideal retail is now $4.49. I agree $3.99 looks better than $4.49 but it is all relative to the rest of the items.
Another consideration is where you sell your products. The price people will pay in one store is different than another. They expect to pay more in conventional than discount etc. Not every shelf is the right shelf so focus your sales efforts where you see it as the right shelf.
If you have any questions or require help with pricing, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
Food industry (and others) discontinuing or suspending operations in Russia
Last week we discussed the impact of the global supply chain. We continue to see more changes as many companies from the U.S. and other allied countries reduce or eliminate their operations in Russia. 850 McDonalds closing and putting 62,000 people out of work will make an impact. The impact of the Russian invasion of Ukraine will continue to be felt in the food industry.
Hershey celebrates International Women’s Day
In a unique campaign Hershey changed the packaging on their milk chocolate bars to celebrate all women and girls. The campaign includes product at their own stores and considerable social media support. Originally launched in Brazil in 2020 the program has grown to include India and the U.S.
Every week I have the opportunity to meet women working in the food industry at all levels. It is inspiring to watch their brands grow from startups and to see women running large multinational food businesses.
When is Peter speaking?
Newfoundland and Labrador
Food industry opportunities panel- Mar 29
Learnsphere Supply chain 1-2-3
Sell successfully to retail-Mar-Apr
Food and Beverage Atlantic
Sobeys pitch planning- Apr 5
Association of Municipal Administrators of NS- Jun 16
With the Kilted Chef
