As retail traffic and sales shift online worldwide, Retailers are facing both new opportunities for omnichannel innovation and shopper engagement, but also compounding competitive pressures and significant financial, logistic and strategic challenges which they look to Brand Manufacturers to help solve in partnership.
P&Ls Under Pressure
Cost of Partnership
Omnichannel Transformation
Price Transparency
eCommerce has enabled increased competition from every angle of retail. From new eCommerce retailers, to 3rd party sellers, to last mile retailers and aggregators and direct-to-consumer brands.
Retailer’s algorithms price match in real time squeezing retailer margins.
Omnichannel fulfillment is costly for retailers which is giving rise to last milers.
Retailers are leaning on manufacturers to help offset these pressures with damage & freight allowances, chargebacks & supply chain fees, free shipping redemption & margin offsets, retail media spend, and retail data access fees.
Multifront Competition
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How to Protect Our P&Ls
Retailer
Manufacturer
While we can only control our own individual P&L as a retailer or as a brand manufacturer, we have the opportunity to collaborate and leverage strategies that create mutual value for both sides.
This requires a deeper understanding of each side’s P&L, the sources of pressure, the areas of opportunity and the strategies available in-market to implement for joint benefit.
Click for Interactive P&L
= $ Pure Profit margin
- (Cost of Goods Sold)
= $ Retail POS Sales
- ($ Operating Costs)
+ $ Manufacturer Offsets
= $ Net Pure Profit margin
= $ Contribution Profit
Retailer P&L
What is It? A Retailer’s Pure Profit Margin is the price it sells a product to a Consumer (i.e. Retail Price / Selling Price) minus the price it paid the Manufacturer (i.e. Retailer’s Cost of Goods Sold / Manufacturer’s Gross Price).
How Is It Calculated While Pure Profit Margin is often looked at as a %, both the % and $ calculations are needed in today’s marketplace to maintain absolute profitability at the macro business/category AND at the micro SKU levels.
What are the primary pressures? Retailer Competition capturing topline salesand market share Retailer Price Matching & Promotions reducingretailer margin Manufacturer Gross Price(COGS) Increasesreducing retailer margin
Pure Profit Margin
Retail Price (or Sales) – Gross Price (or Sales) Retail Price (or Sales)
% =
$ =
Retail Price (or Sales) – Gross Price (or Sales)
= $ Net Sales
- ($ Trade Investment)
= $ Gross Sales
- ($ SG&A Expenses)
- ($ Cost of Goods Sold)
= $ Gross Margin
= $ Operating Profit
Manufacturer s
'
What is It? A Manufacturer’s Net Sales (also referred to as Net Revenue) is the price it sells a product to the Retailer (i.e. Gross Price or List Price) minus its negotiated Trade Investments. When calculating your Trade Spend/Rate, it will be all of your trade investments divided by your Gross Sales/Revenues.
What are common Manufacturer Trade Investments? • Off-Invoice (OI) Discounts • Base Trade Allowances / COOPs / Accruals • Incremental Trade Allowances / COOPs / Accruals • Retailer Merchandising Accruals • Discount / Promotion Redemption • Early Payment Discounts • Damage Allowances • Freight Allowances • Retailer Chargebacks + Fees
What are the primary pressures? Retailer Price Matching and Shipping Costs squeezing retailer margins Increasing Retailer Asks for Spend and Opportunities for Investment In-Market Competition from other Brands, 3rd Party Sellers, Private Brands and Digitally Native D2C Brands
Net Sales
RETAIL P&L REPORT
MANUFACTURER P&L REPORT
Interested in diving deeper into learning more about the retailer profit & loss statement (P&L) and how to influence it to improve profitability? Download the in-depth report.
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Are you a retailer looking to understand areas of opportunity on your P&L or are you a brand looking to understand how retailers think about their own profitability? Download the in-depth report.
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About the Authors
P&L’s Under Pressure: The Omni Retailer P&L and How It Impacts Brand Profitability. Join us on Thursday, Dec. 1 (1:00 - 2:00 p.m. E.T.) for a live discussion
RETAIL P&L WEBINAR
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P&L’s Under Pressure: P&L’s Under Pressure: The Manufacturer P&L and Levers Brands Must Pull to Drive Omni Profitability
MANUFACTURER P&L WEBINAR
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What is It? A Retailer’s Net Pure Profit Margin is a combination of its Pure Profit Margin (i.e. what it makes selling a product to the consumer minus what it bought the product for from the Manufacturer) AND any and all additional Manufacturer Offsets (a.k.a investments)
How Is It Calculated While Net Pure Profit Margin is often looked at as a %, both the % and $ calculations are needed in today’s marketplace to maintain absolute profitability at the macrobusiness/category AND at the micro SKU levels.
What are the primary pressures? Competitive Retailer Capabilities & Asks (ex.Retail Media & Promotion) Manufacturer Offset“Credit” within RetailerOrganization (ex. Retail Media Team vs.Retail Merchant Team) Insufficient ManufacturerOffsets due to Increasing Costs and Retailer Price Matching
Net Pure Profit Margin
Retail Price (or Sales) – Gross Price (or Sales) + Offsets by SKU (or Total) Retail Price (or Sales)
Retail Price (or Sales) – Gross Price (or Sales) + Offsets by SKU (or Total)
What is It? A Retailer’s Contribution Profit is a combination of its Net Pure Profit Margin (i.e. what it makes selling a product to the consumer minus what it bought the product for from the Manufacturer plus manufacturer Offsets or investments) AND all of its Operating Costs.
How Is It Calculated Contribution Profit may be look at as both a % and $ calculations as both are needed in today’s marketplace to maintain absolute profitability at the macro business/category AND at the micro SKU levels.
What are the primary pressures? Increasing Retailer Inbound + Outbound Shipping & Handling Costs Increasing Inventory & Warehousing Costs Increasing Retailer Labor Costs & Labor Shortages + Turnover
Contribution Profit
Retail Price (or Sales) – Gross Price (or Sales) + Offsets by SKU (or Total) – Costs by SKU (or Total) Retail Price (or Sales)
Retail Price (or Sales) – Gross Price (or Sales) + Offsets by SKU (or Total) – Costs by SKU (or Total)
What is It? A Manufacturer’s Gross Margin is a combination of its Net Sales (i.e. what it makes selling a product to the Retailer minus its negotiated Trade Investments) AND its Cost of Goods Sold (aka COGS). When calculating your Gross Margin Rate, best practices are to divide your Gross Margin $ by your Net Sales/Revenues (not your Gross Sales/Revenues).
* While not always officially considered COGS, the inbound/outbound distribution costs including expenses to transport the product to the Retailer will fall into this part of the P&L.
What is included in Cost of Goods Sold (COGS)? • All Ingredients/Raw Materials • Packaging Materials • Labels • Labor for Preparation, Production & Packaging • Co-Packer Fees (where applicable) • Any Other Production Costs • Incremental eCommerce Bundle Preparation Costs • Incremental eCommerce Packaging Costs
What are the primary pressures? eCommerce Price Pack Architecture and New Packaging Requirements Increase eCommerce Distribution Costs and Complexities Increasing Labor and Materials Costs
Gross Margin
What is It? A Manufacturer’s Operating Profit is a combination of its Gross Margin (i.e. what it makes selling a product to the Retailer minus its Trade Investments and minus the Cost of Goods Sold) AND all of its Selling, General & Administrative (SG&A) Expenses. When calculating your Operating Profit Rate, best practices are to divide your Operating Profit $ by your Net Sales/Revenues $ (not your Gross Sales/Revenues $).
* Depending on your organization, there may be many other line items that fall within this part of the P&L.
What is included in SG&A? • Brand Advertising Expenses • Retail Media, Paid Search & Merchandising Expenses • Shopper Marketing Expenses • Creative + Content Development Expenses • Data, Insights + Technology/Capability Tool Investment • Education/Training & Professional Development • Rent, Property, Utilities, Supplies & Equipment • Employee Salaries & Compensation • Employee Travel Expenses • Outsourced Services (ex. Consulting, Legal etc.)
What are the primary pressures? Increasing Retail Media Investment in Display, Paid Search and Other Capabilities Digital Shelf Management Costs, including Content Development, Syndication and Measurement New Data & Capability Costs from Retailers and 3rd Party Solution Providers
Operating Profit
