GUIDE
Most food and drink businesses do not have a margin problem on the price list. They have one on the invoice.
The margin that decides profit is the margin left after discounts, promotional funding, rebates and the cost of serving each customer. Measure that first. Then fix the biggest gap.
A practical guide for UK food and drink brands.
Discuss your challengeMEASURE
Achieved margin by customer, not list margin.
FIX FIRST
Trade terms and promotions, before headline price.
THEN REVIEW
Range, small accounts and procurement.
List margin is what the price list says. Achieved margin is what remains after retrospective discounts, rebates, promotional funding, settlement terms and listing fees. The two can be a long way apart, and the gap is rarely the same for every customer.
Work it out customer by customer, using the last twelve months. Start with the five largest customers. The differences between them are often larger than expected.
Where the two sit far apart, the cause is often in trade terms, promotions or cost to serve rather than in the price list.
Price and trade terms. Cost increases are absorbed rather than passed on, or passed on without the evidence a customer needs to accept them. Rebates and funding agreed when the business was smaller are no longer tied to the volume or behaviour they were meant to buy.
Promotions and mix. Deep or frequent promotions sell volume at a loss, or fund the retailer's margin rather than the shopper's. Growth comes from the lowest-margin lines or channels while the best-margin lines stand still.
Cost to serve, procurement and yield. Small drops, short orders, awkward pallet builds, returns, fines and chargebacks. Ingredient and packaging prices that have not been tested. Waste that has come to be accepted as normal.
Order the work by speed and risk. Trade terms and promotions come first, because they can be changed at the next negotiation or promotional plan without risking a listing. Price comes next. A price increase works when it is put with evidence, notice under the supply agreement and options for the customer. Preparation and timing matter more than the size of the increase.
Range and customers follow. Reprice, set minimum orders or stop the lines and accounts that cost more to serve than they earn. Procurement runs alongside, but the savings take longer to land and carry supply risk, so it is rarely the first move.
Supply agreements with the largest UK grocers are governed by the Groceries Supply Code of Practice, which restricts changes to agreed terms after the event. Terms and promotional funding are therefore best fixed before they are agreed, not argued over afterwards.
Foodservice has its own layers. Distributors, wholesalers and buying groups each take margin and often a rebate. The price on the invoice is not the price the operator pays, and neither is the price the supplier keeps.
Ingredient and packaging inflation hits food and drink unevenly. Contracts that index price to cost, or review it on a fixed date, protect margin better than a single annual negotiation.
There is no single figure. Margin varies by category, channel and scale, so a published average can mislead. A more useful test is the business's own: how far achieved margin sits below list margin, and which customers and products earn the least.
Start with trade terms, promotions and range, which customers rarely notice, before headline price. Where price has to rise, bring evidence of the cost increase, give notice under the supply agreement and offer options such as pack size or specification.
Achieved margin is the margin a business keeps after retrospective discounts, rebates, promotional funding and settlement terms. It is lower than list margin, and it is the figure that decides profit.
Discuss your challengeThe Commercial Diagnostic puts list margin and achieved margin side by side for the business's five largest customers. It also reviews channel mix, range, readiness and sales capability. £950, delivered five working days after the documents arrive.
See the Commercial DiagnosticRelated guide: How to increase profit in a food or drink business
Related guide: How to reverse declining sales in a food or drink business
Related service: Margin, pricing and procurement
