GNFR Unlock hidden value in your P&L

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