Equipment Forum: Cold, hard profits

An automatic ice bagging system creates an in-store ice plant and greater opportunities for retailers.

By Harry Starkweather

At a time when margins are tightening for retailers and higher food commodity and energy prices are again beginning to exert pressure on wholesale and retail food prices, retailers can make dramatically higher margins in a category that has not significantly changed in a generation, yet remains one of the highest profit margin items in the frozen food category—packaged ice. So the question is, how can grocers grab a larger share of the nearly $2 billion market for packaged ice?

Over the past 25 years, I have consulted on profit-analysis issues similar to this as a region sales manager, national accounts manager and retail national accounts manager for leading manufacturers. Let’s consider what grocers know about the category and what their customers need.

At the outset, there is homework to be done in the ice box. Grocers can start by collecting empirical data, including annual bags of ice sold, cost per bag, profits per bag, labor costs and equipment and service costs.

Other considerations are less straightforward, including food safety, quality of the ice, branding opportunities, quality of service and the impact on service during peak periods of demand such as major summer holidays. The competitive landscape should also be measured, since failure to do so can cast a grocer as a “premium supplier” or a “great value.”

Having done that, grocers need to balance costs against customers’ demand for convenience. They want to purchase bagged ice where and when they buy their groceries. They also expect the ice will be 100% safe, tasteless, odorless, and, in every possible way, perfect. They also want a fair price, but the convenience of “adding ice on” at the end of the shopping trip is more important than price, giving grocers an opportunity to control costs and margins.

According to the International Packaged Ice Association (IPIA), in commercial ice plants, ice is generated in large-capacity machines that package the ice automatically so there is no human contact. Ice is manufactured in the plant, bagged, loaded onto docks, trucked to stores, then moved from the trucks to the in-store merchandiser and readied for retail sale. Little involvement is asked of the retailer, but lower margins are left behind. Packaged ice should be obtained from reliable and reputable suppliers, and, in most cases, these ice plants are the standard.

However, an estimated 40% of the packaged ice sold at retail is produced at the retail level. Other estimates report the number as high as 50% to 75%. Why? On-premises ice production means higher margins. But getting more means doing more. I have heard stories about hurried managers slipping into back rooms to fill bags of ice when demand is high. (Is this really the best control of labor costs?) I have also seen poor quality back-of-house ice-filling stations—epicenters for foodborne illness outbreaks.

Mishandling ice is a common source of contamination, with recorded outbreaks carrying a human toll, not to mention the potential for wiping out a brand.

One solution is an in-store bagging systems such as the ISB Ice Bagging System, which has helped bridge the gap between the ice plant and on-site bagging with the introduction of the ISB Ice Bagging System. ISB is an all-in-one ice machine/bagger/merchandiser that makes it possible for retailers to offer better quality bagged ice, made and bagged on the premises and labeled with their own store brand, yielding significantly higher profit margins than the store-door delivery system. Best of all, the system is automated—no labor and no human touch required.

Automated on-site ice bagging changes the dynamic in much the same way that selling prepared food became a strategic necessity for supermarkets a decade ago.

Optional configurations make either full cubes for cocktails, half cubes for “cooler ice” or crushed ice for soft drinks. This offers the ultimate flexibility to fit the needs of any market. In addition, grocers can control the ice production volume to meet their unique needs—day-to-day, season-to-season.

The system saves fuel and labor costs, and, based on annual sales volume, increased profits can pay for the new equipment in about one year.

In addition, grocers are assured the permanent lowest wholesale price—because they control it.

Harry Starkweather is President and CEO of the In-Store Bagging Machine Co. (ISB). The management team has more than 25 years of collective experience in ice-bagging machine design and marketing. For more information, visit www.isbmco.com.

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