Unificación de lenguajes de manejo de modelos: Epsilon

The lack of understanding of the importance of actual pound note margins is something that has frustrated me endlessly over the years in a variety of different formats. The

largest frustration comes from the fact that at the very pinnacle of the food and beverage industry (in terms of volume at least) many of the biggest contract caterers are still bound up by the concept that margins should be cast in stone. They take their managers through a tedious little training experience and shove them out the far side with a percentage margin goal tattoed onto the back of each hand and onto their foreheads so that it’s the first thing they see as they bend over the sink in the morning wondering how their life has gone so badly wrong and why they are working in such a drone-like

environment. Where did all those dreams of ‘food glorious food’ go wrong? My first experience of this was when we were operating our sandwich bars many years ago. Our core product was a ‘gourmet’ sandwich which operated at the very top end of the market. As it sat on a shelf in a retail market it would generally represent no more than 33% of total sales. Obviously those figures varied from site to site but this was a reasonable rule of thumb. Because it was a unique product that nobody else was offering it was normally a fairly easy sell – particularly since we hadn’t priced it at particularly

aggressive level.

In those days the general rule of thumb (this has shifted in the last few years) was to offer the retailer 35% of the selling price for the sandwich. This was their profit. We only offered 30% though because we needed 70% to cover our costs. Ultimately it could be argued that our model was a trifle flawed and we should have passed this extra cost onto the customer, but as it stood, a canny independent retailer would quickly grasp that, even at 30%, he would make more money from our product than he would from a normal sandwich, i.e. more pounds and shillings in the till – NOT more percent on his profit and loss.

Here’s how it worked: Normal sandwich Selling price – £1.50

Retailer profit margin at 35% – 52.5p Our gourmet sandwich

Selling price – £2.00

Retailer profit margin at 30% – 60p

So for that little 5cm space on his shelf he was making an extra 7.5p from our products. If he sold 100 of our sandwiches a day that was a clear £7.50 of actual pound note profit that he could add to his bottom line, i.e. it made sound commercial sense to buy our product at a lower percentage margin than it did to buy the higher percentage margin cheaper product.

This may seem like a fairly simple sum, but it’s absolutely crucial to grasp its importance and fully accept that you don’t go to your bank with percentages. You don’t pay your mortgage with a percentage and you’ll certainly struggle to get away with giving your staff at the end of the week a generous envelope of percentages. So the sum may seem simple and the concept should be clear, but that is rarely the case out in the marketplace. With our little bag of samples myself and my business partner trotted off to our local airport for a meeting with the head catering honcho. We presented our wares and they were very impressed. It seemed like we were going to easily make the sale. We then started to negotiate the price. We explained our discount structure and that’s when it all paused. We were told that they simply

couldn’t operate at that level. I got out my piece of paper and explained that what we were offering was pound note profit and not percentage profit. I clearly articulated that they would make more money for every one of our sandwiches that they sold in comparison to the competition. None of this mattered though. They had strict guidelines that meant, no matter how much actual money they made, they had to achieve a gross margin target. They fully grasped that by not selling our product they would make less money but since the manager was rewarded for reaching

gross margin percentage goals (and not pound note goals) there was absolutely no way we could do business. This shows one of the problems of incentivising purely in percentage terms (even though it is rife within the industry). Ultimately from this decision they would make less money, we would make less money, but the correct box in their financial reports was ticked.

The point of this story is not to illustrate how stupid they were (even though they were) or how there was a flaw in our model (there was and we ultimately changed it), but to show how the end goal is about pound notes in the till and how many of these you get to keep at the end of the week. It is not about percentage profit.

This, in a rather long-winded way, is where food comes in. Food has a lot of great uses within a coffee shop (which we’ll come to) but at its most simple it allows you to increase average transaction size and the volume of pound note profit that you may have at the end of the day – even though the percentage margin will be considerably lower than the cup of coffee which is hopefully sold alongside it.

The holy grail of food though is to create products that are so great that they manage to drive people through the door at every stage of the day AND still allow you a great margin. There are, if you’re clever both in your menu creation and marketing, various food products which can allow you gross margin percentages that might rival a cup of coffee.