Business Advice Centre

Tuesday 20 March 2018

Problem solver: Supermarket customer numbers crucial for net profits

Feargal Quinn
Feargal Quinn

Q: Is it true that supermarkets make 40pc profit on the products they sell?

A: Gross profit is the difference between the price the shop buys a product, and the price they sell it to a customer. Out of this has to come wages, overheads, etc.

What the business is left with after this is typically referred to as net profit. In the case of most supermarkets, which publish their figures (to the best of my knowledge only one of the supermarkets in Ireland is publishing its figures), they are left with approximately 3-5pc net profit. That means out of every euro they are only left with three to five cent clear profit. So while the gross profit might look large, the reality is that there is very little left out of each euro so supermarkets rely on the volume achieved by large numbers of customers shopping each week.

You may find it an interesting exercise to look at the published figures for some of the UK supermarkets which you will find on a web search. The profit levels are certainly not what you might think they are.

Q: We take on students in the summer in our hotel business and I am never sure if the standard of their service is high enough to meet our customers' needs. Do you have any thoughts?

A: I was always a strong believer in providing part-time employment to students. In many cases, it was a first job and the majority were eager to learn.

Of course, the down side is they might not necessarily arrive with the correct skills, and might need a little bit more tuition from their managers, but on the whole, we found they brought new fresh energy to the business and to our customers.

I always made a point of greeting all new full-time and part-time staff when they entered the company and this included any new students who had joined us. Very often I would ask them what their job was in the business and typically they would reply "my job is to sweep the floor" or "my job is to collect trolleys". I would always reply that their job was much more than that - their primary role was looking after the customer and ensuring they return again and again. Those brief words very often set the scene for their understanding of our business, and helped them to understand the importance of their role. You are doing the right thing by employing students, but just make sure they understand what you expect of them.

Q: I started a food manufacturing business two years ago and I am trading well. My problem is that I make the product, sell it, do all the tastings and run my own marketing programmes. I am finding it hard to keep up.

A: Your story is not unusual and this is a challenge that is faced by many early-stage producers.

Getting your model right at the start is a critically important step in the process.

Whether you manufacture the product yourself or whether you outsource the manufacturing is a key decision. Sometimes the fact that you manufacture the product yourself makes it unique as you can produce it in a way that no one else has the skills to do so. In other instances, what is important is that your recipe is used but someone else can manufacture it on your behalf, and to your specification.

It is very difficult for one person to do everything as you have described. Usually the business owner becomes stretched and eventually you start to miss opportunities because you are trying to do too much. The decision process will vary for every producer depending on their own skillsets and the type of product they are making. It is all about making an informed decision.

If I was in your shoes, I would certainly explore the opportunities to outsource the product if you have not done so already and if you are satisfied this can be achieved, then perhaps it is a serious option to consider.

Alternatively it may be a case of having to invest in some additional staff to allow you to concentrate on the parts of the business you are adding most value to. You may well be able to train someone else up to do the production in your own facility while you concentrate on sales and marketing while still monitoring production standards. Whatever your decision, make sure you don't sacrifice on quality and standards.

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