Fresh produce Profit Analysis App:
Understand which fresh produce lines really make profit for your business by analyzing delivery costs, packing, packaging, overheads, and sale prices.
Gain a deeper insight into the profitability of individual product lines in your fresh produce business... Use farmsoft to calculate all costs, from the entire farming process (requires you to use farmsoft Farm Management), direct raw material purchase costs, freight to individual customers, fixed overheads, packaging material, labor and more.
Why continue packing and selling a product line if its unprofitable?
With farmsoft's Profit Analysis Dashboard for fresh produce, you can quickly determine each product lines profitability.
The Profit Analysis Dashboard also takes into account transport costs that your fresh produce business pays; this gives you an easy to interpret insight into the true profitability of each fresh produce line by customer.
Making these calculations from your financial software is often very time consuming or not possible in some cases. Using farmsoft you can have real time access to fresh produce profit analysis data at any time, compare profit over selected date ranges, for selected fresh produce lines and more...
Make more profitable product line decisions
Continue producing a selected fresh produce product line or not? Using farmsoft's fresh produce Profit Analysis Dashboard you can make more profitable product line decisions at all times.
Fresh produce Profit Analysis
Profit analysis for fresh produce wholesale, packer, processor, import/export
In the years after 2000, business intelligence software producers became interested in producing universally applicable BI systems which don’t require expensive installation, and could hence be considered by smaller and mid-market businesses which could not afford on premise maintenance. These aspirations emerged in parallel with the cloud hosting trend, which is how most vendors came to develop independent systems with unrestricted access to information.
From 2006 onward, the positive effects of cloud-stored information and data management transformed itself to a completely mobile-one, mostly to the benefit of decentralized and remote teams looking to tweak data or gain full visibility over it out of office. As a response to the large success of fully optimized uni-browser versions, vendors have recently begun releasing mobile-specific product applications for both Android and iOS users.[6] Cloud-hosted data analytics made it possible for companies to categorize and process large volumes of data, which is how we can currently speak of unlimited visualization, and intelligent decision making.
In 2019, president and CEO of the United Fresh Produce Association (UFPA), Tom Stenzel, described the fresh produce industry as “the ultimate supply-and-demand economy.” This is a neat summation of the unique profit challenges faced by fresh produce businesses in the 21st century. In this industry, strategy is overwhelmingly influenced by demand and the window of profitability for produce is very small.
It’s this combination of factors that makes businesses vulnerable. These vulnerabilities hand more power to retailers, allowing them to drive down the prices they pay and cut the profit margins of producers. In this environment, smart and, crucially, dynamic pricing is essential for any fresh produce business to maximise profit potential. This article sets out the tools required to build a smart pricing strategy.
Can you accurately allocate production costs?
In an ideal world, the basis of your pricing strategy would be a firm grasp of what your product has cost you to produce. However, it can be easy to undervalue the resources that have gone into a line of fresh produce by the time it is ready for market.
Direct costs associated with a range of produce will include:
The price of the seed and fertiliser
Any regulatory costs associated with the product in question
Indirect costs will be more difficult to calculate and may include:
Machinery costs and depreciation
Labour (both contracted and your own)
Property costs and maintenance fees
Combining all outgoings for a product line and dividing by its yield will allow you to determine the cost per unit or kg. However, this is not a realistic aim for many businesses - calculating production costs to this degree of accuracy is very difficult without large amounts of yield data and sophisticated software to interpret it.
It is at this early stage that an integrated approach to data recording can reap the biggest rewards when pricing produce.
Strategies for selling to retail
It’s counterproductive to consider strategy in terms of pricing high vs pricing low, for two main reasons:
As discussed before, retailers are in control when it comes to the rough value of produce at any given time.
While pricing at very close to or below the cost of production (loss-leading/ penetration pricing) can help build market share and relationships with wholesalers, in an industry where profit margins are so slim this is dangerous. Moreover, it devalues the produce being sold in a wider sense, deflating the market.
Instead, we’ll assess three common pricing strategies that focus on smart and subtle positioning rather than significant hikes or cuts.
Flexible pricing based on supply and demand
Pricing in line with demand is a strategy based on making logical decisions relative to the real-time state of the market. Rather than targeting a set return on investment, this strategy aims to hit a price sweet spot between maximising profits and appealing to the retailer or wholesaler.
To execute a supply and demand strategy well, accurate market insights are essential. Obtaining this insight is likely to lead to additional expenditure which will have to be priced into the cost of production.
In theory, the demand of any product should allow for it to be optimally priced in line with the market. However, it’s necessary to appreciate that this kind of value-based pricing is ultimately led by the consumer. In the supply chain, fresh producers are the party most removed from consumers, meaning changes in demand take time to become apparent by which point it may no longer be advantageous to change pricing.
This strategy requires growers to constantly be flexible - with what they grow, in what proportion and how they price it. Some fresh produce businesses simply can’t shoulder that much uncertainty.
fresh produce pricing
Fresh produce profit analysis
Competitor-focused pricing
This strategy entails using the pricing of rival fresh producers as a guideline. Of the pricing methods we’ve covered, this is arguably the most suited to less established businesses trying to nail down the best price for their goods. This is because of its simplicity and the relatively low risk.
Market data is again critical. Some is publicly available - for example the UK government records data on the average weekly wholesale market prices of some fresh products.
However, this kind of data can be problematic, with markups varying from wholesaler to wholesaler. It may be necessary to conduct less formal research by talking to fellow fresh producers to determine the consensus within growing communities.
Despite this, using rival growers to set pricing is not viable in the long-term as a lone strategy. It removes the opportunity to steal a march on the competition while effectively turning the market into a “race to the bottom” on pricing.
Cost-plus pricing
Essentially, a cost-plus model involves setting a fixed markup and pricing consistently in this manner. For example, if you settle on selling tomatoes to wholesalers at 35% over the cost of production, a batch which cost £0.75/kg to produce would be priced at around £1.01/kg.
Cost-plus pricing is simple and easily justifiable to the purchaser. A fresh producer opting for a cost-plus strategy would reason that staying true to what they value their product at will deliver greater profits in the long run.
However, the strategy requires fresh producers to know their cost of production to a high degree of accuracy, something not all are equipped for. It also means the product needs to be of higher quality or have extra inherent value over its cheaper competitors to be attractive.
This means cost-plus pricing will be more effective for businesses with access to and understanding of enough production cost data, and on products which are less price-sensitive.
How farmsoft can help price & analyze produce profitably
While cost-plus pricing is the strategy most dependent on the accurate calculation of production costs, knowing how much each line of produce costs to bring to market is always essential to getting a fair price.
Harnessing all the information needed to produce this and using it to provide genuine insight is a major undertaking, and highlights the need for an integrated approach to fresh produce. No aspect of a fresh produce business is more sensitive to the real-time situation than when it comes to pricing.
Farmsoft (ERP) software provides the most effective way to accurately track real-time cost of production. It can empower businesses with the true value of their produce, allowing them to price appropriately and hold firm against retailers who value it too low.
Fresh produce Profit Analysis
This website is dedicated to the fresh fruit and vegetable professionals: growers, shipping companies, wholesalers, ripeners and retailers
Fruit Profits is a fresh produce advisory company. We provide you with updated information on fresh produce innovation, technology and marketing. Learn new techniques to deliver better quality produce, with better taste & appearance, improve your cold chain and reduce your costs and fruit losses. Applying them will increase your sales and profits
Welcome to Fruit Profits!
Hello, my name is Manuel Madrid. Based on 25 years´ experience in technology for the fresh produce industry, I have often noticed that many excellent fresh produce companies have a huge sales growth potential, but that potential is not always fully realized.
Why? Because they are not always aware of the latest techniques on fresh fruit supply chain: harvest, packaging, cold chain and ripening
Being on top of a dynamic fresh produce operation requires all your attention daily. So Fruit Profits searches and brings you specific fresh produce know-how to achieve your company´s full sales potential
That is what we aim at Fruit Profits :
We are a fresh produce consulting firm. We bring you updated information about fresh produce technology and innovation. We help our clients implement these innovations in their business in the most efficient way.
Some of the topics we specialize in include:
- reducing fresh fruit and vegetable losses in transport and storage
- cost analysis and improvement of the fresh produce value chain
- controlled and modified atmosphere storage
- introduction of innovative fresh products to the market
- ripening technology for ready-to-eat fruit
- marketing techniques to increase fruit sales at retail point-of-sale
- improving fruit quality through changes in harvest and ripening processes
- optimizing packaging design
- new variety search and evaluation
- evaluation and development of new production areas worldwide
- technical due diligence and investment valuation for agribusiness investment funds
There is a big business potential in postharvest technologies. Today fruit and vegetable spoilage in the harvest and transportation chain has been estimated in up to 20% in developed countries, depending on the commodity. In developing countries they can reach up to 40% to 50%.
Often fruit is not thrown away but it is downgraded in quality category. Downgraded fruit from Class I to Class II is often not accounted separately and could add up to an additional 20%. These losses can be reduced up to 90% by improving the cold chain and handling processes, bringing this profit directly to your bottom line
Another business opportunity lies in optimizing fruit quality and ready-to-eat whole fruit. Fruit at the right ripening stage sells 25-33% more than green, hard fruit. By improving your harvest and ripening techniques in banana, mango, avocado, pear and other fruits, you can increase your sales and profits.
Fruit Profits provides you with an independent assessment of the latest technologies that can benefit your operation. This is unbiased information, since we are not sponsored by suppliers or equipment manufacturers.
We have worked with the most diverse crops: tropical fruits ( banana, pineapple mango...) and subtropical products, berries, vegetable crops, melons, stone fruits, pome fruits, citrus, grapes, ...
As an example, you can download the free report “Seven key techniques to reduce fruit losses and improve quality at arrival”. This report provides you with useful tools and information on how to handle differently some aspects of your operation, that can directly result in an improved financial bottomline.
In an uncertain economy, does fresh produce spoil revenue growth?
The future of fresh
Regardless of the economic cycle, people need to eat. As such, produce is a resilient fresh-food category.
CURRENTLY, consumers are showing strong interest in fresh fruits and vegetables, thereby helping provide ample growth opportunities for companies in the fresh food ecosystem.1 But, with mixed economic signals heading into 2020, a question arises: Does fresh produce spoil revenue growth? In periods of economic expansion (as experienced in recent years), consumers tend to allocate more dollars to premium products. However, spending can wane due to economic uncertainty.
Methodology: To address this question, we analyzed the US Consumer Expenditure Surveys data2 for produce. We compared it to processed food, alcohol, and nonfood categories (apparel and fashion, health care, and entertainment). We examined CAGR from 1995 to 2017, comparing growth during periods of economic expansion vs. recession.
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Read more about the Future of Fresh
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Our analysis reveals a nuanced picture. Overall, from 1995 to 2017, consumer expenditures on produce grew 1 percent CAGR. Growth also occurred in alcohol, apparel and fashion, entertainment, and processed food. Of note, only health care (at 2 percent) exceeded these categories (see figure).3
During the Great Recession of 2007–2010, only fresh fruits and vegetables and health care grew (1.4 percent each). Beginning in 2011, most categories rebounded to pre-Recession levels. However, produce and health care not only came back, but far exceeded pre-Recession levels (at 2.3 percent and 4 percent, respectively).
During the 2000–2001 recession, all categories experienced similar fluctuations. And while fresh fruits and vegetables declined 3.1 percent, it was likely due to the nascency of health and wellness trends which became more prevalent starting in 2010.4
Regardless of the economic cycle, people need to eat. Our analysis reveals that, people are not going to give up their fruits and vegetables during a downturn economy. Indeed, produce is more resilient than both the food and nonfood categories examined. In addition, the segment has kept pace with the health care sector.
The solid growth of produce is likely supported by two factors. First, by evolving efficiencies in supply chain processes that have led to produce being offered at a lower cost to the consumer.5 Second, by consumers’ growing interest in health and wellness.
Fresh foods are the primary driver of growth in retail stores, accounting for 49 percent of all dollar sales growth in the fast-moving consumer goods sector.6 Strong upside potential exists for fresh produce due to not only consumer demand, but also increased distribution in convenience stores,7 quick serve restaurants,8 retail pharmacies,9 and several hospital systems experimenting with “food pharmacies” that link the importance of diet with health. With projected growth of 2.4 percent through 2023,10 produce may represent an attractive proposition for everyone in the fresh food ecosystem as a hedge during periods of economic uncertainty.
Profit Margins for the Food and Beverage Sector
Food and beverage companies represent an attractive investment option. Many of these companies belong to the consumer staples segment, which tends to be less cyclical and subject to smaller market fluctuations. One metric that investors use to evaluate companies and industries is the profit margin. It provides information about the company's ability to manage its cost and effectively price its products.
KEY TAKEAWAYS
Many food and beverage companies belong to the consumer staples segment, which tends to be less cyclical and subject to smaller market fluctuations.
There are several ways to calculate the profit margin, such as gross margin, EBITDA margin, and net margin.
The core components of the food and beverage sector are food processing, nonalcoholic beverages, and alcoholic beverages.
Within the food and beverage sector, higher profit margins certainly make beverage companies look like better investments than food processing firms.
What Is Profit Margin?
The profit margin is often calculated as net income divided by the company's total revenues. If the company does not generate any revenues or the earnings are negative, the profit margin is either meaningless or negative. Investors often calculate companies' profit margins and then compare them across sector and industry averages to determine where a particular company stands in the overall distribution of margins. There are several different ways of calculating the profit margin, such as gross margin, EBITDA margin, and net margin.
Which Industries Are Part of the Food and Beverage Sector?
What exactly is included in the food and beverage sector can be somewhat difficult to define because there is substantial overlap between businesses. For example, beverage makers like Pepsi (PEP) also own other companies. Some of these firms are not in the beverage business. However, the core components of the food and beverage sector are food processing, nonalcoholic beverages, and alcoholic beverages.
To a lesser extent, grocery stores and restaurants can also be considered part of the food and beverage sector. Grocery stores are often classified as retail instead, while restaurants are frequently considered services. There is also agriculture itself, without which the food and beverage industry would not be possible. However, agriculture is quite different from most other parts of the economy.
Food Processing Profit Margins
According to CSIMarket, the gross profit margin for the food processing industry was 22.05% in 2019. That was considerably below the overall market average of 49.4%. Furthermore, the EBITDA margin for food processing was 9.56%, which was below the total market figure of 16.59%. Finally, the net profit margin in the food processing industry was just 5.16%. The net margin for the total market was once again higher, coming in at 7.81%. It is safe to say that profit margins in the food processing industry are generally lower than average. These small margins may be a result of intense competition in the industry.
Profit margins within industries can fluctuate substantially from one year to the next. However, the food and beverage sector is somewhat more stable than the rest of the market.
Nonalcoholic Beverage Profit Margins
Profit margins in the nonalcoholic beverage market tend to be much higher. Firms in this industry, such as Coca-Cola (KO), often have large economic moats. The gross profit margin for the nonalcoholic beverage industry was 54.87% in 2019. At the same time, the EBITDA margin was 25.16%, and the net profit margin was a very impressive 15.58%.