[quote author=derrilex link=topic=2639.msg24174#msg24174 date=1328693186]
mycuppa wrote:
Unless you have a unique or proprietary product, no market pays for margins > 50% - it's a well known fact that can be translated or applied to any product or service offering. The longer the time those margins are at that level, the quicker competition knocks it down. MC - Food and clothing are two industries that have always operated on margins well above 100 % AM - there are some materials that I cant make 1 % margin on because that puts them higher than retail at bunnings. In which case I give my clients the option to buy the materials themselves. Most things I can get cheaper than retail but the industry mark ups are crap at around 8 % on a good day. The real money is in the labour cuppacoffee - to use your own example with green beans. Greens I thought are typically a wholesale product but whatever. Take a well known specialty roaster that imports their own beans, roasts and sells to the trade and the public through retail/wholesale outlets. They would be paying less than $12 /kg for their greens and are retailing for $ 46 /kg. Sure they have value added by roasting/bagging and retailing the product even taking this into account they are making above 200% margin at a retail level. Just my 2 cents
Food and clothing may need to be sold at those margins, but the realized margins are significantly smaller. Take food. A very good friend of mine and also one of my largest customers owns a very large food business with over 4000 SKU's, vertically integrates operating in the wholesale and retail sectors. This company also has a large overseas presence. They can't recognize more than 20% margin at best, even when running on the smell of an oily rag. Food is a highly segmented business and it is necessary to distinguish the difference between wholesale, retail and other structures that operate within food. Most food producers are doing it very tough - where are the rich farmers and manufacturers. On the retail side, yes the big 2 supermarkets do exploit that and markup accordingly, but as a shareholder in one of those supermarket companies I am yet to read in the annual reports of such high margins from their business, else their shares would be the #1 pick in the ASX top 50. On clothing, yet another friend is an executive in a large national brand that sells at lot of apparel in more than 100 stores. Yes, they need to price at high margin from the products they import reasonably cheaply from overseas, but the amount of stuff that does not sell and needs to be disposed of at cost or below is astonishing - as is the money that flows out the door on getting the products sold (all OPEX). Again, the realized gains are more than often losses despite looking at a single transaction margin. In relation to coffee green versus brown differential - the reason why the number of roasters in Australia has doubled every 3 years for the last 7 years is because of the high number people entering the market have no idea of the full costs involved in running a coffee business........many start with a passion, but take the next step because all they can see is a distorted perception of false margin that blinds them.
