Issue link: https://www.e-digitaleditions.com/i/602622
November/December 2015 39 Changing the Way You Cook since 1990 800.988.8103 360.650.1111 woodstone-corp.com STONE HEARTH & SPECIALTY Commercial Cooking Equipment Discover why OVER 13,000 OVENS, rotisseries, charbroilers, tandoors, and planchas have been SOLD IN 75+ COUNTRIES worldwide. Made in the USA. 916-638-9902 www.englishmfg.com "The Sneeze Guard With Curve Appeal" ™ continued on page 40 for $1,000,000 in total revenue. Seemingly, this is not enough to impact the business in any meaningful way. This is why D items become the "Forgettable Last Five Percent" mentioned in the title. For many firms, a reasonable expectation is to increase prices on D items by 10 percent. At first blush, this may seem like an unrealistically large increase. However, experience throughout distribution suggests it is much more attainable than generally thought. For the typical FEDA member, a 10 percent price hike repre- sents an increase in both sales and gross margin of $100,000. This is because the price increase raises sales even as the cost of goods sold remains constant. All of the price increase becomes a gross margin increase. This is the power of pricing. The additional $100,000 from enhanced D-item pricing increases both total-firm sales and gross margin by the same amount. The result is that sales grow to $20,100,000 and gross margin becomes $4,600,000. The new gross margin percent- age is 22.9 percent, an increase of 0.4 percentage points. In a gross-margin sensitive world, it's a significant improve- ment. The only problem is that few firms feel it is attainable. There is a lingering sentiment that D items are also price sensitive. Finding the Margin Opportunities The challenge in dealing with D items is to find what are commonly referred to as "Blind Items." These are the products for which customers have only a general idea regarding the price and are probably not price-sensitive. Typically, product availability outweighs price as a value-added service to cus- tomers. Exhibit 1 presents a list of the most common attributes of blind items. There are no SKUs that possess all of these charac- teristics. The key is to discern which SKUs have at least three or four of them. At the very top of the exhibit, the most-obvious characteris- tic is that they are slow-selling. This criterion encompasses all of the D items and may well include an important portion of the C items. However, this combination of D and C items must be winnowed down to ensure they are truly blind. The other factors in that analysis are outlined in Exhibit 1. As a practi- cal matter, almost none of the D items, and only a few of the potential blind C items, will fall by the wayside. The reality is that there are a lot of blind items. Two very real issues get in the way of raising prices on blind items, though. The first is actually identifying them. The second is believing that they are truly blind. Finding items with three or four of the characteristics listed in Exhibit 1 can be an extremely tedious undertaking. This is especially true since most distributors carry a large number of SKUs, which neces- sitates a lot of time spent reviewing. The workload can be diminished by initially focusing on two factors—low sales level and low price. SKUs can be screened on these criteria easily and quickly with any IT system. A few SKUs may be missed but the impact should be modest. Then