Before becoming an absolute food industry nerd I regularly experienced sticker shock. Holy sh*t. That jar of tomato sauce is $10!!??
Now I’m on the other side, and I spend most of my time working (almost always begging) grocers and distributors to keep the price of our popcorn as low as possible.
If we had the clear mind to understand the below in the early days, it would have spared us much anxiety, questions, calls, and the madness that comes with realizing our food product was not going to land on the shelf for what we thought it would be.
This importance of this basic math cannot be over stated. It’s super simple, but it took us a year and half to really nail it down.
For a minute, let’s pretend that you have created your own corndog company. You use way better ingredients than other brands because that’s what matters to you. Let’s call it CornyDogs. The journey to the shelves would be pretty similar to the below:
For $2.25 you created a three pack of CornyDogs. This cost of goods covers your ingredients, your materials, the labor to prepare and package, warehousing, shipping, and more.
COGS (what it cost you)
Ideally a food company’s manufacturing margin should be between 40%-50%. You need to make some money to keep the company a-float and pay for all the promotions that you will be required to run. Hitting a good margin is very hard when you are just starting out. Kudos to you if you are doing this! If your margin is half this amount you need a clear plan of how you are going to eventually get there.
COGs + 40% margin = Distributor Price (what you sell it for)
The distributor then likes to make between 26%-30% margin on a product.
COGs + 40% margin + 26% margin = Whole Sale Price (what they sell it for)
But wait, there’s more here. When a distributor picks up your product, they tack on a freight fee. Let’s say they charge $0.10 per unit for freight.
COGs + 40% margin + 26% margin + $0.10 = Whole Sale Price (what they sell it for)
WSP is now $5.17
The natural retailer, from independents to Whole Foods, likes to take between 35%-45% margin.
COGs + 40% margin + 26% margin + $0.10 + 40% margin= Retail Price (the price on the shelf)
Yes, $2.25 to $8.50 validates sticker shock! Bottom line is that it takes a lot to get a product on the shelf.
We do everything imaginable in pursuit of a lower retail price except skimp on our values and integrity. For us, getting Quinn Popcorn to a lower retail price, without sacrificing the quality of our ingredients, will be a HUGE accomplishment. We hope we can get there.