What's Up With Mark Up?

Ever wonder what is up with how much retailers mark up certain categories of product? I sat on the retail side of the merchandising/buying desk for over thirty years, and had the opportunity to run the produce division for three supermarket chains in three different parts of the country. In that thirty years, one thing is for sure, and that is that I never stopped learning how to do my job.

Now I did have certain ideas that I felt had been proven productive over time. Philosophies that I practiced at every stop. One of those was a pricing philosophy driven by competition and managed by gross margin need. The bottom line fact is that for the most part retails are market driven. This is especially true for retailers playing in that very broad middle ground defined as trying to be everything to everyone. Even those that play at either the high or low end in market pricing make pricing decisions based on what they see in the marketplace. This I suppose is a good thing, because our economy is after all market driven. However, as I now play the retail game from the other side of the desk, I am amazed at how many retailers pricing philosophy works, or better said, I wonder if they have a pricing philosophy at all.

Pricing of various commodities to obtain the proper mix, a mix that accounts for ad markdowns, shrink, and bill out need is as much an art as science. In determining prices for a given category, one has to know the following:

• What is the percent to total sales a given category, or item has on the entire department.
• What is the average shrink of this item? Will a lower retail return a higher sales number with lower shrink therefore produce more margin dollars than a retail that generates a high bill out, but higher shrink? (in other words, what is the retail price elasticity?)
  
• What categories float the margin boat and which categories drive sales and customer count, and how should each be priced?
  
• In a produce department, how should allied (dry, or processed branded packaged goods) be priced? What is their impact on the total?
• What about ad mix? Do you raise a regular retail to offset an ad mark down?
  

Now, many of the answers to these questions have a great deal to do with the type of format one is pricing for, but many of the answers to the above questions are universal in a high-lo pricing environment.

So, what to do? Well, If any of you out there show interest, I will give perspective to each of these in more detail in future posts.

But What do you think?

Whole Foods: Trick or Treat

Last evening my wife and I went to a newly opened Whole Foods in our area to look around and have dinner, that's right, have dinner. This new Whole Foods your see, in addition to boasting a pretty comprehensive prepared meal area has a nice little bar/restaurant. My wife and I decided to belly up to the bar and check it out. I had pork tenderloin medallions with asparagus while my wife chose a three salad sampling. I had a nice cold beer and my wife chose a sampling of three wines. That's right I had a beer and my wife had wine in a supermarket restaurant.

Even when you calibrate your expectations to the fact you are in a supermarket, the meal was really good, but not with out flaws. The menu stated that the salad sampler was served with fresh fruit, well when my wife received her meal, there was no fresh fruit to be had. When we asked about the fruit our server said "ah yeah, there are a few problems with that menu, that salad does not actually come with fresh fruit" WHAT? Now I would expect that type of response in your typical supermarket setting, but if you are going to have fresh fruit on the menu, then serve it, or change the menu. Then I had to remember that we were after all in a supermarket eating dinner.

This store is however, a fantastic example of how a food store should look and feel. Lots of fresh food, well staffed and merchandised departments, and outstanding conditions. I will go back.

But tune in later for an overview of how Whole Foods really makes the dough with their produce department selection and approach to pricing.