In the Trenches: Pie-in-the-sky produce gross profit budgets
In the Trenches: Pie-in-the-sky produce gross profit budgets
I regularly have friendly conversations with produce directors discussing the markets, merchandising or just produce in general. The most popular subject is the challenge of gross profit budget.
Sales meetings can be unfriendly and unproductive. Many start out with a frowning boss entering the room, slamming a copy of the profit and loss statement on the table, spilling coffee and angrily bellowing “What happened to the gross profit?”
Trying to explain reasons for deficient produce gross profit results after the fact will not cure the problem. No matter what cover-up stories are rendered, they are only temporary deceptions until the next profit blowout occurs.
Did you ever fall short on your produce gross profit obligation? Well, you’re not alone.
Picture this, you’re the produce director for a grocery store chain. You arrive at your office in the morning and immediately start reviewing the sales and profit report from the previous week. Your prime interest is whether the gross profit budget was attained. However, lackluster sales failed to meet the profit forecast and is of the utmost concern. After all, owning the title of produce director has a prime responsibility — to achieve the gross profit budget.
As the produce director, are you feeling weary and burned out from those pie-in-the-sky gross profit numbers? Has frustration set in as costs keep rising while retails are stuck in the competitive abyss?
High produce gross profit budgeting is getting excessive. Produce directors are being burdened with those rocketed budgets beyond the bounds of accomplishing them.
We need to recognize and understand what is occurring in the produce industry. This is vital in the way of trying to achieve the far-reaching produce profit rates.
Farm operating expenses, along with inflation, have driven fresh produce costs to elevated levels so high that the retails are being challenged by consumers in the way of passing up items they no longer can afford. When this happens, it impedes the movement of those items and causes higher shrink to take place. If that product fails to turnover, it shrivels away into profit loss.
The best way to prevent fresh produce items from shortening their shelf life is to take better care of the product. Just consider the higher case costs of produce items that are over one hundred dollars. Those greater case costs cannot afford to be wiped out in the mix by turning them into losses.
Management must be alerted to these record high produce costs forcing increased retails to meet the skyrocketing gross profit demands. They must be aware of the consumer resistance because of those pricing situations. We need to take better care of the high cost of investment in the product at the store level.
The reality is about recent consumer shopping behaviors. Inflation has made them more price conscious than ever before. Grocery stores with the lower end pricing are drawing the most consumers and building profit on their sales volume.
The challenge to reach those pie-in-the-sky produce gross profit budgets is in the retail pricing of produce. Many of the lower priced grocery stores endorse a more reasonable budget, which is lower than traditional supermarkets. They depend on the sales volume to generate the profit dollars.
Lower retails move produce much more rapidly through the system, which in turn lowers the shrink level immensely. The most reliable way that is accomplished is with retails that draw customers to those stores and prefer their attractive lower prices. It’s the dollars that pay the operating bills, not the rates.
Can many operators compete with large discount grocery stores on prices? Most probably not. So, shrink control may be a vital way to somewhat help achieve the higher profit budget.
Consider what your produce shrink rate was in 2024. What is your shrink rate right now? Can you lower it by at least 1 percent? Every lower shrink percentage goes directly to the bottom-line profit and could help with reaching the target.
Another area of challenge is in the retail pricing of products. Many of the low-priced discount stores are pricing produce 25 to 30 percent lower than traditional supermarkets as they depend on sales volume to generate profit dollars rather than just a percentage number.
A number of produce items are at record high costs calling for elevated retails to keep pace with the gross profit requirements. The higher the prices, the less consumers will purchase. Thus, all unsaleable produce simply turns into a loss.
Reaching those gross profit numbers places a much larger target on the backs of produce directors in 2025. Yes, profit is vital to a company, but management must be aware of the produce industry’s challenges, understand it, and face reality to support it.
Ron Pelger is a produce industry adviser and industry writer. He can be contacted at 775-843-2394 or by e-mail at [email protected].
