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Why Are Groceries Expensive?

Why are Groceries Getting More Expensive?

"Why are groceries expensive? Well, to put it simply, the grocery industry is rife with markups and excessive fees that get passed down to you, the consumer. Add in the global supply chain issues and labour shortages and it is no surprise that grocery prices are going sky high." - Mitch (Doorway Drop Co-Owner)

Have you noticed your grocery bill increasing over the past year or two? There's no doubt that supply chain issues caused by the global impact of COVID-19 and mass labour shortages have impacted shelf prices. Those impacts aside, do you know the true cost of your groceries? Before we can talk numbers, let's talk about how groceries get to you.

 

The three main players in the traditional grocery supply chain: Food Producers, Distributors, and Retailers.

 

Food producers are the makers of the product. They are your cracker makers, your bakers, your farmers and everyone in between.

 

Distributors are the middle team to branch the gap between food producers and retailers. Distributors purchase products from Food Producers and resell it to retailers for profit. Retailers use distributors as they have large catalogues of products to make ordering products to fill their shelves easier. Why work with 1,000's of food producers directly when you can purchase those products all from one company? This framework means it's often imperative that food producer's get listed with distributors.

 

Retailers are the stores you shop at. They purchase products from a wide array of distributors and sometimes work directly with smaller producers. They resell products for a profit.

Let's Talk About Markups. The Math of Groceries.

Imagine you're the owner of "Victoria Potato Chips" a local producer of the best potato chips (yum)! You've worked hard to develop a line of products and you have your manufacturing down to an art. You've been selling at farmer's markets but are now ready to get on grocery store shelves. You luck out and some independent stores will carry your product and buy from you direct - hooray! You're excited and now looking to expand and get into even more stores. That's when you realize that the big stores will only order your product from a distributor. Makes sense. Now the first of many hard decisions start.

 

What Distributor do you go with? Are they accepting new producers? What are their rates? What stores do they supply to? The list goes on and on. Based on some of these answers you might even have to list with multiple distributors. Ah, that's a lot.

 

Some of the fees you may face when selecting a Distributor:

  • Listing fees. The fee just to be carried by a distributor. Usually charged per flavour/SKU. 
  • Minimum ad spends. The Distributor is part of your sales team. They may want you to promote your product in catalogues or other advertising opportunities to support their sales efforts.
  • Sales materials. You need to train your Distributor team, provide samples regularly, marketing materials and more
  • And countless other dings
A display of salted chips

You've crunched the numbers. Your chips cost $1.00 to make and you've determined to be in line with other brands and be profitable, you need to sell your chips at $1.50 to the Distributor. 

 

You've figured out the logistics and have completed the onboarding process with the Distributor and have agreed to their 35% mark up. You are now on your way. Your Distributor places an order for your line of chips and stores in their warehouse while their sales team hit the streets to talk to Retailers about carrying your products.

 

Your chips have now been marked up by the Distributor 35%. They are now for sale to Retailers for $2.03

 

Success! Your Distributor have come through. 'Victoria Grocers' wants to carry all 5 of your flavours. Great job! However, before they carry your product you need to pay a listing fee to the Retailer to get your product into their system. Oh, and you need to agree to run regular promotions throughout the year which will eat into your profits. Oh, and they are going to set the shelf price, on average between 30-40% on top of the Distributor price, to what they want and you won't get any extra money off of it. Oh, and by the way, if you don't sell enough Victoria Grocers is going to drop you from their shelves and they probably won't carry you again. No pressure though.

 

The Retailer has decided to list your products for $2.74 (35% markup from the Distributor price). This $2.74 is what the end customer pays.

 

Between the Distributor and Retailer fees, you could be looking at $10,000+ to get on Victoria Grocer's shelves. You might even have to pay for sales data from your retailer to know how you are selling so you can make informed decisions. Considering you are only making $0.50 per bag of chips and you have to pay for your business expenses too (office space, employees, production costs, etc.)... you have a lot of chips to sell to make up that investment.

A display of chips

You're on Shelves, Now What?!

The pressure is now on your shoulders to meet the Retailer's expectations or risk being de-listed and losing this investment or worse, potentially being blocked from listing with Victoria Grocers in the future. Meanwhile, you have additional stores calling to carry your products (hooray!), but they have their own listing fees, minimum ad spends and requirements you need to meet. 

 

Are you starting to see why the cost of groceries are increasing?

How is Doorway Drop Different?

Doorway Drop is on a mission to create a truly local marketplace that is geared to work for small and medium sized producers of all types. A mission that will help us on our path to make food more accessible for all. Afterall, we believe that food is a right, not a privilege.

 

By eliminating a storefront, building strategic partnerships and working directly with vendors as opposed to distributors, our shelf prices are, on average, 10-15% cheaper than your local grocery

store, Food Producers make, on average, an additional 5-10% AND we bring it right to your door.

 

Oh, and we never charge our vendors any listing fees, minimum ad spends or the like... because we just don't agree with that.

 

It's a Win-Win-Win

Compare and Save

Seeing is believing. We've crunched the numbers on a handful of products to show you how much you could save.

 

Check out some price comparisons of everyday prices between Doorway Drop and two, local, major grocery retailers below.

 

Product Doorway Store A Store B Savings

Broccoli (1lb)

Red Pepper (ea)

Avocado (ea)

Butter Sticks (1lb)

White Mushrooms (1lb)

Kettle Chips (ea)

Heritage O's (ea)

 

TOTAL

   $3.19

   $0.79

   $1.99

   $6.19

   $3.99

   $3.29

   $7.99

 

   $27.43

$3.99

$2.09

$2.99

$7.69

$4.65

$3.99

$9.99

 

$35.39

$3.99

$2.74

$2.79

$7.99

$4.99

$3.79

$10.49

 

$36.78

$0.80/lb

$1.30 - $1.95/ea

$0.80 - $1.00/ea

$1.50 - 1.80/lb

$0.66 - $1.00/lb

$0.50 - $0.70/ea

$2.00 - $2.50/ea

 

$7.96 - $9.35

 

Be Part of the Change

Start shopping with Doorway Drop and see how much you could save! Keep an eye open for new products, special offers and more as we work towards our mission of shaking up the traditional grocery industry.

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