Successful Service Department
Management
Course 1: Understanding The Concept of Profit
A Management Series for Supermarket Deli, Bakery and Cheese Department Managers
Course 1: Understanding the Concept of Profit
Successful Service Department Management
A management Series for Supermarket Deli,
Bakery, and Cheese Department Managers
PO Box 5528
Madison, WI 53705-0528
www.iddba.org
[email protected]
608.310.5000
First Edition
© 2011, International Dairy•Deli•Bakery Association™
No part of this publication may be altered without the express written permission of the International Dairy•Deli•Bakery Association.
The information presented in this book has been compiled from sources and documents believed to be reliable. However, the accuracy
of the information is not guaranteed, nor is any responsibility assumed or implied by the International Dairy•Deli•Bakery Association.
Successful Service Department Management Series
About This Series
The Successful Service Department Management series
has been designed specifically for deli, bakery, and cheese
department managers. Its purpose is to provide you
with the information you need to manage your department successfully.
What You’ll Learn
Learn::
• How to determine profit, margin, and gross
margin for your department’s products and
for your department.
• How to use merchandising techniques to
increase sales in your department.
Whether you are a newcomer to management or an experienced veteran, this educational series will help you gain
knowledge of the workings of your department.
• To explain where shrink comes from and
how to reduce it in your department.
This series is divided into seven courses:
• How to write an effective order for your
department.
• Course 1: Understanding the Concept of Profit
• To read a department profit & loss statement knowledgeably.
• Course 2: Sales and Merchandising
• Course 3: Increasing Gross Margins
• To write a department schedule that maximizes customer service and profitability.
• Course 4: Controlling Inventories
• How to build employee motivation through
training and communication.
• Course 5: Managing Direct Expenses
• Course 6: Developing a Profit Center Team
Successful Service Department Management includes six
courses, a Final Quiz, a Final Quiz Answer Key, and an
Associate Tracking Tool.
As you work through this series, you’ll find:
Exercises
Answer Keys
Skills Enrichment Activities
PDF
Links to FREE Job Guides
at IDDBA’s Web site
How To Get The Best Results
This Successful Service Department Management training series has been designed for you to take all six of the courses
from start to finish or to choose course subjects based on your needs. To get the full benefit of the series we recommend that
you take one course per week in the order we’ve provided and complete the Skills Enrichment Activities (SEA). However,
you can customize this based on your available training time, what works best for you, and the needs of your business.
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
Skills Enrichment Activities
The Skills Enrichment Activities are at the end of each course. They will help you further your professional development
by giving you a chance to apply the knowledge and skills you’ve learned in each course. Using information unique to
your department, the SEA process will give you insight that could impact department profitability and prompt you to
make new management decisions. It will also help you examine new ways to motivate and inspire your team. You may
choose to do one, several, or all the enrichment activities.
IDDBA Job Guides for Department Associates
Some of the concepts and skills you learn will be helpful for your department staff to know. After all, an inspired, motivated team is one of the best investments you can make in your pursuit to greater profitability and customer engagement.
These free, downloadable IDDBA Job Guides cover topics like Understanding Profit, Reducing Shrink, the G.R.E.A.T.
salesmanship model, etc. Use them during on-the-job training and coaching sessions.
Progress Record
Use this Progress Record to keep track of your course and exam completions.
Course Name
Completion Date
Skills Enrichment Activities
Completion Date
Job Guides Used
Course 1: Understanding
the Concept of Profit
A: Category Profit Analysis
Course 2: Sales
and Merchandising
A: Store Display Test
Capturing Impulse Sales with G.R.E.A.T. Success
B: Plan an In-Store Promotion
Sign Management and Effective Communication
✓
Understanding Profit
B: Department Operating Report
A: Generating Profit by Increasing Prices
Course 3: Increasing
Gross Margins
B: Generating Profit by Promoting High-Margin,
Slow-Moving Items
C: Generating Profit by Determining Which
Categories Should be Promoted
A: Analyzing Ordering Methods
Course 4:
Controlling Inventories
B: Ordering for a Difficult Category
Reducing Shrink
C: Analyzing Mark-Downs
D: Analyzing Other Sources of Shrink
A: Tracking and Creating an Hourly Sales History
Course 5: Managing
Direct Expenses
B: Creating a Task List
C: Creating a Daily Assignment Schedule
A: Improving the Interviewing and
Orientation Processes
Course 6: Developing a
Profit Center Team
B: New-Hire Questionnaire
C: On-Going Positive Feedback Challenge
Final Quiz
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© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Sales: The Basis of Profit
One of the most surprising facts about the supermarket
business is how many dollars in sales it takes to generate a
net profit (that is, the money left after all expenses are paid).
What You’ll Learn
Learn::
• How Profit is Generated
• How Turnover Affects Profit
The average supermarket makes only about 1.5% net profit
on each dollar of sales. In other words, after it pays all the
bills a store generally gets to keep less than two cents of
every dollar that comes in.
Where does all the money go? To get a better idea of what
it takes to generate a net profit of 1.5%, let’s look at how
profit equates to sales.
• How to Figure Item Profitability
• How to Figure Gross Profit
• How to Calculate Department Profitability
• To make $1, your store must sell $67 worth
of products.
• To make $10, your store must sell $670 worth
of products.
• To make $100 your store must sell $6,700 worth
of products.
• To make $1,000, your store must sell $67,000 worth
of products.
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
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Supermarket Expenses vs. Net Profit
Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.0%
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0%
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5%
Rent/Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5%
Advertising/Insurance/Depreciation . . . . . . . . 6.5%
Supplies/Maintenance. . . . . . . . . . . . . . . . . . . . . . 2.0%
Store expenses . . . . . . . . . . . . . . . . . . . . . . . 98.5%
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5%
This series is designed to help bakery and deli department
managers do their jobs successfully. One of the most important
aspects of your job is to deliver fresh, safe food in order to
keep your customers coming back. The perishable products
sold in your department are susceptible to product loss, or
shrink. Selling products faster, or increasing turnover, can
help to minimize shrink. To end up with adequate net profit
at the end of a period, deli and bakery managers must be
able to generate enough profit from department sales and
control department expenses effectively. It’s important for
department managers to understand how their departments fit into the total store concept. Some stores may
draw customers away from the competition by offering
high-quality, unique perishables. Other stores may focus
on selling larger quantities of more mainstream products.
Expected margins and contributions to total store sales
will change with the direction your department takes. The
approach your store takes depends upon the demographic
makeup of your store’s customer base and upon the philosophy of your store manager and your corporate office.
This program is designed to help department managers
meet overall goals with maximum profitability.
Managing a perishable department is a delicate balancing
act that requires careful planning and monitoring of every
aspect of the department’s operation. This series teaches
many elements of Fresh Item Management (FIM) (i.e. inventory management, profit margins, controlling expenses,
promotion). Some businesses have computerized FIM to
help them manage sales forecasting and product inventory
to derive a successful sales outcome.
In this course, you’ll be introduced to some general concepts
to help you understand where profit comes from and how
your department’s gross profit is calculated.
In later courses, you’ll learn how to merchandise your products to increase your sales, how to manage your product
mix to increase your profit margins, and how to control
your expenses and your inventories.
How Profit is Generated
Earlier, we looked at the relationship between sales and
profit — how many dollars in sales it takes to generate a
net profit. In this course, we need to look more closely at
how sales produce profits.
4
© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Profit can be defined as the amount of money the sale of
an item generates. More profit is generated by larger sales
volume, a store or department’s average sales for a given
period, and high product turnover, the number of units
a store or department sells in a given period. But how
exactly do these two things make more money for your
department? To answer that question, we must consider
two terms: mark-up and margin.
• Mark-up is the difference between the retail price (or
retail), the price the customer pays, and the cost, the
price your department pays for an item, expressed in
dollars and cents. The formula for figuring the mark-up
of an item is:
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Figuring which items within a category are
most profitable
1. Compare the mark-up
• Brand X costs $1.00 and sells for $1.50.
• Brand Y costs $0.80 and sells for $1.30.
• The dollar mark-up for each item is the same, $0.50.
For example: If an item sells for $2.00 and costs $1.00,
the mark-up is $1.00.
(If you were to compare the margins of these two
products, the margin on Brand X is only 33.3%,
while the margin on Brand Y is 38.5%. Based on
this information Brand Y appears more profitable.
Yet the amount of money made on each sale is the
same.)
$2.00 – 1.00 = $1.00
2. Compare the turnover
Selling price – Cost = Mark-up
• Margin is also the difference between the selling price
and cost, but in this case, expressed as a percentage of
the selling price. The formula for figuring the margin is:
• Brand X sells an average of 30 units a week.
• Brand Y sells an average of 20 units a week.
Mark-up ÷ Selling price = Margin
• Brand X sells an average of 10 units more a week.
For example: using the same item, if the mark-up is
$1.00 and the selling price is $2.00, the margin is 50%.
3. Calculate dollar profit
$1.00 ÷ $2.00 = 50%
Mark-up and margin, then, are simply two alternate ways
of expressing the same idea — the difference between the
selling price and the cost of an item.
• Brand X provides $15 of profit a week (30 units
@ $0.50).
• Brand Y provides $10 of profit a week (20 units
@ $0.50).
Brand X is more profitable than Brand Y.
The two terms are sometimes confused with each other
because they both express the money the department makes
on the sale of a given item.
PDF
Department
Success: Profit
IDDBA.ORG/JOBGUIDES. ASPX
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
How Turnover Affects Profit
When considering how profitable an item is for the department, many people look first at the margin. After all, common sense tells us that an item with a 40% margin should
be more profitable than an item with a 33% margin.
In truth, however, this is not always the case. To determine
how profitable an item actually is, we must also consider
the effect of turnover on profit.
As the example on the last page shows, turnover is an
important factor to consider when comparing the profitability of items within the same category.
For instance, if you are trying to determine which salads
actually make the most money for the deli department,
you can find out by figuring each salad’s dollar mark-up
and rate of turnover.
Assuming the expenses required to make and display items
are the same, items with a high turnover can have a lower
margin and still generate more profit dollars than similar
items with slower turnover and higher margins.
▶
6
© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Exercise 1: Figuring Item Profitability
Directions: Below are six products. Using the figures provided for the cost, retail price, and average weekly
turnover of the products, figure how much each item generates in sales and profit dollars per week.
Item
Margin
Retail Price
Cost
Avg. Wkly Turnover
Weekly Sales
Profit Dollars
1.
Potato salad
45.1%
3.99/lb.
2.19/lb.
40 lbs.
________
________
2.
Chicken salad
56.6%
6.89/lb.
2.99/lb.
38 lbs.
________
________
3.
Macaroni salad
54.4%
3.49/lb.
1.59/lb.
25 lbs.
________
________
4.
Pesto Pasta salad
64.0%
6.89/lb.
2.48/lb.
28 lbs.
________
________
5.
Jello salad
58.3%
3.09/lb.
1.29/lb.
20 lbs.
________
________
6.
Ambrosia salad
61.9%
6.79/lb.
2.59/lb.
26 lbs.
________
________
Answer Key
page 14
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
What Gross Profit Means
E
Now that you know what the terms mark-up and margin mean and you
have an understanding of how profit is generated for individual items, the
next step is learning about gross profit and gross margin.
Gross profit is the total amount of profit you make on any item or group
of items you sell, expressed in dollars and cents. The formula for figuring
gross profit is:
Dollar sales − Cost = Gross profit
Gross profit can be figured for one item, one product category, or the
entire department.
For example: If the weekly sales of packaged scones are $155 and the cost of
the packaged scones you sold is $93, the gross profit generated from packaged scones sales is $62 for the week ($155 − $93 = $62).
Gross margin is the total amount of profit you make on any item or group
of items you sell, expressed as a percentage of sales. The formula for figuring the gross margin is:
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calculating gross profit for a
product category:
If the total weekly sales of all sliced
meats in the deli department are
$650 and the total cost of those
meats is $380, the gross profit
generated by the sliced meats
section for the week is $270.
($650 – $380 = $270)
$270 gross profit ÷ $650 sales =
0.415 or 41.5%
The gross margin for the sliced
meat section is 41.5%.
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calculating gross profit for the
bakery department:
Gross profit ÷ Dollar sales = Gross margin
For example: Using the same numbers from above, we can calculate the
gross margin for packaged scones for the week.
$62 gross profit ÷ $155 sales = 0.40 or 40%
The gross margin for packaged scones is 40%.
If the total weekly sales in the
bakery department are $8,000 and
the total cost of all the products
sold during the week is $5,500,
the gross profit generated for the
bakery is $2,500.
($8,000 – $5,500 = $2,500)
These two formulas are basic tools for figuring how much profit you have
generated from your sales. To better understand how these formulas work,
look at the two examples to the right.
$2,500 gross profit ÷ $8,000
sales = 0.313 or 31.3%
Gross margin is also referred to as gross profit percentage or contribution
to profit in some companies.
The gross margin for the
department that week is 31.3%.
Understanding how gross profit and gross margins are figured is crucial to
managing your department successfully.
• Calculating the gross profit tells you exactly how much money you made
from your sales.
Skills Enrichment
Activity A: Category
Profit Analysis
• Calculating the gross margin gives you a shorthand way of analyzing your
gross profit each period and comparing one period to the next.
These two numbers are the basic yardsticks for measuring department profitability.
8
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© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Exercise 2: Figuring Gross Profit
Directions: Calculate the gross profit and the gross margin your bakery department generated from your
dessert cake sales.
Item
Margin
Retail price
Cost
Avg. wkly turnover
Weekly sales
1.
Chocolate Fudge
56.6%
$6.89
$2.99
38
$261.82
$149.19
2.
Carrot
58.9%
$7.69
$3.16
20
$153.80
$90.60
3.
Red Velvet
58.8%
$7.89
$3.25
16
$126.24
$74.24
4.
German Choc.
64.2%
$8.79
$3.15
28
$246.12
$157.92
5.
White
64.9%
$6.19
$2.17
25
$154.75
$100.50
6.
Shadow
65.0%
$7.29
$2.55
26
$189.54
$123.24
Total:
________
Gross profit dollars generated by dessert cake sales:
________
Total weekly sales for the dessert cake category:
________
Gross margin for the dessert cake category:
________
Profit dollars
________
page 15
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
How Department Profitability is Calculated
Now that you know how gross profit is calculated, let’s see how these numbers
are used in figuring the overall profitability of the department.
Most companies generate a recap of sales, profit, and operating expenses for a
department on a weekly, monthly, or quarterly basis. This recap is usually called
an operating report or a profit and loss statement — P & L for short.
The operating report is a valuable document, much like the department’s report
card. The report usually shows:
• Department sales
• Department gross profit
• Department labor cost
• Department expenses
• Net profit
10
© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Following is a sample operating report of a department. It shows:
Line 1
Sales — Total department sales for the quarter. Percent of sales the department contributed to total store sales.
Line 2
Cost of goods sold — The total cost of the merchandise sold during the quarter in dollars and as a percent
of sales.
Line 3
Total gross profit — Total dollars generated from sales during the quarter. Percent of profit generated from sales.
Line 4
Direct controllable expenses — The total amount spent on wages and supplies.
Line 5
Direct non-controllable expenses — The total amount spent on freight, trucking, etc.
Line 6
Contribution to overhead — Profit before indirect store expenses are deducted.
Line 7
Allocable expenses — Indirect expenses like payroll taxes, group insurance.
Line 8
Total operating expenses — The total amount of all expenses charged to the department.
Line 9
Net operating profit — The total amount of profit the department made after all expenses are deducted.
Department Operating Report 1st Quarter
CURRENT PERIOD
12/29/_ TO 3/29/_
13 WEEKS
WKLY AVG
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7
Line 8
Line 9
SALES
COST OF GOODS SOLD
TOTAL GROSS PROFIT
DIRECT CONTROLLABLE
WAGE
VACATION PAY
HOLIDAY PAY
OPERATING SUP
TOTAL
DIRECT NON-CONTROLLABLE
FREIGHT INTOTAL
CONTRIBUTION TO OVERHEAD
ALLOCABLE EXPENSES
PAYROLL TAXES
GROUP INSURANCE
BAL OF OPERATING
TOTAL
TOTAL OP EXPENSE
OPERATING PROFIT
NET OPERATING PFT
© 2011 International Dairy•Deli•Bakery Association™
AMT $
$13,086
$7,378
$5,708
%
3.91%
56.38%
43.62%
$3,089
$110
$138
$209
$3,546
23.61%
0.84%
1.05%
1.60%
27.10%
$11
$11
$2,151
0.08%
0.08%
16.44%
$392
$0
$1,269
$1,661
$5,218
$490
$490
3.00%
0.00%
9.70%
12.70%
39.88%
3.74%
3.74%
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Successful Service Department Management
As this example shows, a department may not generate much of a net profit if
the sales and gross profit margins are not high enough.
To end up with an adequate net profit at the end of the period, the department
manager must be able to:
• Generate enough profit from department sales, and
• Control department expenses effectively.
It’s a delicate balancing act that requires careful planning and monitoring of
every aspect of the department’s operation.
The first step in creating a profitable department is building sales volume. In
the next course, you’ll learn some important techniques for merchandising to
help you increase product turnover and add more sales.
Skills Enrichment
Activity B: Department
Operating Report
▶
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© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Review of Course 1
Directions: From the following list, select the correct term for each definition.
Cost
Mark-up
Sales volume
Gross margin
Net profit
Turnover
Gross profit
Profit
Margin
Retail price
Definition:
Term
1. The money left after all expenses are paid
________
2. A store or department’s average weekly sales
________
3. The number of units of a product that are sold
________
4. Selling price minus cost
________
5. Mark-up divided by the selling price
________
6. The money generated by the sale of an item
________
7. The amount of money the department pays for an item
________
8. The amount of money the customer pays for an item
________
9. Total sales minus total cost
________
10. Gross profit divided by total sales
________
page 16
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
Exercise 1: Figuring Item Profitability
Answer Key
Item
Margin
Retail Price
Cost
Avg. Wkly Turnover
Weekly Sales
Profit Dollars
1.
Potato salad
45.1%
3.99/lb.
2.19/lb.
40 lbs.
$159.60
$72.00
2.
Chicken salad
56.6%
6.89/lb.
2.99/lb.
38 lbs.
$261.82
$148.20
3.
Macaroni salad
54.4%
3.49/lb.
1.59/lb.
25 lbs.
$87.25
$47.50
4.
Pesto Pasta salad
64.0%
6.89/lb.
2.48/lb.
28 lbs.
$192.92
$123.48
5.
Jello salad
58.3%
3.09/lb.
1.29/lb.
20 lbs.
$61.80
$36.00
6.
Ambrosia salad
61.9%
6.79/lb.
2.59/lb.
26 lbs.
$176.54
$109.20
To figure sales, multiply price by turnover. Potato salad average weekly sales then are:
Retail Price × Avg. Weekly Turnover = Average Weekly Sales
$3.99 × 40 = $159.60
To figure profit dollars, first calculate the mark-up and then multiply mark-up by turnover. Chicken salad average weekly profit dollars
then are calculated as follows:
Retail Price − Cost = Mark-up
$6.89 − $2.99 = $3.90
Mark-up × Average Weekly Sales = Profit
$3.90 × 38 = $148.20
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© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Exercise 2: Figuring Gross Profit
Item
Margin
Retail price
Cost
Avg. wkly turnover
Weekly sales
Profit dollars
1.
Chocolate Fudge
56.6%
$6.89
$2.99
38
$261.82
$149.19
2.
Carrot
58.9%
$7.69
$3.16
20
$153.80
$90.60
3.
Red Velvet
58.8%
$7.89
$3.25
16
$126.24
$74.24
4.
German Choc.
64.2%
$8.79
$3.15
28
$246.12
$157.92
5.
White
64.9%
$6.19
$2.17
25
$154.75
$100.50
6.
Shadow
65.0%
$7.29
$2.55
26
$189.54
$123.24
$1,132.27
$695.69
Total:
Gross profit dollars generated by dessert cake sales:
Total weekly sales for the dessert cake category:
Gross margin for the dessert cake category:
$695.69
$1,132.27
61.4%
To find gross profit dollars generated by the dessert cake category, add the profit dollars of each item for a total of $695.69. To find total
weekly sales for the dessert cake category, add the sales of each item for a total of $1,132.27. Calculate gross margin as follows:
Gross profit ÷ Dollar sales = Gross margin
$695.69 ÷ $1,132.27 = 0.614 or 61.4%
© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
Review of Course 1
Definition:
Term
1. The money left after all expenses are paid
Net profit
2. A store or department’s average weekly sales
Sales volume
3. The number of units of a product that are sold
Turnover
4. Selling price minus cost
Mark-up
5. Mark-up divided by the selling price
Margin
6. The money generated by the sale of an item
Profit
7. The amount of money the department pays for an item to be sold
Cost
8. The amount of money the customer pays for an item
Retail price
9. Total sales minus total cost
Gross profit
10. Gross profit divided by total sales
Gross margin
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© 2011 International Dairy•Deli•Bakery Association™
Course 1: Understanding the Concept of Profit
Skills Enrichment Activity A: Category Profit Analysis
Directions: Determine the mark-up, the sales dollars, and the profit dollars generated by each item in a category. Then
calculate the total dollar profit and gross margin (percent of profit) for that category for the week. Save this information
as you’ll use the data for the Course 3 worksheet, Increasing Gross Margins.
Category:
___________________
Item
Cost
Retail Price
Mark-Up
Number Sold
Per Week
Weekly Sales
Dollars
Profit Dollars
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
____________________________
__________ __________ __________ __________ __________ __________
Total Dollar Profit for this category:
__________
Gross Magin:
__________
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© 2011 International Dairy•Deli•Bakery Association™
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Successful Service Department Management
Skills Enrichment Activity B: Department Operating Report
Directions: Using your Deli, Bakery, or Cheese department’s operating report, determine the gross profit the department made during the period, the contribution to overhead and the net profit the department made after all expenses
were deducted.
Amount of GROSS PROFIT your department made
______________________________________
Department contribution to overhead
______________________________________
Amount of NET PROFIT your department made
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