GNFR Unlock hidden value in your P&L

GNFR: Unlock hidden 

value in your P&L 

case study 

The Priory Group 

The Cost of Caring

Retail P&Ls are under pressure as never before. The 

increasing costs of servicing customer needs in 

store and online, the advent of the Living Wage and 

increasing import costs post the Brexit vote – all 

these factors mean that retailers need to scrutinise 

every aspect of their P&L to release savings. This 

article explores an often-neglected dimension of 

costs: goods not for resale (GNFR) spend. There’s 

never been a more urgent need to review GNFR 

spend to ensure costs are being carefully managed. 

However, GNFR spend is easy to ignore. Despite 

playing a fundamental role in the profitability of 

a company, it keeps a low profile. It can often be 

overlooked in favour of other more attractive areas 

such as new product launches, market share, digital 

strategy or customer data. 

Perhaps this is because GNFR spend does not 

attract much attention. If you are paying too much 

for back-office goods and services, it will probably 

go unnoticed. Nobody ever got fired for spending 

too much on stationery… Or did they? At the end of 

the year, keeping GNFR costs in check could be the 

difference between making a bottom line profit 

or loss. 

WHAT IS GNFR? 

Once the basic product or service sold to 

customers has been provided, GNFR covers the 

cost of all other goods. Therefore GNFR includes 

not only simple consumables, but also equipment 

(including store maintenance and capex) and 

services, including IT, marketing and admin (see 

Exhibit 1). 

Within a retailer P&L, GNFR is circa 9-11% (excluding 

rent) of turnover (some of admin, most of 

marketing, most of IT) and circa 25% of operating 

costs. 

Exhibit 1: Typical Retailer P&L Breakdown 

Grocery 

% 

Fashion 

% 

Big box 

% 

COGS 70 56 61 

Employees 12 18 20 

Rent 6 8 6 

Admin 5 4 5 

Marketing 2 5 3 

IT 2 2 1 

EBITDA 3 7 4 

Total 100 100 100 

Source: Company accounts 

THE PROBLEM WITH GNFR 

GNFR spend can often be overlooked as a way to 

increase profits, while time, energy and resources 

are focussed on higher profile areas of the business 

such as sales and marketing. 

The buying teams responsible for the goods 

and services sold to customers – otherwise 

known as goods for resale (GFRS) – have clear 

responsibilities, good access to senior management 

and KPIs that are often under close scrutiny. GNFR 

is subject to far less scrutiny and focus in many 

businesses, despite the fact that minimising GNFR 

spend can have a fundamental and direct impact on 

bottom line performance. 

Furthermore, the clarity of spend in GNFR may not 

be as good as GFRS. Systems may be older and the 

taxonomy of data entry and record keeping may 

make it difficult to identify how much is being spent 

on similar items especially when they stretch across 

buying areas or categories. 

Let’s assume a company is operating with a net 

profit margin of 10%. Why ignore the opportunity 

to save £100k through the simple renegotiation of a 

GNFR contract, while instead attempting to deliver 

£1m of incremental sales? Both would have the 

same impact on the company’s earnings. 

2 | GNFR: UNLOCK HIDDEN VALUE IN YOUR P&L

WHAT ARE THE CONSEQUENCES OF 

NEGLECTING GNFR? 

GNFR spend is also not as benign as it may seem. 

When neglected, spend levels can quickly lose 

touch with the market and become uncompetitive. 

For clients where GNFR spend has been a low 

priority for several years, it is not uncommon to find 

that prices across major contracts are more than 

30% adrift of the prevailing market rates. In some 

instances, the agreement includes specifications 

which at one point were commonplace but have 

become unusual and expensive to provide. In other 

instances, pricing was agreed several years ago and 

has not been tested against the market ever since 

(see Exhibit 2). 

Exhibit 2: Breakdown of Typical Retailer 

GNFR spend 

Logistics 24% 

Property (Fixtures & Fittings) 16% 

IT & Software 10% 

Consulting Services & Finance 9% 

Marketing 9% 

Utilities 7% 

Unclassified/Other 6% 

Store Operations 5% 

HR 5% 

eCommerce 5% 

Packaging 4% 

Total 100% 

Source: Internal IVO research 

For most businesses the ability to bring new 

suppliers on board is a necessity and therefore, 

even if GNFR spend is largely ignored, a 

rudimentary new supplier set-up process will 

probably exist. However, what can be forgotten is 

the need to actively manage the supplier base to 

prevent proliferation and remove duplication. Over 

months and years, new suppliers are introduced 

and the tail of low value, non-core vendors grows. 

By implementing a series of structured tenders 

and online auctions, an international fast-fashion 

retailer achieved savings of 17% in spend on 

shop-fit, print and packaging. 

A common issue within businesses that do not 

actively manage GNFR spend is a lack of control 

over supplier contracts. Often, stakeholders 

within these companies have little visibility of the 

contracts in place and no easy way of managing the 

terms of these agreements. This situation can lead 

to a range of issues: contracts being agreed on less 

favourable supplier terms, automatically extending 

and rolling on over without review; volume rebates 

lying unclaimed; and other commercial terms being 

overlooked. 

In larger businesses, it is not uncommon to find a 

substantial category of GNFR spend labelled within 

financial statements as ‘misc’ or ‘other’. While it 

would be unrealistic to expect every type of spend 

to be neatly categorised within management 

accounts, these catch-all categories can often 

provide an indication that costs are not being 

closely monitored or managed. As a first step, can 

anyone explain what is actually in there? 

NOT JUST A SPEND ISSUE 

Neglecting GNFR is not just about the spend 

itself being unattended, it is also about the way 

in which resources are deployed and managed by 

a company. A lack of investment in GNFR teams 

can lead to issues in their performance levels and 

consequently the way they are regarded by the 

wider business. This manifests itself in a number of 

possible ways. 

Ensuring GNFR procurement teams are sufficiently 

well-staffed is perhaps one of the most basic issues. 

Not only are procurement professionals within 

GNFR expected to buy across various sectors and 

specialisms in a way their counterparts in GFRS 

are not, they are sometimes also expected to cover 

huge categories involving hundreds or thousands 

of suppliers since GNFR is not seen as key to the 

business. 


The unfortunate consequence of businesses treating GNFR 

as something of a backwater, is that talented buyers often 

choose to move away from GNFR towards other roles with 

a higher profile 

Underinvestment in GNFR teams not only impacts 

the people, but also the way they operate. 

Best-in-class GNFR procurement teams will have 

clearly defined processes for interacting with 

suppliers and technology to support them optimise 

results. These tools provide the ability to work 

consistently, maximise savings and track benefits 

which in turn helps to mitigate risks and provide a 

clear cost-benefit for the team. 

When a major multi-channel retailer assembled 

and trained a new in-house GNFR procurement 

team, they were able to help the business 

deliver cost reduction worth £8m in their first 

12 months, with average savings of 11% across 

the categories covered. 

In cases where a well-resourced GNFR team is in 

place, issues may still arise. Organisational structure 

and reporting lines can be problematic and in some 

cases serve to limit the remit of the GNFR team and 

the level of results achieved. Whether the GNFR 

team report into the CFO, Commercial Director, 

Procurement Director or Property Director, the 

relative influence of these stakeholders within the 

business will impact on the team’s ability to do a 

good job and gain senior support. 

Reporting lines and team structure can also 

compromise the scope and control of the GNFR 

team. Many businesses exclude certain spend 

categories from the remit of the GNFR team, 

often where they are seen to be of a “specialist” 

nature, such as media buying, purchase of shopfit 

equipment or IT service contracts. GNFR spend 

then becomes fragmented, often with reduced 

scrutiny and accountability for efficiency of spend. 

THE SAME BUT DIFFERENT 

Within retail, there appears to be very little 

cross-pollination of GNFR staff with their 

counterparts from other higher profile commercial 

functions, despite the clear crossover between the 

roles of buyer within GNFR and buyer within GFRS. 

More sharing of personnel, skills and processes 

would be advantageous to both sides as the 

typical areas of strength/focus are quite different 

and therefore complementary. For example, while 

GNFR buyers can be experienced in developing 

contractual terms, managing tenders and online 

auctions, their counterparts in GFRS are often more 

comfortable dealing with new supplier integration, 

off-invoice funding discussions and top-to-top 

negotiations (see Exhibit 3). 

Exhibit 3: GNFR buying team strengths 

Typical areas of strength within GNFR 

buying teams vs GFRS buying teams 

GNFR 

Contract Development 

Spend Analysis 

eProcurement 

Managing Tenders 

Policy & Governance 

GFRS 

Supplier Relationship 

Management 

Ad Hoc Negotiations 

Off Invoice Funding 

Multi-Party Negotiations 

Top-to-Top Supplier 

Discussions 

Source: Ivo GNFR/GFRS Buying - Ways of Working Study 2016 

IMPROVE YOUR GNFR FOCUS 

Given the wide and varied range of potential 

issues mentioned, it is perhaps heartening to 

know that building an appropriate GNFR function 

or improving the effectiveness of an existing 

team can actually be quite straightforward. The 

steps outlined in Exhibit 4 can help improve the 

management of GNFR spend within your business. 


Exhibit 4: Five steps to effective GNFR 

management 

1 

2 

3 

4 

5 

Understand the Spend 

Understand your GNFR spend profile 

and identify where the largest 

savings opportunities might be. 

Build the Team 

Assemble a high-quality and 

dedicated team of procurement 

specialists to manage GNFR within 

your business. 

Provide the Tools 

Provide the team with processes 

and technology to quickly 

assess spend and deliver results. 

Support the Team 

Develop clear reporting lines with 

board-level sponsorship, in 

order to create a profile for the 

team and a platform for their 

results. Avoid unnecessary 

exclusions from the team’s remit. 

Share Expertise 

Encourage movement between 

GNFR and GFRS buying teams to 

develop a versatile and commercial 

group of buyers over time. 

WHY NOW? 

There has never been a more urgent need to review 

GNFR spend and ensure costs are being carefully 

managed, especially if you answer “yes” to any of 

the questions in Exhibit 5. 

Exhibit 5 

Question Yes No 

Is it some time since spend within the 

category was last reviewed/analysed? 

Is there a longstanding incumbent 

supplier? 

Has the level of spend changed 

significantly for any GNFR categories 

over recent years? 

Can your buying requirements and 

terms be clearly specified? 

Are there a group of alternative 

suppliers able to provide the goods/ 

services? 

Are price increases being proposed 

or are likely to be proposed by the 

incumbent supplier? 

Are changes to the current 

specification or requirement levels 

being considered? 

If you’ve answered YES to any of these questions, 

you should consider whether it is time to have 

another look at your GNFR spend. 

While the overall timeline for Brexit is now 

somewhat clearer, with Article 50 to be invoked 

by the end of March 2017, many of the implications 

of the leave vote in June are still to be realised. 

However, the impact on currency markets has been 

immediate. Adverse exchange rates will not only 

put retailers’ gross margin under pressure, but will 

also adversely affect the work of any GNFR team 

dealing with suppliers overseas. As contracts and 

pricing agreements come to an end, renegotiations 

will be conducted against a backdrop of economic 

uncertainty and the weakened position of sterling 

versus the dollar and the euro. 

Continuing to ignore GNFR spend categories could 

leave companies sleep-walking into higher prices, 

with costs spiralling out of control. v 


Kurt Salmon is a global management consulting firm dedicated to 

building the market leaders of tomorrow. More than just partnering 

with our clients, we ally with them, integrating ourselves seamlessly 

into their organizations in order to develop innovative, customized 

solutions for their 21st-century business issues. 

Succeeding in today’s increasingly complex, consumer-driven 

environment is an enormous challenge. 

But companies need to look beyond today; they need to position 

themselves for continued success in the even more uncertain 

future. That’s where Kurt Salmon comes in. 

We call it delivering “success for what’s next.” The results are 

transformative. 

AUTHOR 

Siobhán Géhin heads Kurt Salmon’s strategy and private equity 

service offer in the UK and Ireland, leading assignments with 

global and European firms, involving due diligence, operational 

improvement and international expansion. From her 20 years’ 

retail experience, which includes senior management posts at 

Wal-Mart, Home Retail Group and KFC, she has also developed an 

in-depth understanding of operating a multi-channel business, 

strategy, new format development and international expansion. 

CONTACT 

Siobhán Géhin 

Partner Kurt Salmon UKI 

siobhan.gehin@kurtsalmon.com 

Kurt Salmon 

10 Fleet Place 

London, UK EC4M 7RB 

+44 20 7710 5200 

www.kurtsalmon.com 

Americas · Asia · Europe 

The Priory Gr 

Ivo creates value, insight and profit for clients. We help business 

leaders answer difficult questions, providing strategic and 

operational improvements, with an emphasis on action. 

Established in 2003, Ivo’s credentials come from running 

commercial insight and procurement 

The Cost 

programmes 

of Caring 

for nationally 

recognised organisations, particularly within the retail sector. 

We take a whole-business view of opportunity and risk, finding 

profitable opportunities hidden in the data and producing simple, 

actionable answers to complex questions. The results of our work 

help clients to deliver step-change improvements to their cost 

base and our collaborative style allows client teams to build new 

capabilities, transferring skills and knowledge. 

Business owners, CEOs, and private equity firms hire us because 

we don’t take anything at face value, accept filtered information or 

averages – we are trusted to do a great job. 

AUTHOR 

The client 

“Saving 

Stuart The Priory Blackley Group is a is Director dedicated Ivo to Business helping people Solutions improve with over 15 

years their health of experience and wellbeing. leading Through procurement, organic category growth management 

and 

14% to 

and acquisition, commercial the insight Priory projects Group has on behalf expanded of clients rapidly across to several reduc 

industries. become the Stuart UK’s is largest passionate independent about helping provider clients of become mental more 

efficient, health, specialist more effective care and more specialist profitable education through services. a better 

understanding They operate 275 of their facilities costs, with their over suppliers 7,000 and available their customers. beds, The solution 

often caring for vulnerable people with very complex needs. 

Ivo swiftly eng 

The challenge 

positive, produ 

carry out detai 

CONTACT 

The Priory Group is proud of its excellent reputation for meticulous val 

Stuart quality Blackley of service. Their success is rooted in their 

spend and sup 

Director, determination Ivo Business to improve Solutions the lives of all their service users by reviewed acros 

stuart@ivosolutions.com 

employing an innovative approach when developing care and benchmarked 

treatment services. 

Ivo Business Solutions 

Ultimately, Ivo 

Parkhouse Following acquisitions of varying sizes, the Priory Group tendering proc 

London recognised Road, that Stamford some of their UK PE9 ‘behind 3JS the scenes’ functions, specifications 

+44 were (0) in need 203 507 of the 0036 same innovative approach as the front end Ivo tackled the 

www.ivosolutions.com 

of the business. The complex supplier base and differing cost 

• Tendering ca 

control systems were in need of a major rethink. Ivo were 

maintenance 

recommended to the Priory Group and brought in best © 2016 

• Better aligni 

practice from in and outside the sector. The Priory Group 

categories to 

wanted to: 

• Gain full visibility on the spend and clarify the services 

provided by suppliers 

• Approaching 

to assess 

• Tendering la

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