Managing Your Gourmet Food & Gift Basket Supplies Inventory: A Critical Part of Your Success of Your Gourmet Gift Basket Business (Part 4)

One Measure of Inventory Control Success: Inventory Turnover

It is a constant "battle" that every business owner if the gift basket or gourmet gift industry faces: how much stock do I need to have?  It is a difficult task to try to assess without having some basic "guide posts" to help you.  One of the most common ways to measure if you are carrying an appropriate amount of inventory is to calculate your inventory turnover rate.  This simple ratio, typically calculated on an annual basis, is simply the number of times that the average inventory has been sold and replaced during a specified period.  It is determined by dividing the retail dollar value of your net sales for a specific period by the average inventory (at your retail-selling price):

            Net Sales for the Period
            Average Inventory

If you find that your gourmet foods and gift baskets inventory turnover rate is too low, it may be cause your prices are too high or that your is not consistent with your customers' buying patterns.  Generally speaking, the higher your inventory turnover rate, the better.  You must ensure, however, that that in seeking a high turnover rate, that you don't wind up with excessive stock-outs of your most popular gourmet foods and gift basket supplies, (which is not a desirable situation either!)  However, buying your gourmet foods and gift basket supplies in excessively large quantities to avoid stock-outs is a potentially risky proposition as well.  Such a buying policy is an excellent way to quickly deplete your cash reserves and may result in large mark-downs of your purchases that have lingered too long on your gourmet gift shop sales floor or, even worse, are past their "Best Before" date.

Limiting the amount of cash that you have invested in your gourmet foods and gift baskets inventory at a given point in time reduces expenses such as interest, insurance and taxes, as well reducing the amount of space that you require to adequately store the stock!  However, if you do not purchase adequate amounts of gourmet food and gift baskets stock for your gift basket business, you run the risk of falling into the trap of what is commonly called "Buying on a hand-to-mouth" basis.  By following such an inefficient policy, your administrative costs increase as a result of writing so many Purchase Orders, your shipping costs can dramatically increase, you can lose purchase quantity discounts, the possibility of increased damages to your inventory rises with additional shipments and the chance of clerical and receiving errors soars.  As such, buying your gourmet foods and gift basket supplies in this manner should be avoided whenever possible.  Obviously, like so many other aspects of operating your gift basket business, sound business judgment, laced with a good dose of common sense will go a long way to helping to reduce this admittedly difficult problem.

Phyllis and Greg Sprout began their company, epicureanfoods.com, in July 1993.  They specialize in supplying hard-to-find gourmet foods and gift basket supplies to gourmet shops, gift shops and gift basket companies across North America. 

They have helped the founders of literally thousands of gift, gourmet food and gift basket companies start and grow their businesses.  Many of these companies remain excellent customers of epicureanfoods.com today.  They can be reached at phyllisandgreg@epicureanfoods.com.