I get this question from a few produce managers each year: My store is below average. How can I improve my gross profit margin?
Gross profit margin improvement is never easy or fast. Compare this to improving sales and inventory control, in which an experienced produce manager can transfer to a store and typically get excess inventory cleaned up within a week or so. It’s all in the ordering and space management. Further, with thoughtful and aggressive merchandising, a seasoned manager can build sales right away and continue to do so for the long stretch.
Improving gross profit margin? That takes a different, longer-term plan altogether. Here are a few thoughts on the topic.
Focus on ordering
If a produce manager takes ample time each day to write an accurate order, that means enough product for anticipated sales, but not much more. The ideal result to aim for is when the next truck arrives, the front displays are stocked, but with minimum back-stock.
This helps build gross profit by: Minimizing the chance for loss with damaged or aged inventory, keeps stock, and makes everything easier to rotate. Accurate ordering translates to less shrink, and fewer shrink dollars naturally gravitate to the gross profit column.
Merchandise with gross profit in mind
If you notice for example, that bulk navel oranges, 5-pound bags of Idaho russets and 1-pound conventional clamshell strawberries are heavy gross profit items during a particular week, give these as much linear space as you can afford, and consider secondary displays of the same.
This helps build gross profit by: Pushing popular “power” volume items with attractive price points that will sell quickly, and help the inventory to turn several times each day. By selecting items with higher-than-average gross profit, this naturally helps boost margins.
Hitch your loss leader items to a star
Meaning, if you’re at a flat gross profit one week with, say, blueberries on ad as a lead item, flank that display with the aforementioned, higher-profit strawberry clamshells.
This helps build gross profit by: This can help offset your weaker-earning items with something that can help offset a loss leader while building gross profit.
Related: More insight from Armand Lobato
Turn your loss leaders into margin-builders
Say, for example, one week navels were your lead ad item. You sold them during the week at 15% margin, and the laid-in cost was less than usual because of the ad lid cost. Push this item after the ad with a prominent display at regular, higher price.
This helps build gross profit by: If you intentionally order a pallet of the lower-cost ad fruit to arrive on Tuesday (right before the ad price expires), then you can merchandise the oranges aggressively for a few more days at regular retail price and, thus, build gross profit at a higher percentage than this item would normally earn.
Check your accounting, critical checkpoints
Gross profit can bleed away if you don’t regularly check off your invoice for billing, pack and case counts. Make sure that your inbound billing is accurate and report discrepancies right away. Also, is your internal pricing accurate? Have your store scan person do an internal audit at regular intervals to ensure what you are selling your produce for is what is in the register system. Are outlying departments such as the deli or salad bar paying for their produce needs? Further, set up a weekly checker ID test so your cashiers know the difference between red cabbage and radicchio, pears and cherimoya, as well as conventional versus organic, for example.
This helps build gross profit by: A lot of gross profit is lost in billing, “paper shrink” or when the produce is going down the register belt. Monitoring identification and accounting critical checkpoints helps ensure accuracy.
Finally, you can follow all the steps and still lag behind when compared to other stores’ gross profit margins. Every produce department has a specific, gross profit margin potential. Some stores are higher than others, depending on sales volume and the product mix. Your produce supervisor or director can help you pinpoint this gross profit potential in dollars and as a percentage.
There’s more, of course (there’s always more), such as product care and handling, but when it comes to managing gross profit, consider that all your eggs are in one basket. But as Andrew Carnegie famously reminded businesses to do continually, is “watch that basket!”
Armand Lobato works for the Idaho Potato Commission. His 40 years of experience in the produce business span a range of foodservice and retail positions.