2-min read
Before we get to it take a listen to my interview with Alex Piasecki, COO and co-founder of Seal The Seasons, a retail consumer brand of packaged frozen fruit and vegetables. Seal The Seasons’ mission is to bring locally grown produce to your grocery store 12 months a year. The brand is killing it in retail and just closed on a $2.5m convertible note to fund growth.
You can hear all about their unique business model on The Future of Agriculture, a cool weekly pod hosted by Tim Hammerich who explores the people, companies, and ideas shaping the future of the agriculture industry… and the future of food.
Back to today’s post.
An investor recently told me that a D2C company his firm was considering making an investment in had misrepresented their margins because they did not figure fulfillment costs into their COGS. My response was: is this company pure D2C or multi-channel? The answer matters.
Most food and beverage CPG cos will become multi-channel pretty early on in their growth. No matter where you are in your go-to-market strategy, your pricing and margin models are important to know. I can’t stress enough how critical it is to get the numbers right from the very beginning.
Pricing architecture, or the model by which you set price across different channels and per SKU, will depend on proper unit economics. How to calculate for Whole Foods vs Thrive Market vs Amazon vs D2C is complicated. If you’ve run pricing scenarios based on the competitive set and what you think are good margins, here is an opportunity to check your work. And if you have yet to build this out, now is the time.
To do this topic justice, I am going to refer you to an excellent piece written by an industry expert. I suggest you settle in with a tall iced beverage and read CPG Gross Margins: Ecommerce vs Retail Channels by Manoli Kulutbanis. It’s a 21 min read and worth every minute.
You will not only learn where to account for selling and fulfillment fees in ecommerce, you’ll also learn
· how to compare margin performance for a SKU that is sold in both ecommerce and brick 'n mortar retail channels
· How to calculate comparable unit economics when you have multi-pack selling units
· What are “good” margins per channel
Once accounted for correctly, you’ll learn that,
Dollar Sales Contribution per Unit is the key measurement which will help you make insightful trade-offs on where, when, and how to spend limited resources:
Between different business model channels, and
Within channels where the business model and market characteristics are similar.
If building out models is not your cup of tea and you want help, you can reach out to Manoli directly.
All my best,
Jennifer
I’m curious about dairies supplying Neutral Milk. If you are a supplier, please reach out to me: jennifer@3rdandbroadway.com
The company works directly with dairy farmers to reduce its products’ carbon footprint by implementing various strategies to reduce carbon emissions. What cannot be reduced is offset by purchasing strict carbon credits from U.S. dairy farmers who turn cow emissions into renewable energy.