Organic Insights - Spring 2022
Organic Insights / Spring 2022 / 23
balance, where your Food Service product is paying the bills and covering costs, so your Retail products can become the high- margin icing on the cake. • So, what would stop you from looking at Food Service? Right off the bat, you will see that there is a margin and profit sacrifice. This is, firstly, due to the fact that you will need to work with a food services distributor as opposed to going direct to stores like the retail/ wholesale channel. It’s just like in the retail world, when working with a distributor, you will get hit with a 20%-30% margin difference, as the food services distributor is doing the negotiating, has the sales team, and is executing all of the work. The second margin hit, stems from the fact your products are unbranded and packaged in bulk and so can become more of a commodity- based product. Consequently, there
can be more competition in this space, which in turn can drive down prices and hence the margin you’re able to achieve. Next, you may need to sacrifice your level of quality to meet the right pricing point. As a recent example, we had a client that moved into Food Services and made the decision to reduce the amount of olive oil in product, by substituting it with canola oil to cut costs. While the change in taste and mouthfeel was negligible, the substitution was in conflict with their ’better for you‘ philosophy. However, due to excess capacity and rising costs, they had to make this decision, and so ‘unbranded’ their well-known product to make a bespoke food services product. Finally, while being unbranded can be easier, simpler, and cheaper, it can also be a negative choice, if you are trying to build a brand and a business. Without the backing of
a brand name and an associated loyal customer base, there is less assurance in the marketplace and so your business could be deemed more risky. This could have flow on implications for things, like your ability to attract investors or financing, quality staff or talent, and how you could sell or exit the business. In summary, moving up the value chain into the retail market can be an opportunity to get more for your product and an exciting way to build your brand and get your message out to market. The 2 retail pathways we have touched on (retail and food service) provide an overview of the landscape and factors to consider. Ultimately, it comes down to that trade-off between volume, margin, brand and your ability to keep up with demand.
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