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The Maths

of
Merchandising

Charlie Turnbull
Turnbulls Delicatessen & Caf

Cheesemonger
[Ex-accountant]
Effective Merchandising & Marketing

Merchandising questions
you ask yourself...

What should I sell?
At what price?
How much of it?
How do I sell it?
Am I doing it right?
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Marketing
What your shop can do for you
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Marketing

Part 1:
You need a

GRAND PLAN!

(otherwise known as you business
plan)
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Marketing



Building a
realistic
business model
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Your Farm Deli

Turnover 437,020
Cost of sales 65% 284,063
Gross profit 35% 152,957
staff costs 14% 61,183
Profit after staff 21% 91,774
Property costs 8% 35,000
Overheads 3% 13,480
Operating profit 10% 43,294
Interest 8,000
tax 5,294
Net profit 7% 30,000
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Key Learning 1:

Use the shape of your shop and industry
norms to establish realistic targets for
Turnover
Margin
Staff Budget
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Marketing



Part 2:
Turnover

vs.

Margin
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Effective Merchandising &
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Turnover for 30,000 profit at different Gross Margin levels
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2
6
%
2
7
%
2
8
%
2
9
%
3
0
%
3
1
%
3
2
%
3
3
%
3
4
%
3
5
%
3
6
%
3
7
%
3
8
%
3
9
%
4
0
%
4
1
%
4
2
%
4
3
%
4
4
%
4
5
%
Average Gross margin
T
u
r
n
o
v
e
r



Effective Merchandising &
Marketing
Profit to margin
(40,000)
(30,000)
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
60,000
4
0
%
3
9
%
3
8
%
3
7
%
3
6
%
3
5
%
3
4
%
3
3
%
3
2
%
3
1
%
3
0
%
2
9
%
2
8
%
2
7
%
2
6
%
2
5
%
2
4
%
2
3
%
2
2
%
2
1
%
2
0
%
Average margin
P
r
o
f
i
t
20,000 more profit:

is it easier to

Increase turnover by 120,000
to 562,000 (28% increase)

Increase margin by 5%
to 40%
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Key Learning 2:

Margin has more affect
on profit and loss than
turnover

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Part 3: Margins
turning turnover into profit







Your margins are the
ENGINE of your business
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Gross Profit Margin - 2
applications

1) on your whole business

2) on an individual product
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How to calculate gross margin
Application #1:

Gross profit in the period
divided by
Turnover in the period

* notes: exclude all VAT and account for stock changes


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Effective Merchandising &
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A word on Stock counts
You cant know your
margin without counting
your stock
at least every month

Epos systems or Pen & pencil



How to calculate gross margin
Version 2:

Profit on item
divided by
sales price per item



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How to achieve a
35%
average margin?

Turning the
margin for a product
into the
margin of your business
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A margin for each strand of your business
Deli
Farm shop
Butchery
Fish counter
Chocolatier
Bakery
Caf & Take away
Florist
Wine shop
Fruit & vege
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Effective Merchandising &
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Department Gross margin
Cheese 40% to 50%
Home made 60% to 70%
Requires slicing 50% to 60%
Butchery 50% to 60%
Horticulture (ex vat) 50% to 60%
Fruit & vege 50% to 55%
Loose deli 45% to 50%
Loose olives 55% to 70%
Confectionary (ex vat) 35% to 45%
Alcohol (ex vat) 25% to 35%
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Why are they different?

Staff costs
Equipment costs
Wastage
Rarity vs commodity value
Sales value.

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A mosaic of margins

Your product mix must average out
to the figure in your Business Plan

BUT
your planned margins will not
be your observed margins

This is your Margin Gap
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Key Learning 3:

Build up the margin you want
for your business plan with
appropriate product groups with
the same margin per individual item

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Part 4:

The Margin Gap

Planned vs Observed
Turnover: 450,000
Planned margin 35%
Observed Margin 31%
Lost profit 18,000
What is the margin on?

Think PURCHASE UNIT

each Case of wine 30%
each Round of brie 50%
each Tray of brownies 80%
each Outer of biscuits 35%

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Take home a bottle of wine:
target 30% purchase unit margin drops to 24%

Buy a cheese & use 10% for tasters:
target 50% purchase unit margin drops to 44%

Miss a 5% price rise from your biscuit supplier:
target 35% purchase unit margin drops to 32%

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What erodes margins

o Not selling them all
o Wastage
o Damaged packaging
o Passing into your kitchen
o Out of date stock
o Incorrect pricing
o Freebies
o Promotions
o Tasters


(o Taking it home)
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Creating better margins
Rarity/novelty value
Messy stuff
Unusual sizes/specialist foods
Packaging
Product that needs to be bought from
humans not a shelf
Product sold loose or requires slicing
Value added or home made products
Suppliers that dont sell into supermarkets
Deals with suppliers

Key Learning 4

Measure Your Gap
Value Your Gap
Find out why
Close Your Gap
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Part 5:
Talking
CONTRIBUTION

What is contribution?

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Contribution

Contribution is the RENT
paid by an individual product
or a group of products


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Effective Merchandising &
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Contribution: Calculating it
The total contribution over a specific
period
Example:
FCC charcoal crackers Carrs water biscuits
Sales 100 2.95 295 300 0.99 297
Margin/COS 40% 177 30% 208
Contribution 118 89


Rank your products lines
according to the amount of
contribution they pay you

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A word on lower margin
high value goods


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Key Learning 5:
Make your stock pay their rent.
Choose & discard depending
on a products lines
Contribution
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Part 6: Staff costs
Keep the costs in balance


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Effective Merchandising &
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Turnover for 30,000 profit at different
Staffing Levels
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
5
%
6
%
7
%
8
%
9
%
1
0
%
1
1
%
1
2
%
1
3
%
1
4
%
1
5
%
1
6
%
1
7
%
1
8
%
1
9
%
2
0
%
2
1
%
2
2
%
2
3
%
2
4
%
Average staff costs as % of turnover
T
u
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How to control staff costs
1: Set budgets
2: Build a rota based on your budget
3: Try to meet it!
Focus on
Improvement not Targets
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Key Learning 6:
Staff is a cost
Measure it as a percentage of turnover
Match to budget rota

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Key Learnings: Recap
1: Build a business plan
2: Focus on your margins. Learn how to plan and set
margins for individual products & observe the
margins on your whole business
3: Group products with similar margins, and build a
mosaic of sales that matches your business plan
4: Measure and work on your Margin Gap
5: Make each stock line pay its rent
6: Measure & match to budget staff costs
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The Grand Pan

Look after your individual stocklines
and the Grand Plan will look after itself

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