Harvesting Wisdom: Margin, Waste and the Art of Produce
Managing a profitable produce department is no easy feat. It’s not just displaying beautiful fruits and veggies and watching them sell. Produce work moves fast. Things change by the hour, and the pace means mistakes large and small happen. The key to success? Carefully managing margin so sales make up for inevitable waste—but that’s a whole lot easier said than done.
Along with labor, margin, waste and sales are the three main levers that produce managers can use to create a financially sustainable department. There is no one perfect recipe for how the leverage each of them, and the right balance will depend on your unique store. That being said, there are two ends of the spectrum worth considering:
A produce department that follows a high end, niche model is filled with immaculate and often creatively displayed produce with lots of specialty or unique items. Margins are high (up to 50%), and higher waste is acceptable to keep things looking pristine. Sales are lower overall.
On the other end of the spectrum are departments built on low margins and high sales. Think of warehouse stores as a good example. Here, margins come in at around 20%, with profit coming from huge sales volumes and very low waste.
Most produce departments fall somewhere between these two extremes. Can you think of any stores in your area that follow these two models? Where does your store sit on the spectrum?
Make the Most of Margin
Figuring out the right margin is a constant, challenging exercise. To have a sustainable produce department, you have to establish a margin that carefully considers your space, sales and anticipated waste.
Many grocers will have an established gross margin goal (the mark up from cost of goods without factoring in waste) for their departments, in which case the choice is made for you. Stores with high sales volume or that use low produce prices to attract shoppers will often have margins around 30%. Most natural food stores hover between 35% and 40%, while higher end stores are hoping for a 45% to 50% margin.
In most cases, though, produce departments have variable margins. If the goal is 40% margin throughout the department, some items will have a 15-20% margin while others will have 50-60% to average around that target 40%. Lower margin items are typically things that are seasonal draws (like berries or stone fruit in the summer), staple items that shoppers price compare (like bananas or packaged salad mixes) and weekly ads. Items that traditionally have high margins include staples like apples, onions and potatoes.
Ultimately, margin comes down to deciding price. Pricing is an art, not a science, but there are a few key things to keep in mind:
How much does a product cost?
What price will get you the movement you need to minimize waste?
How has your competition priced a similar item?
Choosing the right promotional items can make a huge difference in reaching your margin goals. It’s not about how many different items you choose to discount, but the total volume of sales that are discounted. Consider a sale on bananas vs. avocados:
You lower the cost of bananas by 20 cents, which might be at or below cost. That seems crazy! But crunching the numbers, if you sell 500 lbs. of bananas at 20 cents off, that’s only $100 in lost margin dollars.
You put Hass avocados on sale, lowering the price from $2.99 to $1.99 each. Let’s say you sell 10 cases or 400 total avocados at the sale price. Hypothetically, that’s $400 in lost margin.
The right choice for your department depends on what your goal is. In choosing what to promote, consider what is seasonal, what will result in the best sales lift and what will get customers the most excited, rather than just what is cheap at any given time. Ads on the newest or tastiest offerings will win over shoppers and help gain their trust!
The biggest challenge is how to balance your margin when you choose to put products that aren’t already discounted by OGC or your supplier on sale. One tip: keep prices steady instead of constantly adjusting with changes in cost—then use the higher margins from lower cost items to fund promos on your most exciting products. Really think about which promotions can have the best impact for your department!
Waste Not, Want Not
Eventually, no matter what, produce goes bad. It’s an unfortunate reality of working with perishable products. Spoiled produce stinks (no pun intended) because these nutritious and delicious fruits, veggies and fungi are a valuable resource—it’s food people could eat! Plus, controlling waste in your department is a key way to offer lower prices to your customers.
That being said, no department can operate with zero waste. Some is inevitable and even necessary. How much waste your department generates will depend on its unique characteristics. Lower volume stores with a large sales space will naturally have more waste, as high as 7-9%. High volume stores, or those with a smaller footprint that requires detailed daily rotation, will have much less waste—think 3-5%. There are seasonal ebbs and flows for how much produce heads to the compost bin too. With more perishable fruit like berries and peaches, departments typically throw away 1-2% more produce during the summer season.
It’s great to want to waste as little produce as possible, but it’s also important to take some risks with merchandising and sales. If your waste is below 3%, you might have room to be a little more daring! Keeping essentials stocked is also important. You don’t want to run out of key items because you are afraid of waste. At the same time, there is no point in offering items that just don’t sell and ultimately spoil. It’s a tricky balance to strike.
It’s easy to talk about controlling waste, but it’s much harder in practice. Don’t forget that and go easy on yourself! That being said, here are a few factors to keep in mind:
Right size your orders. Dialing in your order size and timing means shoppers always find fresh, high-quality produce—while keeping your backroom manageable and waste low.
Keep displays right sized and rotated. A good rule of thumb is to never have more than two days of sales on display. Displays should be rebuilt or rotated every day, including potatoes and onions, and rotated when a display is half full. That way, the display is never empty, and supply is fresh.
Buy what sells. It’s always exciting to bring in something new and different, but it needs to sell once it’s in the store. If you’re offering a new or higher priced item, merchandise it thoughtfully, commit to extra customer service and display signs so shoppers know what makes it special or offer it at a lower margin to attract new eaters. If something isn’t moving, reduce its volume or discontinue it. Variety is important and keeps your job fun, but don’t buy something that you love if it’s going to go to waste.
Remember merchandising.It drives sales. Make sure new, special and spendy items are where shoppers will see them. Perishable items like berries and cherries need to be in high-traffic areas to make sure they sell. You can’t afford to throw out spendy produce!
The Daily Dance
There are so many daily decisions to make as a produce manager: how to use your space, what to put on sale (and how to recoup the cost), how to land on the right mix of items for your store, how to meet management’s margin targets and where to focus your creative merchandising energy. Add in staff call outs, sampling decisions and making sure orders get placed and the day flies by. But understanding how to manage your margin, and how it’s impacted by the inevitable waste, you’ll gain the knowledge to manage through it all.