The grocery industry has a list of terms and specific words that are used to describe processes and items. It’s always helpful to know what these terms mean so they can be used in the proper way.
If you have new employees working for you or you’d like to keep yourself up-to-date with any current terms, we’ve listed the most popular retail grocery terms used for your convenience.
Please feel free to use this for employee training purposes.
TPR: Temporary Price Reduction
Reduction in retail price from regular price.
EDLP: Everyday Low Price
Special pricing, usually long term for competitive reasons, Wal-Mart, Dollar General, etc.
KVI: Known (Key) Value Item
Products that are well known and price sensitive to customers. Within AWG, there are 250-300 items per AWG division that make a difference to customers in their market areas. 60-80% are universal with the others being specific to their region.
DSD: Direct Store Delivery
(Pop, chips, bread, milk, etc.) In our current world, these are items delivered by other suppliers than AWG: such as Pepsi, Frito-Lay, Sara Lee, Hiland Dairy, etc.
Scans are used to track sales of an item by UPCs that are being sold (scanned) through the registers at the front end. The information is used for payment on sales of each item sold.
Prices that must be adhered to so they may receive CPG or vendor monies on items sold; most scans are required retails.
A specific set of regular prices that may be used by one or many stores for the retail shelf prices/tags. AWG supplies several zones per division and larger retailers maintain their own price zone. This does not include DSD pricing. These items are normally priced at the store level.
POS: Point of Sale
Refers to the cash register or scanning system. There are multiple manufacturers of POS: IBM, NCR, LOC, Catapult, Encore, Fujitsu, ISS45, etc.
Refers to the application of new retails for a variety of reasons: cost changes, TPRs, manager specials, and ad prices are all examples of price maintenance.
The act of electronically moving price changes into the back-office. AWG provides this service for those that are utilizing their zone. Many multi-store operators do maintenance at a headquarters and “host” the other stores in the group.
In most cases, price maintenance is handled through a back-office software that in turn feeds the POS System. Newer systems such as LOC and Catapult have the functionality built in and do not require a back-office software package to efficiently manage the POS.
Refers to the product in the store. Each item has a value at retail. These values are added together to make up the inventory at retail. Most independent retailers count inventory and use a factor to reduce the inventory to cost and determine a gross margin. Larger retailers keep a running count of inventory at retail, then when counted they are either long or short in inventory dollars. It is more difficult to keep totals of retail at retail thus most independents are gross margin oriented.
Wall of Values, In-Aisle Cut-Outs, End Displays
Display areas in stores that have items with strong price impression and bulk appearance. The retailer typically puts their large quantity buys in these areas to keep them on display and out of the back room of the store.
Items individual stores reduce to increase sales or eliminate excess inventory. These items by definition are not priced by influencers outside of individual stores (home office, ad writers, etc.).
Refers to the gross profit dollars given up by having lower retail for an ad; these markdown dollars are sometimes made up by increased sales if the profit margin is still positive.
Items intentionally sold below cost for competitive reasons or to promote sales growth of the store or department.
An item that is priced differently than zone and is not any kind of special; sometimes as a mistake or used as a competitive weapon. AWG allows exception pricing from the retailer’s price zone on a limited amount of items so margins may be shown on invoices.
Refers to different areas within the store: grocery, deli, dairy, floral, etc. They have their own sales and margins that go into the total store.
A section within a department, such as vegetables in the grocery department.
Further delineation of product. For example, corn is a sub-commodity of vegetables, which includes all sizes and varieties of corn in the grocery department.
Items that are weighed in store either during packaging, such as fresh meat & deli, or at the front end, as with fresh produce that is sold by the pound. Tomatoes and bananas are items weighed at the front and hamburger and pork chops are weighed and have a label placed on the item to scan at the front end.
Products that are scanned at the front end and are priced by the single product by UPC. The items are scanned, and the price is recorded as a portion of the customer’s bill and placed on receipt at the end of the order process.
Customer Service Department
This is normally in the front of the store and handles customer requests and small orders, as well as selling items such as lottery tickets, propane, cigarettes, tobacco, money orders, and many other non-sale type items.
Shrink, in the retail environment, is simply stated as the unaccounted-for loss of inventory. This loss is most commonly identified because of a cyclical inventory (ex. monthly, quarterly, annually) and financial reconciliation. In other words, comparing what the books say they own to the physical count (book/ledger ownership compared to a physical count of merchandise). These losses are typically attributed to one or more categories: 1) administrative errors (non-malicious billing errors, price change errors, short/over receiving, spoilage throwaways, inventory miscounts, etc.), 2) vendor/supplier fraud or, 3) employee/customer theft. The percentage contribution of each of these three main causes depends on many factors ranging from retailer geographical location, customer demographic, general economic health, merchandise offering/availability and general security measures practiced (securing of high-value merchandise, located in high visibility area, etc.) in a given retailer. Effectively researching and accurately determining the root cause of losses is a challenge no matter the sophistication of the retailer, thus there will always be some measure of shrink in any retail establishment. Departments should have shrink goals in place to limit loss.
The act of passing items across the scanner without really recording the sale. Usually occurs when the checker knows the customer and they have pre-arranged a deal. Cameras help, but some people are very sophisticated in their thievery.
Grocers use a gross margin formula, not a simple mark-up; for example, a 20% mark-up on an item with a 1.25 cost is 1.50. Gross margin pricing on the same 1.25 cost item results in 1.56 retail. The formula for gross margin is the cost divided by the inverse of the desired gross margin percent.
Cost of 1.25/.80 inverse margin =1.5625 or $1.56 going in gross
The gross margin is shown on the store’s invoice by item department and the total gross margin for the store before markdowns ads or shrink. A going gross for produce could be 50% but realized gross could be around 38%.
Some stores have overall high prices and use low-priced specials (ads, TPRs, manager specials, bananas, soda, milk prices, etc.) to lure customers in.
The percentage of sales made for a store making a good profit margin is 2-3% net income. The grocery business is sometimes called a penny business because of overall low margins.
Percentage Proof List
A report that lists the costs and retails along with the gross profit percentage of the items that AWG has in their file for the retailer. Many retailers use this report to correct mistakes and reprice items in their stores.
Monies that are given to retail for purchasing or advertising products; usually but not always with no requirement on specific retail.
Percentage of total sales by department. All departments combined make 100% of store sales. For example, distribution could be as follows:
- Grocery 34%
- Meat 14%
- Seafood 2%
- Produce 17%
- Floral 3%
- HBC/GM 5%
- Frozen 6%
- Dairy 12%
- Deli 4%
- Bakery 3% =100%
Department Profit Contribution
Each department is composed of total gross profit. This number is often surprising in that some small departments provide big returns because of higher gross margin and store demographics. Floral and pharmacy are examples in some stores that skew the total. It is important to look at to ensure each department is pulling in the optimum profits. Total gross profits are on average 23- 28%. Using the distributions above, we can determine the contribution.
Grocery .34 distribution x .22 gross margin = 7.48 contribution .34 x .22 = 7.48
As you can see, produce, with half the sales of grocery, brings in nearly as much profit. Good to know when planning.
AWG term for off-invoice allowances. They run for 4 weeks and are sometimes repeated. Vendors, supply funds, and AWG passes through these items make up some of the TPR items you see in the stores, usually with additional funds.
OOS- Out of Stock
Item not on the shelf and/or not on invoice. Stores can have out-of-stock because of demand and under-ordering, or the warehouse can be out, causing the store to not get product, causing the out-of-stock conditions on the shelf.
Items that are unique to a wholesaler or retailer at “their brand.” For example, Best Choice and Always Save are brands only in AWG-supplied stores. AWG also has IGA and Piggly Wiggly label that is only in franchised IGA or Piggly Wiggly stores that they supply. Other wholesalers have the IGA and Piggly Wiggly Brand but only supply to the IGA or Piggly Wiggly stores that they supply.
Items that are in many cases gourmet in nature or slow-moving items. They typically come from another warehouse (in the case of AWG they are primarily supplied by VMC). Third parties such as KEHE and UNFI also supply some of the AWG accounts.
Dollar Items (Sections)
Same as the items you would find in a dollar store within their own area in the grocery store. The $1.00 price point is getting harder to maintain, so many stores are calling the sections Value Centers and moving the prices to 1.10, 4/$5.00, etc.
HBC: Health & Beauty Care
These sections typically have an overall high/low gross margin with many items at or below cost to compete with big-box discounters.
GM: General Merchandise
Kitchen utensils, foil, pans, school supplies, etc. Normally low sales, high gross margin department other than certain times of the year.
Valentine candy for Valentine’s Day, Ice Melt for winter, saltine crackers for fall, baked beans for summer, etc.
Retail grocery stores that add a factor to the retail of each item to cover their costs (labor, rent, utility advertising, etc.). Once the items are totaled at the POS, 10% percent is added on for profit and any missed or extraneous costs. These stores are very popular with retailers that can recycle an older store that needs a change. The change to a cost-plus outlet is much less than totally remodeling and/or expanding a store. AWG members have had great success in the south. Somewhat less in the northern areas, with a few exceptions.