MRP vs Landing Cost: Why Your Grocery Margins Are Lying to You

You buy a packet of biscuits for ₹40. MRP is ₹50. That's 20% margin. Simple math.

Except it's not. That ₹40 doesn't include the GST you paid. Or the transport cost. Or the fact that 3 out of every 100 packets expire before you sell them.

Your real margin on that biscuit? Probably 11-13%. Maybe less.

The gap between what you think you're making and what you're actually making is where most grocery stores slowly bleed money.

The Margin Illusion

Most grocery store owners calculate margin like this:

Perceived margin = (MRP - Purchase Price) / MRP × 100

₹50 MRP, ₹40 purchase = 20% margin. Done.

But the actual margin calculation should be:

True margin = (MRP - Total Landed Cost - Wastage Allocation) / MRP × 100

And total landed cost includes things nobody thinks about until tax season.

What "Landing Cost" Actually Means

Landing cost is what it truly costs to get a product onto your shelf, ready to sell. It includes:

1. Base Purchase Price

The number on your invoice. ₹40 per packet.

2. GST (Input Tax)

Yes, you claim credit for it. But:

• Credit comes weeks or months later
• Working capital is locked until then
• Credit might get stuck if supplier has compliance issues

For cash flow purposes, add GST to your cost: ₹40 + ₹2 (5% GST) = ₹42

3. Transport/Delivery Charges

Most distributors offer "free delivery" above certain order values. But:

• Below-threshold orders incur delivery charge
• Urgent/emergency orders often have charges
• Returns cost transport both ways

Average transport allocation for most grocery stores: 0.5-1.5% of purchase value.

₹42 + ₹0.40 = ₹42.40

4. Handling Losses

From warehouse to shelf:

• Damaged packaging
• Units that fall and dent
• Pilferage (yes, it happens)

Industry average for grocery: 0.3-0.8% of stock value.

₹42.40 + ₹0.30 = ₹42.70

5. The Expiry Allocation

This is the big one everyone ignores.

If 3% of your biscuits expire before sale, that cost gets distributed across the 97% you do sell.

For every 100 packets purchased at ₹42.70:

• 97 sell successfully
• 3 expire (₹128.10 loss)
• Cost per sold unit: (₹4,270 + ₹128.10) / 97 = ₹45.34

That ₹40 biscuit actually costs you ₹45.34 by the time someone buys it.

Your margin isn't 20%. It's 9.3%.

The Category-by-Category Reality

Different categories have wildly different true margins:

Notice the pattern? High-perceived-margin categories often have the worst true margins because of wastage.

That bread with "20% margin" is actually giving you 5% after you throw away the unsold loaves.

Why Your P&L Doesn't Show This

Standard accounting treats expiry as a separate expense line. Which is technically correct. But it hides the connection between what you're buying and what you're actually making.

Your P&L says:

• Gross margin: 18%
• Less: Expiry losses (2.5% of COGS)
• Less: Other expenses

Your brain reads: "18% margin, then some expiry."

Reality: "15.5% margin that you're calling 18%."

This matters because you make stocking decisions based on perceived margin. "Biscuits give me 20%, I should stock more biscuits." Meanwhile, your personal care section with "lower margin" is actually more profitable.

The Scheme Trap

"Buy 10, get 1 free!"

"15% extra margin this month!"

"Flat 5% discount on bulk order!"

Schemes sound great. Sometimes they are. Often they're not.

The Math Behind Schemes

Scenario: Buy 10 Get 1 Free on a ₹100 MRP product

Normal purchase: ₹80/unit, sell at ₹100, margin = 20%

With scheme: 11 units for ₹800

• Cost per unit: ₹72.72
• If you sell all 11: margin = 27.3%

Sounds better. But:

• Can you sell 11 before expiry?
• What's your normal sales velocity?
• If you normally sell 8/month, those extra 3 might expire

Adjusted calculation:

• Buy 11 for ₹800
• Sell 8 at ₹100 = ₹800
• 3 expire = ₹0 revenue
• True margin on sold units: 0%

The scheme didn't give you extra margin. It gave you dead stock.

When Schemes Work

Schemes make sense when:

• Sales velocity supports extra stock
• Expiry window exceeds expected sales time by 50%+
• You have promotional capacity to push the product
• The math still works even with 20% higher expiry than normal

When Schemes Destroy Margin

Schemes hurt when:

• You're buying based on deal, not demand
• Product has less than 60% shelf life remaining
• You're already overstocked in that category
• Storage costs eat into the savings

Calculating Your Real Margins

Time for some honest math. Pick your top 10 products by volume and calculate:

Step 1: Base Costs

• Invoice price
• + GST paid (even if you'll claim credit)
• + Transport allocation (total monthly transport ÷ units bought)
• = Pre-expiry cost

Step 2: Expiry Adjustment

• Look at last 6 months expiry in that category
• Calculate expiry rate: (expired value ÷ purchased value)
• Adjust cost: Pre-expiry cost ÷ (1 - expiry rate)
• = True landed cost

Step 3: True Margin

• (MRP - True landed cost) ÷ MRP × 100
• = What you're actually making

Do this exercise. I guarantee you'll be surprised.

A supermarket owner in Salem did this analysis and found:

• His "best margin" category (fresh snacks, 35% perceived) was actually worst (8% true)
• His "low margin" category (household cleaners, 12% perceived) was actually best (11.5% true)

He had been aggressively promoting fresh snacks while ignoring household cleaners. Exactly backwards.

The FEFO Impact on True Margins

First Expiry, First Out isn't just about avoiding expiry. It's about maximizing true margins.

Consider two scenarios:

Scenario A: LIFO (Last In, First Out) - Typical Behavior

• January: Buy 100 units, 6-month expiry
• February: Buy 100 units, 7-month expiry
• You sell the newer stock first (it's in front)
• Result: January stock expires in June, February stock sold

Scenario B: FEFO

• Same purchases
• You sell January stock first
• Result: Both batches sold before expiry

Same purchases, same sales volume, dramatically different expiry rates.

Most grocery stores default to LIFO without realizing it. New stock goes in front. Older stock gets pushed back. Older stock expires.

Switching to FEFO can cut expiry rates by 40-60% without any change in purchasing or sales volume.

Pricing Strategy Based on True Margins

Once you know real margins, pricing decisions become clearer:

Products to Promote (High True Margin)

• Long shelf life items
• Low wastage categories
• Products where you can turn inventory fast

Products to Rationalize (Low True Margin)

• High wastage categories (unless traffic drivers)
• Short shelf life with slow velocity
• Scheme-dependent products with inconsistent demand

Products to Reconsider Stocking

• True margin below 5% (after all costs)
• Expiry rate above category average
• No traffic-driving value

One supermarket in Madurai eliminated 12% of their SKUs after true margin analysis. Total revenue dropped 3%. Profit increased 11%.

Sometimes selling less means earning more.

The Expiry Recovery Factor

Not all expired stock is pure loss. Consider:

Partial recovery options:

• Return to distributor (typically 50-70% credit)
• Return to manufacturer (varies widely)
• Clearance sale before expiry (70-90% of MRP)
• Staff purchase discount
• Charitable donation (tax benefit)

Include recovery in your calculations:

Expiry cost = Expired value × (1 - recovery rate)

If your distributor gives 60% credit on returns:

• 100 units expire, cost ₹4,000
• Recovery: ₹2,400
• Net expiry cost: ₹1,600
• Expiry rate for margin calculation: 1.6%, not 4%

This doesn't make expiry okay. It makes your margin calculation accurate.

Building a True Margin Dashboard

What you should track monthly:

By Category

• Purchase value
• Sales value at MRP
• Expiry value
• Recovery value
• Transport allocation
• True margin %

By Vendor

• Same metrics
• Identifies vendors whose products have higher wastage
• Negotiation leverage for better terms

Trend Analysis

• True margin by month
• Expiry rate by month
• Correlation between purchase decisions and outcomes

A simple spreadsheet works. But it requires discipline.

Or invest in inventory management that calculates this automatically. The time saved pays for itself, and you get real-time visibility instead of monthly hindsight.

The Conversation to Have With Your Accountant

Most grocery store accountants track:

• Purchases
• Sales
• Expiry (as separate expense)
• Overall margin

Ask them to add:

• Landed cost per category
• True margin per category
• Expiry rate per category
• Margin erosion analysis

If they look confused, find a better accountant. Or use software that provides this automatically.

Quick Wins to Improve True Margins

Week 1: Visibility

• Calculate true margin for top 20 products
• Identify your actual best and worst performers
• Check last 3 months expiry by category

Week 2: FEFO Implementation

• Mark older stock clearly
• Train staff on rotation
• Check implementation daily for 2 weeks

Week 3: Scheme Audit

• List all active schemes you're participating in
• Calculate if they're actually profitable with your velocity
• Exit schemes that create dead stock

Week 4: Rationalization

• Identify bottom 10% SKUs by true margin
• Evaluate each for traffic value
• Make keep/drop decisions

Expected impact: 2-4% true margin improvement within 60 days.

The Bottom Line

Your margins aren't what you think they are. Every grocery store owner believes they're making 15-20%. Most are actually making 8-12% when all costs and wastage are included.

This isn't pessimism. It's clarity.

When you know your true margins, you make better decisions:

• What to stock
• How much to buy
• Which schemes to accept
• What to promote
• Where to focus energy

The stores that thrive aren't the ones with the best perceived margins. They're the ones who know their real margins and optimize accordingly.

Stop fooling yourself with MRP math. Start tracking what you actually make.

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*ShelfLifePro calculates true margins automatically, including expiry allocation, recovery rates, and FEFO compliance. Because managing a grocery store is hard enough without lying to yourself about profitability.*