Let’s say a packet of Tim Tams sells for $3.25, as it does in the catalogue picture linked to this article. So when the price promotion is employed they make no money and often a loss. Most suppliers run on gross margins of 40-50%. The effect on the supplier’s margin is a pure economic disaster. The supplier effectively compensates the retailer for any lost margin due to the price special.
#TIM TAMS USA TARGET FULL#
What does that mean? It means that Woolworths still make the same margins they would have made at full price. Here is the reason why they can keep these catalogue specials running week after week, offering 50% savings: They are funded entirely by the supplier who makes the product. Why? Because they get to sell all these great brands at up to 50% discount and have enormous store traffic to drive sales and margins as consumers buy the specials–and then top up the trolley with full-priced and high-margin products such as personal care goods. Retailers like Woolworths and Coles love price promotions.
The amount of product that is purchased on price promotion is about 30% more than regular weekly sales or baseline sales, as they are known in the industry. Here are some interesting statistics about food retailing in Australia: Over 50% of all product is sold with some kind of deal or promotion (save 20%, buy one, get one free, etc). One thing that stood out was the reliance of the entire industry on price promotions. There were many quirks about food marketing: It is a complicated story to take biscuits from the oven, into a packet, onto the shop shelf, and then eventually home onto your household shelf. It was also the end of an era, as the Campbell Soup Company mopped up the last of the share register to take full ownership. It was a great time to be in the biscuit business, with 18% EBIT margins generated from 50% gross margins. I started analysing the prices of products like Tim Tams back in the mid-1990s, when I was the first dedicated pricing manager for Arnotts biscuits-and possibly in the Australian FMCG industry overall.
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