All you knead i dough -A profitability analysis of the bakery of a retail store

Abstract

Background and research problem: Over the years, companies have developed advanced systems made to measure and control the profitability of their sales. One industry that has put a lot of confidence in highly developed control systems is the retail industry. These systems provide important information about sales and margins for every product in the assortment range of the company. What the systems do not always take into account is that different products require different amounts of indirect resources to be sold. The owner of the Exclusive Store Sweden knows that the bakery sector of his store has shown an excellent profitability for a long time, according to the gross margin of his accounting system. In spite of the excellent margin, he worries about the trustworthiness of the figures. The owner thinks that he has put too much faith in the margins produced in his management system and he wants to know what his margin would look like if he was to include all of the costs related to the products of the bakery. Purpose: The purpose of the thesis is to do a profitability analysis of the bakery section of the Retail Store, Exclusive Sweden. Delimitations: This thesis is a case study of the store Exclusive Sweden, which means that the thesis is restricted to one certain store. The thesis will be leaving out factors such as customer satisfaction and customer value, the focus is on constructing a model in order to analyse the costs of the bakery sector of Exclusive Sweden. Method: This thesis is based on empirical data gathered from a case study of a retail store. The empirical data is analysed with an activity-based method of costing inspired by theoretical findings. The result of the analysis is compared to the result of a Gross margin based method of costing. Results and conclusions: The thesis shows that information from a gross margin based method of calculation can be misleading in a sector of a retail store that requires a relatively high amount of indirect resources. Information of the profitability of different products can be misleading when different products consume different amount of indirect resources. Further studies: One way to investigate further is to analyse the profitability in other sectors of a retail store that consumes a relatively large amount of resources; for example the fruit sector or deli counters. To further investigate the usefulness of the Gross margin based method, similar studies should also be made of other retail stores. The store of the study uses a paste bakery process to produce their bread. Different retail stores use different kinds of baking processes and it would be interesting to evaluate the methods of calculations in other types of bakeries.