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How much do we pay for
convenience? Let's take a product which you buy at
£3.99 in a supermarket, for which the Supermarket would typically pay the
supplier £2.50. (-You would probably expect to pay about £1.90 for the
ingredients.)
|
Cost
to Consumer -£3.99 |
|
Cost to
Supermarket |
£2.50 |
The difference
helps pay for transport to the shop, display, wages, costs of running the
shop and profit for the Supermarket. |
|
Manufacturers
Costs |
|
Raw
Materials |
£0.95 |
Cost of
Ingredients. You may expect to pay twice that if you were buying to make
the product at home. |
|
Packaging |
£0.25 |
A Lot and it
is all waste! |
|
Labour cost |
£0.30 |
About 12% is
a fair average. |
|
Distribution |
£0.12 |
The cost of
getting product to the central distribution point. |
|
Factory
Overheads |
£0.65 |
This
includes cost of the building, rates power, telephones, sales staff,
administration, and all other indirect costs. |
|
Finance
Costs |
£0.10 |
Bank charges
and interest on borrowings to help build the factory. |
|
Profit (What's Left!) |
£0.13 |
Fairly small
element. Suppliers are often asked to help with special promotions which
will eliminate any profit |
It is therefore easy to see how it is
impossible for any manufacturing company to sustain "special prices"
for any length of time and remain in business. Many food manufacturers have gone
out of business because they are being asked to produce product at prices which
are too low. The example above relates to a mid price product which normally
gives the opportunity for supplier and Supermarket to both make a profit. This
is often more difficult to achieve on lower priced product, particularly in view
of the high costs associated with building a modern, safe food factory.
Thank you for showing an interest in the
Food industry. -Ian Brough
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