Strategy for Foodservice Manufacturer COGs

Recently, Restaurant365 produced a “Guide to Recipe Costing & Menu Engineering”. If you are involved in the foodservice supply chain, I highly recommend absorbing what is said in this piece!
As a food product manufacturer, you should be doing a similar process to ensure your products produce an adequate profit, so you can continue to grow your business!
Your strategy should include understanding the current and foreseeable situation that exists with your customers and competitors. Our goal here is to evaluate one way to ensure you make enough money to have a sustainable and growing business.
As a startup business, how do you price your products for your customer? For the purposes of this example, we will assume your customer is a broadline foodservice distributor. Every case has its own variables, so this is just a general guide.
1. When determining your cost of goods, the costs will vary from your startup phase to when you are running millions of dollars through your operation. You should understand your initial costs AND your COGs when running at high capacity. Choosing what costs to use will depend on several factors, including how deep your pockets are.
2. Storage & handling costs – These are real costs that can eat away at profits. You need to run a lean ship, but you need some safety stock in case there is a production issue. Running out of product to a new customer can end the relationship.
3. Logistics costs can be a heavy burden with lower volumes for a startup. If freight costs are driving up your customer’s COGs, consider a redistributor. DOT Foods is the biggest, but their demands for volume may be too high. Consider a regional redistributor. There are still requirements to meet, but they may be the perfect partner to reach multiple distributors at a fair price.
4. Distributor costs may seem high. When I worked for a broadline foodservice distributor I frequently heard noise from vendors about how much margin we made on independent restaurants. Understand, distributors today have an incredible number of regulatory requirements they must meet. Also, many distributors today provide a broad assortment of services to their customers.
5. Distributors need to make a margin on each case. Here is the ying and yang of pricing. A high case value makes it easy for the distributor to make margin, but if it is too expensive, you may make trial by the operator prohibitive. Our BROAD rule is to try and price your case in the $50 to 80 range for the operator. There are many other factors to consider when determining case side, though.
6. Typically, distributors like marketing programs. While some of the marketing funds may go to the bottom line, often a lot of the money is used to market products. The amount of money suggested you offer varies by category, so do your research!
7. Know your selling costs! On Shark Tank, they often talk about Customer Acquisition Cost. You can look at the cost of your sales team, bonuses, travel costs, trade show, broker costs and more.
8. If you are extending credit to your customers, then include the cost of money over the time it takes to collect.
9. There is a broad array of minor costs that may sneak in, too. Lumper fees at the receiving dock, damaged product, dead or aging inventory can all niggle away at your margin!
Let us know if you would like a FREE conversation on pricing or other aspects of getting your products to market in foodservice!
By the way, the fish in the image was excellent!
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