How to get your product in to Whole Foods Market – Part 2 Pricing.
This is also a good time to think about your pricing.
I used google docs to create a spreadsheet of all my costs. I made assumptions on production. For example, if I bake two cases of mandel bread per hour (twelve boxes per case) in the rental kitchen, and the kitchen costs twenty five dollars per hour, then I should expect about one dollar per box to pay for the kitchen rental (twenty-four boxes in one hour equals twenty-four dollars). I used the same model for employees. One ten dollar an hour baker costs me about forty cents per box if they are baking two cases per hour (forty cents per box times twenty four equals nine dollars and sixty cents). For every worker I add another forty cents per box. The cost of product liability insurance is averaged across the ten thousand boxes I was required to purchase. I included a percentage for distribution….cardboard boxes…and of of course raw ingredients. Then add in my profit margin to come up with a wholesale cost. With this type of spreadsheet it is easy to figure out how to lower costs to be more efficient. For example, the price of flour goes down if I buy a larger volume. The eggs are cheaper at Costco than buying through the distributor. And maybe there is a way to streamline the baking so we can bake more than two cases per hour.
Whole Foods Market likes to maintain an average margin of around forty two percent, some items are higher (like bakery), and some slightly lower (like grocery). This means that if you sell your great cookies to Whole Foods Market for four dollars a box, Whole Foods will add around forty two percent mark up or more to come up with their retail price. This is important to consider, because before you dive head first in to your great cookie venture, remember that this is a volume business. Say you go to the store and buy some low priced item like say a Lara Bar for about one dollar and fifty-nine cents. The stores mark up is around sixty-seven cents, which means Lara Bar sells to Whole Foods for about ninety three cents per bar or less. Lara Bar factors in the costs for raw materials, manufacturing, advertising and distribution, and their margins are very low. I’m going to take a guess and say twenty cents cents a bar. So the only way Lara Bar can be successful is to be huge. Which they are of course. You will spend a tremendous amount of time developing and getting your product to market, but until you are a regional, or national – it’s alot of output for a little return. But don’t be discouraged, in 2001 Famous Amos cookies generated an estimated 100 M in sales, in 2001! That’s 100 hundred million! Wally ‘Famous’ Amos himself started as an agent in Hollywood, who would bring homemade cookies to his client meetings, as a calling card. But Wally understood the value of brand, and so you should always think of your product as a great brand, that happens to taste good, instead of just a great recipe that everybody loves. There is no value in a great recipe, but huge potential in a great brand.