What is Integral Chain Margin

In the supermarket channel, among others, there is talk of "Integral Chain Margin." What is it, and can other franchise organizations also make use of it? The franchisee (= retailer) is often obligated to purchase from the franchisor or designated suppliers. They earn a profit from this, and as good entrepreneurs, the more, the better. The franchisee also earns a profit and similarly wants the more, the better. This creates a conflict between the franchisor (= supplier) and the franchisee (= retailer), which can significantly hinder revenue growth. The franchisee has learned to focus on profit margin percentages. They often actively aim to sell products with a higher (percentage) margin.

Integral Chain Margin: From cents to percentages

The franchisor has started thinking in terms of market share, volume, and profit in cents. Rightly so, because you can pay costs with cents (euros) and not with percentages. What I increasingly see today is that the franchisor is focused on store profit as a monetary amount, while the franchisee still thinks in percentages. This shift from thinking in percentages to thinking in cents is a significant step in practice since the franchisee's bookkeeping still highlights that the profit (in percentages) is under pressure. As long as there is a focus on profit percentages, you'll see an impact on the competitiveness of the business model since it strongly influences the assortment composition and the effectiveness of promotional actions, which in turn affects revenue, completing the circle.

No conflict between franchisor and franchisee with Integral Chain Margin

With Integral Chain, the conflict between supplier and retailer is eliminated concerning the distribution of earnings. They agree that the earnings will be distributed according to a predetermined and fixed ratio. Establishing this ratio initially is certainly a challenge, but once it's determined, all advantages and disadvantages in the "integral chain" are shared. It no longer matters to the retailer what the exact purchase price is or what the profit in euros or percentages is on that product because that is no longer the focus. The focus is on the total earnings from the goods flow, including all discounts, supplier contributions, promotions, spoilage, payment terms, and so forth. In short, everything is transparently and controllably included in the profit, which is then divided according to the fixed ratio.

Integral Chain Margin ensures a common goal: Maximizing Earnings

The franchisor (= supplier) and the franchisee (= retailer) both equally benefit from earning and distributing as many euros as possible. Through this Integral Chain system, all attention is directed towards increasing revenue and earnings in euros, with no concern for the profit percentage on a product in the store. The euro can be earned through smart buying, a high-volume special promotion, attracting extra visitors to the store, and so on. The focus returns to commerce and trade.