Restaurants, Delis and Farm shops are individual businesses and operate different business models, so generalising about their target profit margins is just that, generalising. However, we as Suppliers, Producers, Wholesalers & Importers need to have an understanding of what Gross Margin a retailer will need to achieve to keep their businesses afloat and make the right profit.
What is Gross Margin
This article uses Gross Margin. Gross Margin is the portion of Profit – income less costs of purchase or production – in each Sale. It is expressed as a percentage.
This is NOT the same as Mark-up. For more information on Gross Margin and Mark-up, see the help note on Profit Margins.
RRP and RSP
This is NOT about RRP (Recommended Retail Price) or RSP (Recommended Sale Price). It is (bluntly) none of our business what a retailer charges for our products. We don’t know what their overheads are, what their customers will afford, what minimum whole business margin they need to stay profitable. As Suppliers we need to respond to our customers’ needs rather than dictate what we think they should charge.
Typical target Whole Business Margins*
Businesses have target margins across their whole business to meet their business plans and target profitability.
|Premium Convenience Stores||40%|
Within Whole Business Margins there will be substantial variations by product type: cut cheese will be higher (due to wastage), alcohol will be lower (a highly competitive market).
Here are some indicative Gross Margins*:
Department: Vat Margin Assume Notes envelope
|Alcohol||+VAT||25%||to||32%||32%||Very competitive market|
|Bakery/cakes, bought in, cut/wrapped at counter, take away||–||50%||to||60%||60%||Packaging plus higher service and wastage costs|
|Bakery/cakes, bought in, pre-packed, take away||–||35%||to||45%||60%||Standard Whole Business Margin|
|Bakery/cakes, homemade, take away||–||55%||to||70%||60%||Production, packaging, service and wastage costs|
|Butchery: bought in, pre-pack||–||35%||to||45%||45%||Standard Whole Business Margin|
|Butchery: somebody else’s meat, own butchers||–||50%||to||60%||60%||Butchery costs|
|Charcuterie & Hams: pre-pack||–||35%||to||45%||40%||Standard Whole Business Margin|
|Charcuterie & Hams: slice and wrap||–||50%||to||60%||55%||Higher for product with high levels of skin/bones other pieces not sellable at full price|
|Cheese: cut and wrap||–||45%||to||60%||50%||Production, packaging, service and wastage costs|
|Cheese: pre-pack||–||35%||to||45%||40%||Standard Whole Business Margin|
|Confectionery||+VAT||35%||to||45%||40%||Standard Whole Business Margin|
|Freezers||–||35%||to||45%||40%||Standard Whole Business Margin|
|Fresh Fish||–||45%||to||60%||55%||Production, packaging, service and wastage costs|
|Fruit & Vege||–||50%||to||55%||55%||High wastage costs|
|Grocery||–||35%||to||45%||40%||Standard Whole Business Margin|
|Horticulture||–||50%||to||60%||55%||High wastage costs|
|Hot drinks takeaway||+VAT||85%||to||95%||90%||Good practice is to include the price of the coffee cup in the margin|
|Loose olives||–||35%||to||45%||40%||For olives only, not the oil or other liquid the olives come in.|
|Non-food gifts||+VAT||35%||to||45%||40%||Standard Whole Business Margin|
|Other ambient grocery||Varies by product.||35%||to||42%||40%||Standard Whole Business Margin|
|Other chiller cabinet: pre-pack||–||35%||to||45%||40%||Standard Whole Business Margin|
|Other drinks||+VAT||30%||to||45%||38%||Competitive market|
|Sandwiches take away||–||65%||to||70%||66%||Production, packaging, service and wastage costs|
|Sausage rolls, pies etc: bought in, pre-pack sold chilled||–||35%||to||45%||40%||Standard Whole Business Margin|
|Sausage rolls, pies etc: bought in, pre-pack sold hot||Usually no VAT||45%||to||55%||50%||Packaging, service and wastage costs|
|Sausage rolls, pies etc: home made||Usually no VAT||60%||to||70%||66%||Production, packaging, service and wastage costs|
|Serve over deli counter: portion and wrap||–||40%||to||55%||50%||Staff costs and wastage|
Occasionally Retailers will charge extra margin:
|Seasonally branded goods (Christmas, Easter etc)||plus||2%||to||10%||Assume:||5%||Stock valueless after date|
|Hampers and Shop re-packaged||plus||5%||to||10%||Assume:||5%||Include packaging in cost of sale, add premium for labour costs|
Food Service: Restaurants, pubs, cafes and bistros*
Food service will charge higher margins due to the kitchen and service elements. This has been creeping up recently as staff, property and other costs have increased relative to food costs.
Typical target Whole Business Margins:
Gross Margin* by product type
|Food service||VAT?||Gross Margin envelope||
Use for Reality Check|
|Starters/main courses/puddings||+VAT||60%||to||75%||70%||To include the VAT, simply multiply the ingredients by 4 to get the menu price.|
|Bakery/cakes, bought, eat in||+VAT||60%||to||70%||66%|
|Bakery/cakes, homemade, eat in||+VAT||60%||to||70%||70%||Production costs|
|Hot drinks drink in||+VAT||85%||to||95%||93%||Good practice is to include the price of the coffee cup in the margin.|
* Gross Margins are responding all the time to business needs. These margins are a summary of the experiences of businesses we have worked with and updated as often a possible. Contact Charlie direct on firstname.lastname@example.org if you have any feedback at on these figures, positive or negative. It is important we stay as current as possible. We really want to hear from you.