They wonder why you buy offshore.

Dry_bean. · February 2012

About a month ago I decided I needed a new watch, did some research then hit the jewellers in SA and NSW, found exactly what I wanted, the best price I could get was A$250, checked with Amazon in the US, $120 given our dollar was around parity a pretty good price, approached a couple of the Aust retailers, told them the story (diplomatically) they would not budge, that's the price take it or leave it.
So about a week ago I ordered it from Amazon, arrived this AM, exactly what I was after, total cost including postage A$134, that's $116 cheaper than I could buy it for here.
And they wonder why we buy overseas. :thumb:

derrilex · February 2012

Yep. Retailers make ridiculous margin. 400 - 1000 % in most cases. Mind you they do have very high rent and outgoings. Still, none of them are very smart. A little bit of profit on a lot of turnover is better than a lot of profit on minimal turnover. Waiting for the one person who is willing to pay a high price to walk through the door is not smart business.

Cuppacoffee · February 2012

"none of them are very smart" is pretty insulting to every retailer and this Site's Sponsors. 400-1000% margin? What on? I'd like to know so that I can get in on the action! Here are a few facts/examples: 1. Unless you are a direct importer of a Rancilio Silvia the margin from wholesale to street price is about $50.00. For that $50.00 profit you get to pay for the labour (not parts) for any repairs that may be required under warranty. 2. Someone I was training yesterday told me they had bought their Silvia locally and it was damaged in transit. It took a bit of effort, but everything was made good. Imagine trying to achieve that with an import. Yes, I know the savings can warrant the risk, but personally, I'd prefer not to have the angst. 3. One of this Site's Sponsors sells green coffee for $12.00 per kg. I wouldn't insult him by suggesting he's making the margins you suggest on either raw or roasted coffee. Roasters who on-sell raw coffee like this don't do it for the profit they can make. There's far more profit to be made if it's roasted and they either sell it because they sell roasting equipment, or more likely, because they want to share their passion. Gotta go - my private helicopter is waiting to take me to my gold reserves. :rofl:

derrilex · February 2012

My dig is aimed squarley at the big guys like HN, GG, coles/myer, woolies, wesfarmers etc.... . And I'm sorry if Ive offended you cuppacoffee but we all know it happens. Maybe not in the specialty industry that is coffee however, coffee making accessories are a different storey.

mycuppa · February 2012

I totally support your view Dennis. There are so many misconceptions about the margins associated in any industry or market. 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. The old chessnut of volume versus value is also a big mistake. Lower margins and higher volumes only lead to increased risk and inevitably result in failure. All the headaches and problems occur when you operate on lean margins and you can't service customers - who inevitably will complain and look for alternatives. Every smart businessman/person knows you need a portfolio of low, medium and high margin products as each offering will be at different stages in their lifecycle. I don't support shopping overseas for products that are available in AU - it's my personal choice and I will not publicly take people to task who choose to purchase this way as it's their choice. I will say, however, providing a quality service costs more money that most people imagine and bypassing the local suppliers will cause a structural change in retailing and the economy overall. People will lose jobs and essential services will decline. Australia is only being propped up for a short time by the resources boom. The topic of retailers being greedy and comparisons to overseas prices really needs to debated by those that have detailed insight into the real, full costs.

Dry_bean. · February 2012

I've seen both sides of the coin, running a business as an importer/wholesaler along with a retail outlet for the same products, while the retails profits were very attractive (icing on the cake so to speak) they were nowhere near 400% let alone 1000%, think about it, purchase price $100 1000% mark up, not profit = retail price $1100, geez I wish >:D Nowadays I'm a humble consumer and I'm responsible for my own finances, when faced with a purchase such as the watch I just bought I do the sums, had I been able to buy it in Oz for around the $170 mark I wouldn't have bothered importing it and I would never bother about importing a espresso machine from o/seas. I'm just about to place an order for a few pairs of Lee jeans with a company in the US, $20 a pair compared to $90 retail here, its a no brainer. ;D

mycuppa · February 2012

And just on the topic of margin, not so much in the vein of offshore versus local and not related to any of the posts above. In a previous life I used to work on very large contracts worth $10 - $20M. Customers who spend this sort of money think it's their deserved right to dictate how much margin you can and should operate on. They felt it was appropriate that you NOT exceed 15% and often requested regular price benchmarking and open-book sessions. In my mind, this was disgusting behavior as the client had no true insight into the challenges of running our business at the time. A few years ago I spent about 3-4 months working on a large deal to supply coffee and related services to a big national company. They wanted to look at my books to validate I was not operating on margins exceeding 15%. My response was swift and final - walk away. Very disappointing considering this was sprung the night before contracts were due to be signed. People dictating what margin businesses should operate on is a very bad look. This is not a personal attack on anyone, its a behavior that's becoming more common and really is a lazy and rude way to request a service offering. No allowances are considered for development of IP, efficiency or effectiveness, risk profile, etc - it's purely an opportunistic attempt to negotiate a transaction.

Dry_bean. · February 2012

This just in http://video.theaustralian.com.au/2193989636/US-firm-wins-NBN-satellite-contract We had a space research and rocket launching facility facility in Woomera SA 40 years ago as well as a research facility at Salisbury just north of Adelaide, which the short sighted Fraser govt of the day chose to let wither and die. Compared to $620 million my $120 watch seems pretty insignificant. ;D

derrilex · February 2012

on 1328682432:

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

shape_shifter · February 2012

I know of a business that has the product made, puts a 60% markup on it to sell to itself, then onsells it with a 60% markup... ...just saying... I know all businesses aren't like this though.

mycuppa · February 2012

on 1328693186:

on 1328682432:

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.

Cuppacoffee · February 2012

No real offense taken derrilex. I just thought your remark had been made without much real consideration or knowledge and was more to do with general perceptions about retailing. Then again, every day is a bit of a revelation to me so I wouldn't be surprised if I've got it all wrong. I think margins and profits are the business of business owners, and yet for some reason our society has developed into one which asks business owners to justify their prices. Really, what right do we have to do that? If you feel you have every right to do that then conversely, the business owner has every right to tell you to stick it up your jumper. In the case of cafes (this is a coffee associated forum after all), according to the ABS the profit margin in 2006 was 4.6% and I read [somewhere] that recent profit margins are now 4% and I'd be surprised if it's vastly different for small to medium-sized Coffee Roasters. There are better returns to be had from other types of business and I'm sure the many small business owners under estimate the time they invest in their venture. Thank goodness people aren't importing their morning cup of coffee!! :laugh: derrilex, I think you'll find that the Roaster's who import their own greens are mainly focussing on the high-end greens and are happy to pay much more than $12 per kg. Some of them do appear to carry a high retail price, but I guess it's all about supply and demand. They take a pretty big risk when they purchase a lot of greens, hoping that when it arrives, it lives up to promises. The world has certainly shrunk dramatically, in terms of our ability to trade with those abroad, both as ongoing importers or as individual, for one off sales. It will be interesting to see if and how this impacts on us as a nation in future years.

Dry_bean. · February 2012

The high cost of doing business in Aust is the very reason that the number of people prepared to shop overseas is sky rocketing. As Mycuppa indicated, everyone wants to go into business, easy, rent a shop front,, buy a few grands worth of gear, sell coffee to customers, put the cash in a wheel barrow and take it to the bank, nothing to it. ::) Problem is we're a nation with a small population and far too many retailers trying to make a quid. What's the answer, I'm not sure but a good start would to be to eliminate penalty rates on week ends and public holidays, they are crippling the hospitality industry and driving prices through the roof. :stir

derrilex · February 2012

Firstly, sorry for replying in a quote box - stuffed that right up. Secondly, agree. If I look directly at the things that stare me in the face everyday, like Coles/woolies, Maccas, HJ's and bakeries selling a slice of cake for 8 bucks its easy to assume that all food retailers make good margin. Re coffee and associated stuff, I guess the market pay what the market will pay. The good will survive. Re the wealthy farmers, there was a time in the not so distant past that the measure of the years success was based on how many range rovers were sold at the ekka when " the bush comes to town. " Different storey now, particularly with milk. Cuppacoffee, if you want margin stay with coffee, dont get into the building industry :rofl: x 2 DB. Casual minimum hours are hurting business owners badly too.

Dry_bean. · February 2012

The UK was once referred to as a nation of shop keepers. ("To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers."

derrilex · February 2012

Just need to make more customers. Get humping everyone

hiphipharar · February 2012

on 1328699027:

("To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers."

mycuppa · February 2012

on 1328703745:

Just need to make more customers. Get humping everyone

That's funny. Here is a medical journal cut & paste. Consuming too much caffeine on a regular basis leads to chronic over-stimulation of the adrenal glands, flooding the body and brain with hormones normally produced in times of stress. These hormones are known to negatively impact libido and sexual performance. Decaf anyone ?

Dry_bean. · February 2012

on 1328741621:

That's funny. Here is a medical journal cut & paste. Consuming too much caffeine on a regular basis leads to chronic over-stimulation of the adrenal glands, flooding the body and brain with hormones normally produced in times of stress. These hormones are known to negatively impact libido and sexual performance. Decaf anyone ?

Crikey! never been a problem for me, I'm glad I never read that journal. :thumb:

derrilex · February 2012

Research done by tea drinkers I suspect

Vinitasse · February 2012

on 1328697525:

In the case of cafes (this is a coffee associated forum after all), according to the ABS the profit margin in 2006 was 4.6% and I read [somewhere] that recent profit margins are now 4% and I'd be surprised if it's vastly different for small to medium-sized Coffee Roasters.

If my profit margin was anywhere near 4% I would have thrown in the towel a while ago. Of course creative accounting can help keep that profit margin low as this of course helps with the annual ATO reckoning.

Having said that, in the case of the micro roaster with minimal overheads, net profits can easily hit 100% or more.

Dry_bean. · February 2012

on 1328760603:

If my profit margin was anywhere near 4% I would have thrown in the towel a while ago. Of course creative accounting can help keep that profit margin low as this of course helps with the annual ATO reckoning. Having said that, in the case of the micro roaster with minimal overheads, net profits can easily hit 100% or more.

Took the words right out of my mouth, I would suggest that if your running any business on profit margin of 4% its time to close the doors and get a job. :stir

Brett H · February 2012

on 1328762278:

Took the words right out of my mouth, I would suggest that if your running any business on profit margin of 4% its time to close the doors and get a job. :stir

I'm a consumer and I want good value! I don't want 'a steal,' a fire-sale a closing-down sale. I doubt that anywhere I spend money is ONLY making 4% and neither do I want them to! Otherwise who will support my retail needs/desires in the down-times. I have an Airwell ducted aircon system and not only did the install company fold during the GFC but so did the manufacturing company. Bastards!!! At the first sign of real maintenance I'm looking at a brand new system as parts are sort of available but really pricey. I bought from a local family company and I'd like to think I'll make the same decision next time... But I won't! I'll buy Daikin or something huge Multinational to give myself a better chance of after sales support. It's not a fool proof plan but I'm pissed. When they were cheaper than everyone else (by a small margin) I though you beaut... local family owned business and a great price. I had actually expected to pay a bit extra and what they should have banked on is that for really great local service most will! If they had rolled out fewer installations at better margins they may still be around. It's Queensland and air-conditioning for heavens sake! Stupid, stupid, stupid!

Cuppacoffee · February 2012

Have a read of this: http://gsroasting.com/archives/241

Kelsey · February 2012

We've discussed this here before in chat with BF and I've posted something similar on CS, but this Christmas I was struck by just how much we've given up in the name of cheap consumer goods. I was hunting for secret santa pressies for two of my sisters-in-law, both of whom like fine things. I was short on time and wanted to go to just one place - so I went to Myer in Maroochydore. It used to be the case that Myer and David Jones carried prestige brand-name goods. You could walk in there and find high-quality crockery or linen and walk out paying less than if you'd gone to a specialist. The power of sales volume at work. This year, things had changed. Their shelves were dominated by their crappy import brand 'Vue', in every damn department. In crockery, it was either Vue or Maxwell Williams - purveyor of bland white china for all of a decade. There were a couple of celebrity endorsement items, but that was it. What had happened to the choice? The prestige? Or indeed the prices, which weren't particularly cheap. Well, here's what's happened - they drove the local small specialty retailers out of business and once they had no more competition, their standards dropped and their prices rose. We've let these big retailers become the only game in town. This is a battle that's being fought in every sector - Brett's story is persuasive. He bought local and is the worse off for it. Not because he made a bad decision, but because everyone else did. Fewer choices means less competition and less innovation. Look at Coles and Woolies with their cut price milk and their fruit and vege price war. You can be sure they're not losing a cent on this deal - they're strong-arming farmers who have no choice but to accept whatever prices are offered, they're importing cheap permeate-laden milk, they're importing their own cheap products from overseas. And when we have no farmers left and they raise the price on us and foist crappy substandard produce on us, what will we do? We won't be able to go to the local grower's market, because they won't exist anymore. This year my resolution was to avoid big-name retailers as much as possible. Avoid Coles and Woolies. Buy local wherever possible. For example, our local Foodworks carries Eumundi Noosa Milk - the expiry dates on their milk is reliably two weeks greater than their brand-name competitors. Why? Their milk doesn't last longer, I'm sure - it's because the brand-name stuff is shipped all over the country and takes two weeks to hit our shelves. When it's only $0.03 per two litres more expensive, I can't understand why any local wouldn't support them. Now I know this has been a long-winded rant, but I'm sick of it. I'm sick of parasitic corporations sucking the life out of every nation on earth, it's gone too far. Mine is a small stand, but I think it's a choice more and more people will be making. Or at least I hope they do.

Dry_bean. · February 2012

on 1328766130:

Have a read of this: http://gsroasting.com/archives/241

Excellent article, well researched and very perceptive, makes fascinating reading and echo's my sentiments completely, however, much more lucidly than I could ever hope to express them. We've seen the same thing happen time and again in other industries, when digital photography was in its infancy the nay sayer's claimed digital could never replace film, now its not only replaced but surpassed it, witness the recent collapse of Kodak, a company who were in denial. Closer to home an industry I was involved in (mineral sample preparation) was labour intensive, each sample required numerous steps, all very precise and demanding, the industry said because of the complexity of the operation it would never be automated, you guessed it, a company in WA developed an automated processing line that not only did the job as well as human operators but surpassed them, don't think for a minute that the retail coffee industry will somehow be exempted from the process of automation, and the machines will do it better and more consistently than any barista could ever hope to. Then of course as the quote below says the market is saturated, I really would hate to be relying on the retail coffee industry to make a living nowadays, sure there are the stand outs who will survive but they are in the minority. :'( "The retail coffee market in Australia and New Zealand is in decline. Currently, the average coffee retailer in Australia survives on a meagre 4% or less profit margin. There is approximately 1 espresso machine per 850 people in Australia & New Zealand. These espresso coffee markets are amongst the most mature in the world, and are now saturated

derrilex · February 2012

x 2 Kelsey. I'd love it if my local stocked the milk that I want but instead they stock exactly the same stuff as coles ( except coles brand) but 20% dearer, like the rest of the products. The fruit and veg are rubbish and you have to look at the expiry date on every single item as a lot of it is old stock. Now this business used to be awesome, run by a very very good retailer that I got to know quite well. He sold it at top $$ and its inexperienced new owners have struggled from day 1. Rotten fresh food, frozen food that has been defrosted and refrozen, out of date stock on the shelves etc.... I havent been into that shop for nearly 2 years now and I still hear people whinging about it. Coles and woolies are 2 mins up the road and as much as I hate the big guys at least I can buy A2 or pure organic milk for a half decent price. Unfortunately, none of the smaller milk producers get a look in on the shelves of Brissy's big 2. The good owner of the local was / is a coffee nut, has a bezzera and we used to order beans from Byron together to cut the cost. I got milk cheap and a few freebies now and then. If he bought the place back I would return in a heartbeat but as it is now the only option for me is to use the big guys or get a cow.

Kelsey · February 2012

Yep - that's right. The big guys have made it virtually untenable to operate as a little guy. The SuperIGA here bought the shop next to Caloundra's only remaining fruit and veg store and proceeded to try and start a price war to get rid of them - but the local prefer the fresher produce from that store over IGA and are willing to pay a minor premium. The local farmers markets are the only other choice - they run on Sundays here and Saturdays in Noosa. There are also farmers markets around Brisbane. They stock locally produced milk and produce. Fruit and veg costs about equivalent to that found in Coles (as my Strawberry farmer friend says "We need to make margin somewhere") but I've found has a much longer shelf-life.

derrilex · February 2012

They keep moving the farmers markets in Bris. They used to be very close to me but now the nearest true framers market one is out at moggill. Not quite a packed lunch away bu hardly handy. Like driving from noosa to eumundi

Dry_bean. · February 2012

Last time I checked no one was buying milk offshore

of course some of the Aust dairies may well be owned by overseas companies. ;D

Kelsey · February 2012

Sorry DB, a segue without the appropriate frame of reference. The guy from the UK they've bought into run Coles apparently has just the one bag of tricks. He did the milk price war thing there too and I've read that the UK dairy industry is all but dead as a result - it's all imported from central Europe apparently. We're not there yet, but the cheap stuff *is* an inferior product, watered down with a milk by-product. If they drive all the independents out of business, then we'll only have the inferior product from dairies that are solely reliant on Coles and Woolies for their incomes. I know from hard experience the imbalance of power that comes from relying on one client for the entirety of your business. If they have absolute control of your income you have no leverage and they can make unreasonable demands with impunity. So it might be watered down milk now, but if they become the only game in town, the watered down stuff will be the premium product and who knows what junk will be shoved onto our shelves.

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