- 9 



Retail Markups 



Retailers of Mcintosh apples used a different strategy in 

 establishing markups. They add a constant factor plus a percentage 

 adjuster (as contrasted with wholesalers where the adjuster was 

 subtracted ) . This strategy leads to lower retail margins when farm 

 prices are low and higher when farm prices are high. 



The constant factor used by retailers tended to be $2.28 with 

 an adjuster of 37 percent of tlie farm price. (This is, of course, 

 in addition to the wholesale margin.) For example (using data from 

 the previous example) : 



Farm Price in Period 1 $4.00 

 Wholesale Markup 1. 26 



Price to Retailer $5.26 



Constant Factor-Retail $2.28 

 Adjuster (.37 x 4.00) 1.48 

 Total Wholesale Markup $3.76 



Total Price at Retail $9.02 



Farm Price in Period 2 $5.00 

 V/holesale Markup 1 . 05 



Price to Retailer $6.05 



Constant Factor-Retail $2.28 

 Adjuster (.57 x 5.00) + 1. 85 

 Total Wholesale Markup $4.13 



Total Price at Retail $10.18 



Retailers of Red Delicious apples also followed the same mark- 

 up practices. The constant factor was $3.70 and the adjuster was 

 25 percent. 



Conclusions 



"Given these types of markups, as supply increases, per unit 

 wholesale markup increases, while per unit retail markup decreases. 

 Therefore, in a period of overproduction, growers may find it profit- 

 able to bypass the wholesale, depending on how much it would cost 

 them to do this." -- (Montero and Stitts) 



Wholesalers and retailers marketing margins are based, at least 

 in part, on their costs of performing the marketing function. Thus, 

 when a grower takes on the job of wholesaling and retailing, he too 

 must assume those costs. To assess the profitability of taking the 

 role of a wholesaler and/or retailer involves consideration of sev- 

 eral factors. The basic decision criteria is the answer to the 

 question: "Can I perform the marketing functions at a cost lower 

 than charged by firms in the marketing system?" 



