Interesting supermarket graphic

[Will Wilson]

A quick breakdown of where / if supermarkets make money. How would this compare to most Uk farmers?

https://www.reddit.com/r/dataisbeau...tration_of_how_razor_thin_supermarket_profit/

 

[7610 super q]

Well. They have the produce for a week. They double the price of it. Must take some work to make " razor thin profits ".

 

[Tarw Coch]

Well. They have the produce for a week. They double the price of it. Must take some work to make " razor thin profits ".

It does make you wonder just how big their costs are considering the gap between farm gate prices and retail price.
There are several supermarkets who take a very keen interest in their suppliers costs, requiring full access to every detail of their accounts, as far as I’m aware there isn’t a single supermarket that are even remotely as forthcoming on sharing their costs/accounts with their suppliers.

 

[TheTallGuy]

The thing is that there's a lot more to retailing produce than bunging it on a shelf & doubling your money. From the packhouse it goes to a distribution centre where it is sorted, picked, marshalled & loaded onto a wagon for delivery. For fresh goods this happens within 24 hours which requires a big logistical setup in itself. When you see the size of these DCs and fleets of units & trailers - much of which has to be temperature controlled you begin to see where the costs cone in.

From the DC it gets taken to a store where it is unloaded, sorted & stored ready for display on shop floor, you need staff to fill the shelves, operate the checkouts, count the stock, clean the floors, manage the peons, electricity to light the store & power the chillers. Rent & rates then add another chunk of cost - I was told that a typical out of town store looses something like 5-10% of its turnover to rent alone. Then of course you have the cost of damaged & out of date stock, general waste disposal as well as theft. Most stores will undergo refit or refresh every 10-15 years again eating into the bottom line.

Then you have to have a head office staffed with purchasers to buy the stuff in, bean counters to add the numbers up (wrongly as we have seen) & directors to just be a nuisance & take exorbitant bonuses & payoffs. Finally you have to occasionally throw your shareholders a dividend from time to time.

 

[Highland Mule]

The thing is that there's a lot more to retailing produce than bunging it on a shelf & doubling your money. From the packhouse it goes to a distribution centre where it is sorted, picked, marshalled & loaded onto a wagon for delivery. For fresh goods this happens within 24 hours which requires a big logistical setup in itself. When you see the size of these DCs and fleets of units & trailers - much of which has to be temperature controlled you begin to see where the costs cone in.

From the DC it gets taken to a store where it is unloaded, sorted & stored ready for display on shop floor, you need staff to fill the shelves, operate the checkouts, count the stock, clean the floors, manage the peons, electricity to light the store & power the chillers. Rent & rates then add another chunk of cost - I was told that a typical out of town store looses something like 5-10% of its turnover to rent alone. Then of course you have the cost of damaged & out of date stock, general waste disposal as well as theft. Most stores will undergo refit or refresh every 10-15 years again eating into the bottom line.

Then you have to have a head office staffed with purchasers to buy the stuff in, bean counters to add the numbers up (wrongly as we have seen) & directors to just be a nuisance & take exorbitant bonuses & payoffs. Finally you have to occasionally throw your shareholders a dividend from time to time.

And if we think that they make the money easily, as it's a plc we can always just buy a bit of the company.

 

[unlacedgecko]

The thing is that there's a lot more to retailing produce than bunging it on a shelf & doubling your money. From the packhouse it goes to a distribution centre where it is sorted, picked, marshalled & loaded onto a wagon for delivery. For fresh goods this happens within 24 hours which requires a big logistical setup in itself. When you see the size of these DCs and fleets of units & trailers - much of which has to be temperature controlled you begin to see where the costs cone in.

From the DC it gets taken to a store where it is unloaded, sorted & stored ready for display on shop floor, you need staff to fill the shelves, operate the checkouts, count the stock, clean the floors, manage the peons, electricity to light the store & power the chillers. Rent & rates then add another chunk of cost - I was told that a typical out of town store looses something like 5-10% of its turnover to rent alone. Then of course you have the cost of damaged & out of date stock, general waste disposal as well as theft. Most stores will undergo refit or refresh every 10-15 years again eating into the bottom line.

Then you have to have a head office staffed with purchasers to buy the stuff in, bean counters to add the numbers up (wrongly as we have seen) & directors to just be a nuisance & take exorbitant bonuses & payoffs. Finally you have to occasionally throw your shareholders a dividend from time to time.

Supermarket transport operations are loss making.

 

[manhill]

Stop it, you're breaking my heart. If they stopped undercutting each other at the producer's expense and food had a value there might be a lot less waste and a fair profit for everyone.

 

[7610 super q]

Well, if Tesco don't like it, they can f**k off and get another job ?
That's the perceived wisdom on TFF, isn't it ?

 

[Still Farming]

They just "grease " the shareholders up.
Few years back they wanted to realize funds so half share values to make more and price increases a bit and looks good ,CEO retires on mega money and so on alledgedly how it works?

 

[milkloss]

The thing is that there's a lot more to retailing produce than bunging it on a shelf & doubling your money. From the packhouse it goes to a distribution centre where it is sorted, picked, marshalled & loaded onto a wagon for delivery. For fresh goods this happens within 24 hours which requires a big logistical setup in itself. When you see the size of these DCs and fleets of units & trailers - much of which has to be temperature controlled you begin to see where the costs cone in.

From the DC it gets taken to a store where it is unloaded, sorted & stored ready for display on shop floor, you need staff to fill the shelves, operate the checkouts, count the stock, clean the floors, manage the peons, electricity to light the store & power the chillers. Rent & rates then add another chunk of cost - I was told that a typical out of town store looses something like 5-10% of its turnover to rent alone. Then of course you have the cost of damaged & out of date stock, general waste disposal as well as theft. Most stores will undergo refit or refresh every 10-15 years again eating into the bottom line.

Then you have to have a head office staffed with purchasers to buy the stuff in, bean counters to add the numbers up (wrongly as we have seen) & directors to just be a nuisance & take exorbitant bonuses & payoffs. Finally you have to occasionally throw your shareholders a dividend from time to time.

Why is it our problem how complicated it is for them to make their money? They don’t give much of hoot how we try and do it.

Edit to say that your post is interesting and informative so thank you.

 

[Will Wilson]

As always some useful as interesting responses and some responses.

 

[TheTallGuy]

Why is it our problem how complicated it is for them to make their money? They don’t give much of hoot how we try and do it.

It's not our problem directly, but the efficiency or otherwise of the system is part of what determines how the supermarket treat & pay their suppliers. Unfortunately, the tight margins under which supermarkets operate mean that they are under pressure to keep input costs as low as possible because an increase of only one or two percent is the difference between profit & loss. The supermarkets shy away from penalising their customers with price rises as that could cause them to shop elsewhere, whereas their suppliers will generally bend to the will of their customer. This is in part down to the perceived benefits of having a guaranteed customer.

Another aspect is that most farmers are farmers first & foremost, businesses second (if at all), whereas the supermarkets are businesses first & foremost & when they loose that focus is when things have gone wrong for them - although that's probably a discussion for another time!

 

[Highland Mule]

Stop it, you're breaking my heart. If they stopped undercutting each other at the producer's expense and food had a value there might be a lot less waste and a fair profit for everyone.

Nope - someone else would just start up instead and fill the gap in the market.

 

[Highland Mule]

It's not our problem directly, but the efficiency or otherwise of the system is part of what determines how the supermarket treat & pay their suppliers. Unfortunately, the tight margins under which supermarkets operate mean that they are under pressure to keep input costs as low as possible because an increase of only one or two percent is the difference between profit & loss. The supermarkets shy away from penalising their customers with price rises as that could cause them to shop elsewhere, whereas their suppliers will generally bend to the will of their customer. This is in part down to the perceived benefits of having a guaranteed customer.

Another aspect is that most farmers are farmers first & foremost, businesses second (if at all), whereas the supermarkets are businesses first & foremost & when they loose that focus is when things have gone wrong for them - although that's probably a discussion for another time!

I’m sure I’ve read before that a successful supermarket is not one that sells well, but one that buys well.

 

[TheTallGuy]

I’m sure I’ve read before that a successful supermarket is not one that sells well, but one that buys well.

Indeed - if you look at the story of Jack Cohen you will see that in the early years that was very much the way he operated & how he got going - by looking for what he could get at a good price & then finding a way to sell it.

 

[7610 super q]

Supermarkets luuuuuve dealing with big farming companies, so they can speak the same language about " cost control ", " blue sky thinking ", " going forward ", and other twaddlespeak.
They luuuuuve over supplied markets, so they can screw the arse out of suppliers ( witness organic veg production from the mid 80's - 2000's )
They luuuuuve getting farmers bench marking to see how low they dare screw then down.
They luuuuuve playing silly games ( witness the poor carrot grower who was told to upgrade his packhouse with stainless steel equipment, only for him to get dropped 2 weeks later.
The biggest order for leeks we ever had was cancelled due to " political reasons ". To this day I've still no idea what that means.
Then there's the " promotions ". You know, where the suppliers have to put produce in as a " loss leader " The best one was the egg promotion in a store in the southwest, where the manager forgot the promotion, and the egg packer had to take back all the unsold eggs.....at their own cost....and dump um.
Then there's the dubious practice of buying shelf space.
Then there's stretching payments beyond 28 days...
They are in business for the benefit of themselves, no one else.

All in all, most folks that have dealt with supermarkets for any length of time, would rather do business with Colombian drub barons instead.
So @Will Wilson you can take your smartarse comments

As always some useful as interesting responses and some responses.

And shove um.

 

[Brisel]

Supermarket transport operations are loss making.

That would explain why Tesco gave theirs to Stobart to organise, though it’s a cost centre with no income of its own. You’d think running a fleet of trucks 364 days/year 24 hours/day to known destinations in urban areas would be fairly efficient compared to bulk grain where the driver can’t contact the farmer for the 2 hour loading time with a 4” auger because he has gone shooting for the day and the mill tip has broken down again anyway.

 

[unlacedgecko]

That would explain why Tesco gave theirs to Stobart to organise, though it’s a cost centre with no income of its own. You’d think running a fleet of trucks 364 days/year 24 hours/day to known destinations in urban areas would be fairly efficient compared to bulk grain where the driver can’t contact the farmer for the 2 hour loading time with a 4” auger because he has gone shooting for the day and the mill tip has broken down again anyway.

Most supermarket transport operations are over supplied with assets. Apparently if s shopper goes to a supermarket there is an 80% chance they will go to the same brand for their next shop.

This is why its so important to supermarkets to have stock on the shelves. Given the low volume of stock on store inventory, on time delivery is vital, hence the loss making transport operations.

Most supermarket transport operations involving 3rd party logistic providers (3LP) are run on an "open book" basis. This means the supermarket provides all the real estate, vehicles and fuel. The 3PL will provide the labour and charge a management fee for their service. The supermarket will have full visibility of the costs of the operation.

This is due to the importance of on time deliveries and the limited opportunities for other income streams within such an operation. It also mitigates the supermarket risk in case of the 3PL losing their operators licence. Another 3PL could be brought in to take over within hours.

 

[kiwi pom]

Supermarkets luuuuuve dealing with big farming companies, so they can speak the same language about " cost control ", " blue sky thinking ", " going forward ", and other twaddlespeak.
They luuuuuve over supplied markets, so they can screw the arse out of suppliers ( witness organic veg production from the mid 80's - 2000's )
They luuuuuve getting farmers bench marking to see how low they dare screw then down.
They luuuuuve playing silly games ( witness the poor carrot grower who was told to upgrade his packhouse with stainless steel equipment, only for him to get dropped 2 weeks later.
The biggest order for leeks we ever had was cancelled due to " political reasons ". To this day I've still no idea what that means.
Then there's the " promotions ". You know, where the suppliers have to put produce in as a " loss leader " The best one was the egg promotion in a store in the southwest, where the manager forgot the promotion, and the egg packer had to take back all the unsold eggs.....at their own cost....and dump um.
Then there's the dubious practice of buying shelf space.
Then there's stretching payments beyond 28 days...
They are in business for the benefit of themselves, no one else.

All in all, most folks that have dealt with supermarkets for any length of time, would rather do business with Colombian drub barons instead.
So @Will Wilson you can take your smartarse comments



And shove um.

Its just a business at the end of the day and the people doing the buying are just employees. They have to do the best deals they can for their boss or they're out of a job.
If you were a buyer, who would you rather deal with. A larger business that can regularly supply the required volume at the right time and quality. Or a dozen separate farms on separate deals and trying to work out how they will all supply?
They are fortunate that so many places will keep supplying even though the price keeps dropping. It would perhaps be better if farmers worked together and say NO we're not going to do that?


As an aside I agree, anyone using "going forward" in regular conversation, should just be punched in the face

 

[TheTallGuy]

That would explain why Tesco gave theirs to Stobart to organise, though it’s a cost centre with no income of its own. You’d think running a fleet of trucks 364 days/year 24 hours/day to known destinations in urban areas would be fairly efficient compared to bulk grain where the driver can’t contact the farmer for the 2 hour loading time with a 4” auger because he has gone shooting for the day and the mill tip has broken down again anyway.

Tesco operate a large portion of transport themselves, some is their own fleet (most of the trailers are their own) with either their own or agency drivers & some is fully contracted out - that way it's harder for them to be held to ransom by unions or contractors.

Speaking to Tesco drivers, it's not unusual for two double deck lorries from different distribution centres to arrive at a store at the same time for any number of reasons outside of their control which can mean a wait of 2+ hours for one driver - even at the better stores. Delivering to expresses & metros is a nightmare as getting a wagon to some locations is difficult enough & then they have to wait for 2 members of store staff to be available for the offload via tail lift, but many stores are only staffed with 2 or 3 colleagues at a time so that can mean a long wait - multiplied across 4 or 5 drops and that's a driver tied up for a full shift.