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
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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.
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
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.
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.