iliiiiili^ iijlillli 1. 5 I - 111 OK -l\f^v yU f^- J^ x^^ - r» -RBi y^ 7^ V2- EXPERIMENT STATION LIBRARY Bulletin 251 July, 1930 NEW HAMPSHIRE AGRICULTURAL EXPERIMENT STATION OPERATING COSTS OF RETAIL GRAIN STORES IN NEW HAMPSHIRE UNH LIBRARY 3 4bDD DDblfi ^771 By E. H. RINEAR '.f ' UNIVERSITY OF NEW HAMPSHIRE DURHAM, N. H. [•: -'0,^6 1' SUMMARY A survey was made of practically all the retail stores in New Hamp- shire which were selling feed and grain during 1926. Reports were collected from 197 stores. Following this, detailed accounts were ob- tained from 41 stores for the business transacted during 1928. The state survey sliowed 15 per cent of the feed and grain sold at the car door, 62% at the store and 23% delivered to customers. The average gross margin was $4.71 per ton for 138 stores and 11.29% of sales for 33 stores. (Table 1). The business of the 41 gi-ain stores amounted to $4,539,018. during 1928 and was transacted on a gross margin of 11.22% of sales. The total costs were 10.76%, a net profit of .46% of sales. Total costs were proportioned under four heads as follows: fixed costs 24.63%, labor costs 51.70%, delivery costs 8.63%, and other costs 15.04%. The average investment turnover in relation to sales was 4.04 times. As the number of turnovers increase an average of l^o times fixed costs decreased $.02 per dollar of sales. (Table 6). The number of employees per store averaged 3.7 persons. As year- ly sales per man increased from less than $20,000 to $60,000, labor costs decreased $.023, total costs $.061 and gross margins $.043 per dollar of sales. (Table 10). It was found in five stores that the employees were busy 82.9% of the total time during one week. Sales per hour of occupied time for all stores varied from $8.06 to $20.04 with an average of $10.52. The ones operated by one man had a higher average sales per hour of occupied time than those operated by 3 or more people. (Table 11). The average inventory turnover was 10.2 times. As the number of turnovers increased an average of 3 times, total costs decreased $.017 per dollar of sales. An average of $870,521. was carried in accounts and notes receiv- able by 89 of the grain stores in the state. The average turnover of accounts receivable was 38 days. Bad debts ranged from none up to $4000. per store. When weekly retail cash store prices are compared for 62 stores for grain and feeds of the same standard or brand, a great range in prices is found. The largest range is $.65 per cwt. for wheat and the smallest $.30 per c\\i. for middlings. (Table 19). Although the Boston wholesale market changed 40 times on a week- ly basis during the year, the stores shifted prices 14.5 times. Store prices lagged an average of 2.6 weeks as upward market changes oc- curred and 4.8 weeks when they were downward. Higher retail cash prices are charged for corn as the percentage of credit sales increase. (Table 21). operating Costs of Retail Grain Stores in New Hampshire By E. H. RixEAR The economical distribution of grain is of great importance to both farmers and dealers in New Hampshire. The farmers spend seven or eight million dollars a year for feed, according to agricultural census reports, and individual accounts show the grain bill constitutes from 30 to 50 per cent of total farm expenditures. The dealers have large amounts of capital invested in warehouses, equipment, stock inven- tories and accounts receivable and are interestecl in securing a fair return for their capital and labor. Similar studies* elsewhere have shown a wide range in the operat- ing costs of grain stores, and it seemed desirable to investigate the situation in this state. The main objects of the study were: first, to analyze the costs of New Hampshire grain stores; second, to set up operating ratios of efficiency; and third, to point out the important factors which cause differences. PROCEDURE FOLLOWED In starting the investigation, an attempt was made to call on all the stores in the state which were selling feed and grain, and the deal- ers were interviewed personally. They approved of the study in practically all instances and discussed theii problems freely, especially when assured that all information would be confidential as to source. The whole state was canvassed in this manner and information col- lected for the year 1926 regarding total tonnage, sales, operating costs, margins, services, etc., from 197 stores. After tabulating and analyzing these data it was evident that more detailed figures and a uniform system of accounting would be nec- essary before definite conclusions could be drawn. In view of this, and the importance of the information already gathered, it seemed best to call a meeting of the grain dealers. Accordingly, a meeting was held at Durham with good attendance from all sections of the state. The facts resulting from the state-wide sur^•ey were presented at the meeting. As the result of discussion, the group requested that a com- mittee be appointed to work with the Station to draw up a cost ac- counting outline which would be adaptable to a retail grain business. Later, these outlines were mailed to all the dealers, who were re- quested to use them in summarizing their business for 1928. The out- ♦Cornell Station Bulletin 471. Ohio Experiment Station Bulletin 416. 4 N. H. Agri. Experiment Station [Bulletin 251 lines were given reference numbers which have been used in present- ing the analysis of this study so that each dealer may compare his costs and margins with those of others. Through the cooperation of 62 dealers, postal cards were mailed to the Station weekly during 1928 giving each dealer's retail cash price for corn, wheat, cottonseed, gluten feed, standard bran, standard mid- dlings and definite brands of scratch, dry mash and dairy feeds. Al- so, ten wholesale distributors and manufacturers sent their mixed car quotations regularly for the same period. Through comparison of these quotations it is possible to show the range in weekly retail prices for the same commodity as well as the difference in the wholesale prices; to determine how closely the market is followed; and to learn the effect of operating costs on the retail price of grain. Complete cost accounting records were obtained from 41 stores for the business transacted during 1928. These records form the main basis of the analysis in this report. They are supplemented by the infomiation for 1926, gathered in the state survey. Due to the lim- ited number of cooperative owned stores in the state, it seems im- practicable to make comparisons of the cooperatives with the private owned stores. DEFINITION OF TERMS Grain Store: when 75 per cent or more of the total yearly sales are for feed and grains. General Merchandise Store: when feed and grain sales are less than 75 per cent. Fixed Expense: includes depreciation, insurance, rent, taxes and interest. In this study, yearly interest, at 6 per cent was charged on net worth. Depreciation on frame buildings was charged at 4 per cent and 2 per cent on brick or stone. A 10 per cent depreciation rate was charged on equipment. (Depreciation on truck and delivery equip- ment is included under the heading of delivery costs). Labor Expense: includes amount paid to the manager, book-keeper and to the regular labor. The value of the proprietor's time where no regular salary was paid was figured at $35.00 a week. Delivery Expense: includes gas, oil, repairs, depreciation and mis- cellaneous items. A yearly truck depreciation was charged at 25% of original cost price. Expenses for the maintenance of horses and wag- ons are inclucled under this head. Other Expense: includes telephone, light, power, office supplies, fuel, repairs, demurrage, bad debts, collection charges and interest paid on borrowed capital. (Large repair bills were redistributed over a period of years.) Travel and all other items not heretofore men- tioned were included under miscellaneous. Total Costs: include the fixed, labor, delivery and other costs which are incurred during one year's operation. July. 1930] Operating Costs of Grain Stores Inventory: the value of stock on hand figured at market price or original cost depending on which is the lowest. Cost of Goods Sold: includes original cost plus freight to railroad station and after adjustment has been made for inventories at the be- ginning and end of year. Net Sales or Total Sales: the amount received in exchange for goods sold during a year, after adjustments have been made for goods retiu'ned. Gross Margin: the difference between the cost of goods sold and net sales. Small amounts of miscellaneous income were included in this item. Net Income or Profit: the difference between gross margin and to- tal costs; also referred to as net profit. Cash Sales: that pan of total sales for which cash is paid at the time the transaction occurs. Credit Sales: that part of total sales which is not paid for in cash at time of transaction. THE STATE SURVEY Of the 197 stores visited in the state survey. 107 could be classed as feed stores and 90 as general merchandise stores. Often the gen- eral merchandise store handled grain as a side issue, either as an ac- commodation to its customers or because of the pressure of competi- tion. Quite frequently it secured this grain in small amounts from the local grain store. More comj^lete records were procured from the grain than from the general merchandise stores. The latter made no effort to keep the grain sales separate. The lack of a definite system of keeping records was frequently evident. ^lany dealers had no record of current ex- penses or tonnage handled. Neither did they realize that they had Table 1 — Gross Margin Variation of 171 Grain and General Merchandise Stores During 1926 Gross Margin per Ton Number in Gross Margin Number in Each Class Percentage of Sales Each Class si. 00— SI. 99 4 Less than 10. 4 S2.00— 2.99 Iti 10—10.9 15 .S3. 00— 3.99 14 11—11.9 3 S4.00— 4.99 44 12—12.9 4 .S5.00— 5.99 33 1.3—13.9 S6.00 — and above 27 14—14.9 15 — and above 7 Total 138 33 The average gross margin was 54.71 per ton and 11.29 per cent of sales. N. H. Agri. Experiment Station [Bulletin 251 operated at a loss which was often demonstrated when their accounts were figured. On the other hand, there were dealers who kept exact records and balanced their books monthly. They knew when and how they had made or lost money. In all instances, an effort was made to obtain all the information possible, and estimates were tak- en when records were not available. Total tonnage of grain sold in New Hampshire during 1926 was 210,835 tons, of which 15 per cent was sold at the car door, 62 per cent at the store and 23 per cent was delivered to customers. Gross margins varied among the stores as shown in Table 1. Where dealers dia not iiave a regular system of accounts, gross margins were estimated, sometimes in dollars per ton, sometimes in per cent of sales. The average gross margin per ton of 138 dealers was $4.71, and the average per cent of sales of 33 dealers was $11.29. There were 12 gen- eral merchandise stores handling grain on a margin between $2 and $3 a ton. This is the group which sold grain primarily because it brought trade to their store. Gross margins at the car door varied from $1 to $3 a ton, with the larger number charging about $1.50 a ton. Table 2 — Average Net Sales, Gross Margins, Operating Costs and Net Income of 41 Retail Grain Stores in 1928 Total Amount Average Amount Per cent of Net Sales Total Costs Amount Per cent of Total Net sales $4,539,018.25 4,029,832.94 509,185.31 14,695.09 19,850.14 16,932.09 52,517.05 16,273.40 252,451.20 42,105.23 5,530.29 5,904.98 10,571.88 9,736.28 329.00 4,728.11 8,761.56 12,621.42 15,255.04 $110,707.76 98,288.61 12,419.15 358.42 484.15 412.98 1,280.90 396.91 6,157.35 1,026.96 134.88 144.02 257.85 237.47 8.02 115.32 213.70 307.84 372.08 100.00 88.78 11 22 .32 .44 .37 1.16 .36 5.56 .93 12 .13 .23 .21 .01 .10 .19 .28 .34 $120,267.77 $252,451.20 $42,105.23 $73,438.56 Cost of goods sold Gross margin Fixed costs: — Rent Taxes Insurance Interest on net worth. . . Depreciation on build- ings and equipment . . . Labor costs: — Salaries and wages Delivery costs: — Gas, oil, repairs, depre- ciation, miscellaneous Other costs: — Stationery and postage . . Telephone and telegraph Light and power Net interest 24.63 51.70 8.63 15.04 Demurrage Advertising General repairs Bad debts Miscellaneous Total Costs $488,262.76 $20,922.55 $11,908.85 $510.31 10.76% .46% $488,262.76 100% Net Income July, 1930J Operating Costs of Grain Stores 7 ANALYSIS OF COSTS FROM 41 STORES The bu.-^iness transacted in 1928 l)y 41 grain stores has been sum- marized in Table 2. These figures were taken from the cost account- ing outlines. Attention is called to the colunm titled, "Per cent of net sales." It will be noted that the average gross margin for all stores was 11.22 per cent, total expense 10.76 per cent and net income .46 per cent of total sales. Judging the grain stores as a whole on the basis of this sample, they are not making a large net i^rofit. Current ex])enses are distributed under four main heads in the last column as follows: — fixed costs 24.63 per cent, labor costs 51.70 per cent, deliv- ery costs 8.63 per cent and other costs 15.04 per cent. Great variations occur in costs between stores as given in Table 22 and illustrated in Figure 1. There is a range in total costs per dollar of sales from $.06 to $.18; other costs vary from less than half a cent to about $.07; delivery costs from nothing to over $.02; labor costs vary from $.035 to $.105; and fixed costs vary from $.01 to $.05. Although the stores are arranged in Figure 1 in order of increasing costs per dollar of sales, the fixed, labor, delivery and other costs do not increase in the same proportion; i.e., fixed costs may be low, while labor and other costs are high. This is well illustrated by Store 8 where other costs are large because of an unusual bad debt item. Just the opposite results are obtained by the manager of Store 6. Here the delivery cost is nothing; the fixed, labor and other costs are low. The primary reason the total costs for Store 6 are lower than for Store 8 is because vearlv sales are so much larger. Total costs of 6 were 84488.34 and total sales $70,522.09. making a cost of $.0635 for each dollar of sales. On the other hand, total costs for 8 were $7579.16 and total sales $40,924.62. which resulted in a total cost of $.1850 for each dollar of sales. Undoubtedly. Store 8 is equipped and capable of doing twice the amount of business shown in its report. Store 47 has exceptionally large labor costs. In this instance, the store is operated by the proprietor. The value of his labor was fig- ured at $35 per week, the rate for proprietors who were on full time. It is possible the manager does not value his time so high; if so, the labor cost per dollar of sales would be reduced. On the other hand, the yearly sales are approximately $18,000. If they were double this amount, all costs would be cut in half and a net profit would result instead of a loss. The final results of store operations are presented in Table 22. Di- rect comparisons between total costs and gross margins can be made for each store. In some cases the variations are quite striking. The effect of competition causes gross margins to hold near the 13 and 14 cent level even though total costs may exceed this amount. The man- agers do not care to raise the gross margin enough to absorb the loss for fear of losing trade. One store had a gross margin of $.1594 per dollar of sales, con- trasted to total costs of $.0784; another of $.1818 compared to $.1007, leaving a net profit of $.0810 and $.0811 respectively for each dollar of goods sold. The opposite condition is tiiie with Stores 179 and 8. 8 N. H. Agri. Experiment Station [Bulletin 251 They have a net loss of $.0628 and $.0941 respectively for each dol- lar of goods sold. These cases are the extremes, and it will be noted that the largest group maintain a more even balance between gross margins and total costs. When there is so even a balance between operating a business for a loss or a profit, it is absolutely essential that a clear-cut system of accounting be used which will show on a monthly basis which way the business is headed. It is too late to wait until the end of the year to figure final results. The men who are continually running at a loss cannot stay in the business for long. FIXED COSTS Fixed costs are often referred to as the "dirti" five, namely, depre- ciation, insurance, rent, taxes and interest. Yearly interest costs are flexible, whereas the other costs continue at approximately the same amount year after year. Large or small stock inventory values and varying amounts in accounts and notes receivable will affect the net worth, which in turn may reduce or increase the interest charge on net worth. For this reason, the men who are on a cash basis would have smaller overhead expense. Also, a convenient and not too large a building located on a railroad siding is an important factor in keep- ing the fixed costs as well as the necessary labor requirements low. Table 3 — Fixed Cost and Capital Distribution of 13 Rented and 28 Owned Stores Rented Owned ITEMS Total Amount Per Cent Distribu- tion Total Amount Per Cent Distribu- tion Fixed Cost: — Rent $12,613.12 3,778.11 4,514.84 5,576.47 1,147.22 45.68 13.67 16.33 20.17 4.15 $2,063.97* 16,072.03 12,417.25 46,940.58 15,126.18 2.23 Taxes 17.35 Insurance 13.41 Interest on net worth 50.68 Depreciation on building and equipment 16.33 Total $27,647.76 $28,539.00 13,853.84 117,272.84 132,757.00 100% 9.76 4.74 40.10 45.40 $92,620.01 $278,802.79 81,643.30 40,190.75 275,857.37 350,103.63 100% Capital: — Land and buildings 29.58 Equipment Cash on hand Accounts and notes receivable . . Stock inventory 8.79 3.78 21.22 36.63 Total $292,422.68 100% $1,026,597.84 100% *Rent for railroad siding and railroad land. The total sales of 13 rented stores was $1,250,748.39, or a fixed cost per dollar of sales of $0.0221. Total sales of 28 owned stores was $3,288,269.86, or a fixed cost per dollar of sales of $0.0282. July, 1930] Operating Costs of Grain Stores Table 4 — Variation of Store Sales Compared with Fixed Costs Fixed Cost Class Limits Total Sales Store Reference N umbers Fixed Cost Class Limits ^Potal Sales Store Reference Numbers SGOO— $999 $18,000 23 ,910 29 .610 35 .000 40 ,924 43,812 70 ,522 47 49 178 195 8 160 6 S2,000— $2,499 $62 ,495 66 ,000 83 ,764 98 ,686 100 ,449 122 ,608 133 ,017 137 ,507 152 ,724 156 189 149 5 126 131 7 132 4 34 ,587 55 .591 67 .037 75 ,352 98 ,625 138 ,000 142 201 185 167 193 186 «1 ,000— $1 ,499 $2,500— $5,400 81 ,467 86 ,457 87 ,621 100,719 103 ,668 104,700 110,853 123 ,631 141 ,873 203 ,330 197 19 128 124 127 179 198 184 154 18 $1 ,500— $1 ,999 30 .967 64 ,377 83,618 96,104 118.247 148 ,030 192 51 125 129 168 148 $6,500— $19,250 180 ,962 193 ,000 791,159 188 171 130 The fixed cost and capital distribution of the 41 stores are given in Table 3. Thirteen stores were rented and 28 were owned. Analysis 01 these data shows the rented stores had a more favorable ratio be- tween fixed costs per dollar of sales than the owned stores. This ra- tio v\-as $.0221 for the rented and $.0282 for the owned, or a differ- ence in fixed costs per dollar of sales of $.0061 in favor of the rented stores. Also the capital turnover of the rented stores was 4.3 times compared to 3.2 times for the owned stores. Table 5 — Relation of Fixed Costs per Dollar of Sales to Increasing Volume of Business Fixed Cost Class Limits Total Sales Class Limits Less $40 ,000 $40 .000 to 120 ,000 Above $120 ,000 $.0100— .0199 .0200— .0299 .0300— .0399 .0400— .0499 .0500— .0599 Number stores in each class Average fixed cost 3 1 1 1 8 3 3 9 6 . 0350 23 .0272 i 1 3 12 .0240 10 N. H. Agri. Experiment Station [Bulletin 251 Perhaps the most surprising results obtained in the study are the great differences in amount of sales compared with the actual amount of fixed costs. (Table 4). No better example could be had of effici- ency and lack of efficiency in the use of capital than is apparent in these illustrations. A range in total amount of fixed costs from $600 to $1000, for instance, resulted in sales varying from $18,000 to $70,522. The ratio of fixed costs in relation to sales is obtained by dividing the amount of fixed costs by the total sales for each store. Although the majority have fixed costs per dollar of sales between one and three cents, there are many who have more; four stores have over five cents in this item. The extremes noted in the previous table are not so apparent when reduced to the ratio basis shown in Table 5. There were 14 stores with an average of $.015, 12 with $.025, 7 with $.035, Table 6 — Relation of Total Investment Turnover to Fixed Costs per Dollar of Sales Fixed Cost Class Limits Total Number Turnover Class Limits $.0100 to .0199 $.0200 to .0299 $.0300 and above of Stores in Each Class 1— 1 9 1 3 4 4 1 1 5 2 2 2 1 2 8 3 1 1 2 2— 2.9 14 3 39 8 4— 4.9 5 59 7 6 6 69 1 7 — 7 9 1 8 89 1 11—11 9 1 Number stores in class Averafffi turnover 14 4.86 12 3.92 15 3.30 41 4 with $.045 and 4 with $.055 fixed cost per dollar of sales. As total sales increase from less than $40,000 to $120,000, fixed costs decrease from $.0350 to $.0240 per dollar of sales. Effect of Turnover of Total Investment on Fixed Costs Store managers are interested in knowing how rapid a turnover of total assets is made in relation to yearly sales. This is found by di- viding the sales by the total investment. Turnovers varied from 1 to 12 times with an average for all stores of 4.04 times. By comparing total investment turnover with fixed costs per dollar of sale, it is apparent that low costs are the result of rapid turnovers and high costs the result of slow ones. Those stores wliich had small turnovers were operating at a disadvantage. (Table 6). There was a difference of over $.015 in fixed cost per dollar of sales as the total investment turnover varied from 4.86 to 3.30 times. July, 1930] Operating Costs of Grain Stores 11 Table 7 — Relation of Total Investmejits to Fixed Costs per Dollar of Sales Total Investment Class Limits Fixed Cost Class Limits $.0100 to .0199 $.0200 to .0299 $.0300 and above Less than $10.000 $10,000— 19,999 $20,000-- 29,999 $30,000— 39,999 $40,000— 49,999 $50,000— 59,999 $00 .000— ()9 ,999 $70,000— 79,999 $S0,000— S9,999 $90,000— 99,999 100,000—109,999 110,000—119,999 100,000—169,999 Number stores in each class Average invest ment 1 5 2 3 2 1 14 $27,143 1 6 9 12 $31 ,667 2 3 3 2 3 15 Iipoo ,ooo Further information on the effect of large and small investment in relation to fixed costs per dollar of sales is presented in Table 7. A definite relationship is noticeable; that is, for each $5000 increase of investment there is an average increase of approximately one cent in fixed cost i)er dollar of sales. Fourteen stores having an investment from $10,000 to $60,000 or an average investment of $27,143 have lower fixed costs per dollar of sales than those with larger capital in- vestments. Table 8 — Relation of Fixed Cost to Total Cost and to Gross Margin per Dollar of Sales Total Cost Class Limits Gross Margin Class Limits Fixed Cost Class Limits Less than $.0900 $.0900 to $.1199 $.1200 and above Less than $.1000 $.1000 to $.1299 $.1300 and above $.0100— $.0199 8 3 4 5 2 2 2 4 5 2 4 7 1 1 1 5 6 3 3 9 $.0200— $.0299 $.0300— $.0399 5 3 $.0400— $.0499 $.0500— $.0599 1 3 Number stores in class Average fixed cost 11 $.0177 13 $.0265 17 $.0361 10 $.0220 17 $.0273 14 $ 033.5 Relation of Fixed Costs to Total Costs and Gross Margins Since fixed costs represent approximately 25 per cent of total costs of all stores, they affect total costs and gross margins but not in like proportion. (Table 8) . A $.03 increase in total costs per dollar of 12 N. H. Agri. Experiment Station [Bulletin 251 sales is accompanied by an average increase of S.0184 in fixed costs per dollar of sales. Likewise, a $.03 increase in gross margin per dol- lar of sales is accompanied by a general increase of $.0115 in fixed costs per dollar of sales. Summary of Fixed Costs Because fixed costs are largely made of items which are not subject to change the only sure way of reducing the load is to increase the volume of business. This is impossible to accomplish in many sections where competition is keen. The most efficiently operated stores are able to do $100,000 worth of business with an investment of approxi- mately $15,000. Too frecjuently, capital has been invested in build- ings which have a capacity several times larger than necessary. Such instances of over-expansion represent an economic waste to the com- munity. Occasionally one dealer will buy out another, thereby doub- ling his volume with a small increase in overhead. In other instances, the stores have been closed or changed over to another kind of business. Those stores having satisfactory but not elaborate buildings and equipment equal to the needs of their business are in an advantageous position to meet competition. On the other hand, where only 14 or % of the building si)ace is utilized, such conditions are certain to throw the operating ratios out of balance. Either the return on the capital invested in buildings is low as competition keeps the gross margin to a minimum, or if the return on the capital in such build- ings and equipment approaches normal, the gross margin has usually been raised above the average. In many instances, the buildings were erected at a time when the volume of business was much greater and also before goods were sacked and sold in mixed cars so that more storage space was necessary. Since these over-large buildings are still in use their value should be figin-ed on the basis of earning power in relation to the business transacted and not at the cost of replacement. Undoubtedly, if these stores were to be replaced, the amount of capital required would be much less than their present book values and the return on the capital invested in them would then be commensurate with the business. Referring to Tables 4 and 22, it will be seen that Store 192 has fixed costs of over $.05 per dollar of sales; and has the smallest sales of any in the group in relation to fixed cost expenditures. The manager of this store has an accurate bookkeeping system. He realizes his predicament and has raised the gross margin on sales to prevent op- erating at a loss. He states that it would be possible to handle twice the amount of grain with his present investment. Although this man's customers might object to the increased margin, the question arises: would they be willing to go without the convenience of a local grain store in the community and obtain the grain from more distant points if the local dealer should go out of business? There are many grain stores where the opposite condition is true. Store 6 is a good example of more favorable circumstances. It has fixed costs of approximately $.015 per dollar of sales, because the fixed costs are low and because sales are exceptionally high. Julv. 1930] Operating Costs of Grain Stores 13 Labor Expense Over half the expense of grain stores is for labor. Even though this item is flexible and easily changed, there are many instances where too much help is maintained. The labor requirements vary between stores because of dissimilar conditions. One store may be a mile or so from the railroad siding, or it may be in a community where small purchases are frequently made, or the building and equipment may be poorly arranged so that more labor is required for operation. Only by checking up on this problem as to sales and amount of idle time is a manager alile to guage efficiency. Yearly labor costs of 41 stores are compared with total sales in Ta- ble 9. The extent of variation is not so apjiarent as when a similar comjiarison was made with fixed costs; but it will be noted that many stores have shifted relative positions. Number Employed There were 151.7 persons employed on a full-time basis in the 41 stores, or an average of 3.7 persons per store. Seven stores employed 1.5 persons daily, twelve 2.5, twelve 3.5, three 4.5, three 5.5, and one store employed over 19 persons. Sales per Man Dividing total sales by number of persons employed in a store gave the average yearly sales per man. The average for all stores was Table 9 — Variation of Store Sales Compared with Labor Costs Labor Cost Class Limits Total Sales Store Reference Number Labor Cost Class Limits Total Sales Store Reference Number $1 ,800—52 ,999 $18 ,000 23 ,910 29,610 30 ,967 34 ,587 35 ,000 40 ,924 43 ,812 64 ,377 70,522 47 49 178 192 142 195 8 160 51 6 $4,500— $7,499 $81 ,467 83,618 98 ,625 100 ,449 100,719 104 ,700 110,853 122 ,608 137 ,507 138 ,000 148 ,030 197 125 193 126 124 179 198 131 132 186 148 55 ,591 62 ,495 66 ,000 67 ,037 75 ,352 83 ,764 86 ,457 87 ,621 96,104 103 ,668 118 ,247 201 156 189 185 167 125 19 128 129 . 127 168 S3 ,000— S4 ,499 $7 ,500— $57 ,000 98 ,686 123 ,631 133,017 141 ,873 152,724 180 ,962 193 ,000 203 ,330 791,159 • 5 184 7 154 4 188 171 18 130 14 X. H. Agri. Experiment Station [Bulletin 251 132,805. Sales per man varied from less tlian $20,000 up to $60,000 ■ — an indication tliat the labor problem is handled more efficiently in some stores than others. On a dollar of sales basis, the range was from $.03 to $.10 with an average labor cost for all stores of $.0598 per dollar of sales. There were four stores with a labor cost of $.035 per dollar of sales, twelve with $.045, eleven with $.055, eight with $.065, four with $.075, one with $.085 and one with $.105 labor cost per dollar of sales. The effect on the labor cost of securing large sales per man is shown in Table 10. Labor costs are reduced approximately $.02 as sales per man are increased from $20,000 to $60,000; or for each $1000 increase in yearly sales per man, labor costs are reduced $.0005 per dollar of sales. Since labor represents over half the total cost of operating a grain store, it is possible to show the relationships for sales per man with total costs and gross margins per dollar of sales. As sales per man increase from $20,000 to $60,000, total costs decrease approxi- mately $.06 and gross margins approximately $.05 per dollar of sales. Fifteen of the stores included in this analysis were operated at a loss and 26 at a profit. Many more of the stores could have made a profit if they liad dropped one or two men from the pay roll. Table 10 — Relation of Sales per Man to Labor Costs, Total Costs and Gross Mai-gins Sales per Man Class Limits Number Stores Average Labor Cost for Each Class Average Total Cost for Each Class Average Gross Margin for Each Class Less than $20 ,000 4 14 10 11 2 $.0653 .0532 .0499 .0501 . 0422 $.1352 . 1235 .0990 .1024 .0736 $.1317 $20 ,000— $29 ,999 «30 000 — $39 ,999 . 1208 . 1217 $40 000 — $49 ,999 .1094 $50 ,000— $59 ,999 .0886 The efficiency of those stores with an average sale per man of $32,000 or above is reflected not only in greater net profit, but in de- creased gross margins. This means a decreased price of grain to the trade. Because of the small sales in the afternoon, one manager found it possible to save the expense of one man by closing the store half a day so that the same person could handle sales in the morning and make deliveries in the afternoon. This change was effected in an or- derly manner by mailing notices to the trade several weeks in advance, stating the mutual advantages to be gained and when the new system would commence. Through this greater efficiency, labor costs were reduced approximately $1 a ton. The yearly sales of this store av- eraged $40,000 which is above the average of the group studied. Doubtless many border-line cases do exist where added or decreased help is in question. Many claim they can afford to hire a man to stay at the store while they visit the customers, obtain more trade, collect bills, etc. Through the cooperation of five store managers, the daily distribu- July, 1930] Operating Costs of Grain Stores 15 SR 0) C: t^ CJ X M O O ■rj- C^l CC c T- o ©Kp cc M' t^.-H o^ o^ c^ ^ (N t> • d»o 1 CC T-H »— t T— t T— I X r— ox o- - X X ^ CftiO (M X CO r^ o ^ d d '^ I-.' CO C ro cs c c- d-vC t^ T— 1 1— 1 t— t 1— i C^ a- oo '^ (M X rH CO t^ X ■ ?M cC ^2 L.0 ^c X r^ COO C O O iC c i> CO O'-O (M «© 1 m 3 ■ C^l ■* o ■* lO X t^ 'M --C O C (M .-H "* m m ffi »C CO •<* iCi-i o — c- CO (M 0~\ CO X C: C^l X C^l t^ O (M ^ CC o ^ d lo CO vc X c: X cr ^>5 t^ O Ol 'I- Ol ^ c dx —1 C^J CO -M o o^ Ci -•* 0 s 1—1 T-H CO CO c 0 >. ►S £ oo coo c c o-^ X og "** ■ ^ CO TS LO c; o :o C^l (M c o^ ^ ^ w C^l C^l ^ CO -* ^ t>9 T-H T— ( '-♦^ I—' iC (N X !M t^ CO CO -^ :C ^ o 03 1—1 d (m' (m o CO X .-' ic C a d 3 O (M r-l «; CO oco CO ^ ■* 1— 1 CO T— CO c T-H K ^2 2 IC 10 c C^ iC O LO IC O lO t^ c r^ CO OiC 10 01 T-H ^ 3 O ►t-i (—1 m m CO c^i ^^ ic CI -f CO 01 I— 1 '^m ^ ^H CO c 1— 1 m -^ CO t^ — i-o CO 0) (M T— 1 COS? ^ o iM ^ CD o -3 ID 3 2 3 0 02 3 o s 0 ,3 s CO o t-i : r .i ^ a CL -2 c o t 3 C OX- =» ? 3 C " ii c "c 3 0. £ -2 11 0. s 0 s b/ 0 1 2 bC C 2- erage sales was open. oR'7:'«4Jji;c::::--c ^ > > > 23 X X ^ J— i ^-^ f— ' ^ ;s ^^ 1— I h ;^ ^ < <-- ■< o 3 10 X o 3 a> 16 iST. H. Agri. Experiment Station [Bulletin 251 tion of time for each employee was obtained. Representative types of stores were chosen in various sections of the state. All of these five stores have appeared in the preceding discussion except Store 172. One report covered the business days for a whole month; the others were for a week. (Table 11). The distribution of labor averaged: — delivering, 19.2 per cent; unloading, 16. per cent; store trade, 14.7 per cent; book accounts and correspondence, 13.9 per cent; sales on road, 7.2 per cent; cleaning and repairing, 4.6 per cent; collecting accounts, 3.8 per cent; telephone, 1.8 per cent; mixing, 1.4 per cent; time with salesmen, .2 per cent; and idle time, 17.1 per cent. The average daily sales for all stores were $215.13. The information obtained from this small sample for so short a period suggests that further study should be made along these lines. Those stores which have a low sales per man undoubtedly would have many unproductive hours per employee. By referring to Figure 1 and Table 22, it is possible to note the sales, costs, margins and profits of these stores. Many differences may be observed in the portion of time given un- der the several items. For instance, Stores 185, 19 and 7 require more time for delivery than for waiting on trade. The reverse is true of the other two, mainly because they were one-man stores. Stores 185 and 7 have the highest percentages in amount of time given to book accounts and correspondence, as an office girl is employed regularly. Collecting accounts is an important item for Stores 172 and 19. Much time is used by Store 7 in canvassing for more business. The effects of time busy, time unoccupied, and total number of hours the store was open, in relation to the sales are also shown. The stores operated by one man have an advantage over the others when weekly sales are compared with the hours worked. This advantage is apparently lost when the number of hours the store was open is compared with total sales, although Store 172 continues to hold first place in both illustrations. One reason Store 29 drops to lowest place in the latter comparison is because of the long hours per day the pro- prietor is on the job. He does the majority of his delivering after usual closing hours, working more than IOV2 hours a day. The yearly average sales per man for Stores 49. 185, 19 and 7 were $23,900, $23,346, $28,819 and $22,100 respectively which is consider- ably below the average of all 41 stores. The average sales per store for all employees during the time the store was open varies in a sim- ilar fashion, i. e., those stores having the lowest yearly sales per man employed also have the lowest average sales per hour the store was open. If we judge these five stores on the basis of sales per hour of oc- cupied time, the one-man stores, 49 and 172, are the most efficient. Their average sales per hour were over twice as great as the average sales for Stores 185, 19 and 7. On the other hand, the one-man stores, 49 and 172, spent 64 per cent and 39 per cent respectively of the time in idleness, whereas the other stores reported 20 per cent and 9 per cent and in one instance no idle time whatever. No checkup was made of the number of customers and size of individual purchases for all stores. July, 1930] Operating Costs of Grain Stores 17 The proprietor of Store 49 recorded the amount of time required for each customer and the number of patrons for a month. The time varied from 5 to 20 minutes with an average of 6 minutes per cus- tomer. The number of customers varied from 7 to 25 a day. DELIVERY COSTS The state survey indicated that 23 per cent of the grain sold in 1926 was delivered by the dealers to the customers. The dealers of- ten expressed the opinion that the demand for this service was in- creasing. Over half of the stores delivered grain without any extra charge, as is shown in Table 12. Table 12 — Xumber of Stores Delivering Grain ayid Charges Made in Village and Outside as Reported in State Survey For Delivery in ^'ilIage For Delivery Outside Village Total Charge per Bag No Distance Given Less than 5 Miles More than 5 Miles* Number Stores Xo charge S.Oo $ 10 or more 66 13 8 3 5 12 13 8 5 4 7 4 86 33 29 Total 87 20 26 15 148 *One store charges 15c per bag for 10 miles, and another 20c per bag for 15 miles. INIuch of the promiscuous system of charging for delivery is due to competition and lack of cooperation between grain dealers. When one store manager charges 5 cents a bag for delivering or delivers free of charge, the competitor usually does the same. The cost of delivering then becomes part of the general overhead expense and is paid out of the gross margin. Those men who are located five miles away and have their ]xirchases delivered without extra charge are paying for only part of the delivery service, whereas the men who buy grain at the store at the same price are paying too much in that they are con- tributing to the cost of the service which the other men receive. This inequitable method of charging for delivery is not fair to the trade. It is, however, possible that it costs as much to deliver nearby as farther out because of smaller orders and more frequent demand for service. Undoubtedly grain dealers are in a more advantageous position to deliver grain throughout the greater part of the year than are the customers to do their own hauling. In many instances the stores are not located on a railroad siding, and all of the grain has to be hauled to the store by team or truck. Usually these stores have their own hauling equipment and are able to render deliveiy service. This prob- lem has been worked out most satisfactorily where zoning systems have been established along wdth regular routes which are covered weekly. In this way the customer pays for the service rendered. 18 N. H. Agri. Experiment Station [Bulletin 251 So much irregularity was found in the state survey concerning de- livery charges that tlie attempt was made in the cost accounting out- line to assemble these costs and the total tonnage delivered. A lim- ited number of tonnage records was kept, but none was available which gave the amount credited to delivery so that it is impossible to show whetlier tiie service was operated at a profit or a loss. Thirty-five of the 41 stores reporting for 1928 were delivering grain. The average delivery cost per dollar of sales was $.012. There were sixteen stores with delivery costs per dollar of sales less than $.01, fourteen with $.015, four with $.025 and one with $.035. OTHER COSTS Whereas the majority of the items under Other Costs are of a mis- cellaneous nature, the skill with which they are managed can make or break a business. Attention is called to their distribution in Table 13 Table 13 — Other Cost Distribution of 41 Retail Grain Stores Expense Items Amount in Each Item Per cent Average Amount Stationery and postage . . . Telephone and telegraph . Light and power and heat Net interest Demurrage Advertising General repairs Bad debts Miscellaneous Total I 5,530.29 5,904.98 10,571.88 9,736.28 329.00 4 ,728 8,761 12,621.42 15,255.04 11 56 $73,438.56 7.5 8.1 14.4 13.3 .4 6.4 11.9 17.2 20.8 100% $134.88 144.03 257 . 85 237.47 8.02 115.32 213.70 307.84 372 . 07 ,791.18 with special emphasis on bad debts and interest paid on borrowed cap- ital. These items are flexible and of greater importance to the stores furnishing credit than to those on a cash basis. Since 9 of the 41 are on a cash basis, the percentage of other costs would be even greater for these three items if the credit stores were considered separately. Interest expense will vary in the same manner; those stores supplying credit usually have to borrow more money for working capital than those on a cash basis. Demurrage was unimportant except for two stores, where it could be attributed to a lack of working capital. With one it is the result of having too nuich capital tied up in fixed assets which are beyond the reqtiirements of the business. With the other, working capital was lacking because of too liberal a credit policy based on a small net worth in the business so that the local bank could not afford to ex- tend any more credit to the dealer. Bad debts varied from none up to $4000. Store 8 had the highest other costs because of a heavy loss due to over-extension of credit. July, 1930J Operating Costs of Grain Stores 19 As a rule the dealers did not enter any bad debts expense until they were positive the account was luicoliectablc. Tlioy did venture the opinion that many of their accounts probably would prove worthless if they had to force collection. On the other hand, the cash stores had no bad debts expense. (Forty-nine stores were found in the survey which did not incur any bad debts although they had extended some credit). Some managers are selling over twice as many dollars worth of goods as others with about the same amount of expense for other costs. (Table 14). Apparently Store 47 has the best other cost ratio to sales. However, it is doubtful if the average store could function satisfactorily with this small amount of expense. The store has no Tahi.k 14 — Variation of Store Sales Compared with Other Costs Other Cost Total Store Other Cost Total Store Class Limits Sales Reference Number Class Limits Sales Reference Number $18,000.00 47 $40,924.62 8 23,910.23 49 75,3,52.56 167 30,967.30 192 81,467.00 197 $80 34 .587. 00 142 83 ,764.. 59 149 to 35,000.00 195 87 ,621 . 46 128 $450 64,377.48 51 $1 ,350 98,686.03 5 83,618.31 125 to 110,853.32 198 96,104.60 129 $3 ,000 118,247.14 168 100,449.31 126 122,608.99 131 1 T^3 631 74 184 29,610.22 178 133,017.94 7 43,812.86 160 148,030.22 148 55,591.06 201 1.52,724.40 4 62,495.35 1.56 193,000 00 171 $500 66,000.00 189 ' - to 67,037.34 185 104,700.53 179 $1 ,350 70,522.09 6 $3,100 138,000.00 186 86,4.57.97 19 to 141,873.51 154 98,625.70 193 $12 ,800 180, 962. 59 188 100,719.25 124 791,159,27 130 103,668.64 127 137,507.00 132 telephone, and does no delivering. Stationery and postage expense amounts to $10 and fuel to $30. There was $40 in bad debts, though the store had 90 per cent cash sales. No money is paid out for de- murrage or for interest on borrowed capital. On the other hand, it is undoubtedly costing Store 179 more for other costs than is necessary. Total sales for Store 47 are only $18,000, whereas Store 179 has $104,700 sales with $3142 of other costs or a ratio 6 times as great. There are many instances where similar comparisons might be made. The average other costs for the 41 stores was $.0174 per dollar of sales. There were ten stores with other costs per dollar of sales less than $.01, twenty with $.015, six with $.025, four with $.035 and one with $.075. Seven of the cash stores are in the first group where other costs are less than $.01. 20 N. H. Agri. Experiment Station [Bulletin 251 Although other costs represent only 15.04 per cent of the total op- erating costs of the 41 stores, they show a definite tendency to in- crease as total costs increase. The influence of other costs on gross margins is usually similar to that on total costs. On the other hand, the exceptionally large item of $.075 appearing under other costs for Store 8, due to bad debts, does not increase the gross margin a like amount. Ap})arcntly, the manager accepted this loss as part of the game and did not attempt to make it up by raising the gross margin. TOTAL COSTS, GROSS MARGINS AND NET PROFIT During the preceding discussion, attention has been called to the important factors which affected the fixed, labor, delivery and other costs of the 41 stores. It was shown in Figure 1 that the costs under these four heads are variable and of much more importance for some stores than others. A summary of these costs for the individual stores is given in Table 22. When total costs are subtracted from gross mar- gins there are 27 stores which made a profit and 14 which operated at a loss. Undoubtedly competition causes gross margins to remain at a low level so that some of these stores are unable to retrieve their losses. Many of the stores do not hold the same relative position when sales are compared with the amount of gross margin that they held when sales were compared with fixed, labor or other costs. (Tables 4, 9, 14 and 15) . This is to be expected when so much variation is found con- Table 15 — Variation of Store Sales Compared with Gross Margin Gross Margins Class Limits Total Sales Store Reference Number Gross Margins Class Limits Total Sales Store Reference Number $2,000 to $6 ,500 $18,000.00 23,910.23 29,610.22 30,967.30 34,587.00 35,000.00 40,924.62 64,377.48 70,522.09 75,352.56 47 49 178 192 142 195 8 51 6 167 $10 ,000 to $15 ,600 $66,000.00 83,764.59 98,686.00 100,449.31 100,719.25 103,668.64 118,247.14 133,017.94 137,507.00 141,873.51 203,330.63 148,030.22 189 149 5 126 124 127 168 7 132 154 18 43,812.86 55,591.06 62,495.35 67,037.34 81,467.00 83,618.31 86,457.00 87,621.46 96,104.60 98,625.70 104,700.53 123,631.74 160 201 156 185 197 125 19 128 129 193 179 184 148 $7 ,000 to $9,999 $16 ,000 to $82,500 110,853.32 122,608.99 138,000.00 152,724.40 180,962.59 193,000.00 791,159.27 198 131 186 4 188 171 130 July, 1930] Operatixg Costs of Grain Stores 21 cerning the importance of these items for the individual stores. It is not the effect of volume of business on these costs which should be emiihasized, but the fact that some managers are able to conduct sev- eral times as much business on about the same cost. Many managers remarked, "If only I could increase my volume of business, I would be all right." On the other hand, these men seldom mentioned the cut- ting down of labor, delivery, bad debts, interest and the costs which are flexible, so as to be exjual to or in a better position than the av- erage. INVENTORY TURNOVER It has come to be considered a business axiom that the more often stock is sold out and replenished, the larger will be the retuiTi on the investment, because a margin of profit is realized on each invcntoiy turnover. A smaller amount of capital is required to do a given ;i mount of business, and market changes are more easily followed when turnovers are rapid. Other advantages are decreases in spoilage and waste, and in insurance and tax costs because of a smaller inventor\\ The inventory turnover of the 41 stores averaged 10.2 times. There were ten stores which had less than 7 in\-entory turnovers, fifteen from 7 to 10, eight from 10 to 13 and eight with more than 13. Store 185 with the largest turnover of 22.5 times had a total cost per dollar of sales of $.1081, whereas Store 192 with the lowest turnover of 3.5 had a cost of $.1510. When the total costs per dollar of sales are compared with the number of inventory turnovers for all stores, a marked relationship is found; i.e., slow turnovers are associated more often with high costs than are the more rapid ones. The average total cost of 14 stores having inventory turnovers less than 8 times is $.1228 per dollar of sales, and for 13 stores having more than 11 turnovers it. is $.1057. The slow turnovers suggest that, apparently, some stores are carry- ing much larger stocks than are necessary. Large stocks are due to several causes: e.g., keeping three or four different brands of dairy or poultry feed on hand so as to satisfy the trade; buying in straight carlots to reduce the cost per ton in spite of a small volume of busi- ness; and the handling of miscellaneous goods such as cement, hard- ware and farm implements. CREDIT Data collected in the state survey showed that 89 dealers had an average amount of $870,521.50 in accounts and notes receivable. There were 48 stores having less than $5000 regularly in accounts re- ceivable, 18 from $5000 to $9999. 13 from $10,000 to $25,000 and 10 with more than $25,000, the largest amount carried in this account being $95,629. The seriousness of these accounts is better appreciated when their average amount is compared to yearly sales. (This ratio is obtained by dividing the average amount in accounts and notes receivable by the vearly sales). On this basis there were 24 stores having average 22 N. H. Agri. Experiment Station [Bulletin 251 accounts receivable in relation to sales of 2.5 per cent, 27 with 7.5 per cent, 20 with 12.5 per cent, 9 with 20 per cent, and 9 with more than 30 per cent. Three stores had extended so much credit that it ex- ceeded 60 per cent of total sales. The percentage of total grain sales which were for cash varied from 10 to 100 per cent. Twenty-two stores were found in the state sur- vey which were selling grain on practically a cash basis. As a usual thing, a liberal credit policy will be accompanied by some bad debt. During 1926, the losses due to bad debts totaled $34,821.15 for 103 stores. In the majority of stores these losses were under $200, but in several instances amounted to more than $2000. Bad debts were distributed among the 103 stores as follows: 34 with less than $100, 25 with an average of $150, 25 with an average of $225, and 19 with more than $500. Bad debts varied from less than Y^ to S^/o per cent of sales. Some stores build up a reserve for bad accounts by setting aside % per cent of yearly sales. When bad debts are compared with sales, 33 stores have bad debts less than .25 per cent of sales, 25 have .37 per cent, 18 have .62 per cent, 11 have 1 j^er cent and 11 have more than 1.25 per cent. Other important costs resulting from supplying credit are interest, credit accounting, office supplies and collection costs. Usually, the greater part of the accounts was in book and not note form, so that no direct income was received for the extension of credit. This means that a charge for credit had to be added at the time of sale or else absorbed as part of the general overhead. A study of grain store credit in New York State showed an annual cost of 13.35 per cent — more than twice the 6 per cent rate charged by banks.* On this basis, the annual cost to the 89 New Hampshire grain stores of extending $870,520.50 of credit Avould be $116,214.48, or $63,983.25 more than it would have cost if obtained from banks. TURNOVER OF ACCOUNTS RECEIVABLE In order to determine the average length of time accounts stay on the books, the amount of average daily sales was divided into the av- erage amount of accounts receivable. This turnover of accounts re- ceivable for the 89 stores varied from- less than five days up to 242 days with an average of 38 days. (Table 16). Cash Discounts Practices varied tln-oughout the state in the treatment of credit. Many managers made no effort to charge for this service or to differ- entiate between a cash and credit customer. Although all stores did not give complete reports on this subject, sufficient evidence was found to show that cash sales increased as the discount allowed for cash in- creased from nothing up to 10 and 15 cents a bag. (Table 17). *Cornell Station Bulletin 430; An Economic Stud\- of Rural Store Credit in New York. July, 1930J OPERATI^•G Costs of Grain Stores 23 Table 16 — Accoimts Receivable Turnover in Days, Reported by 89 Stores in State Survey of 1926 Average Number of Days on Books Less than 10 10— 2!). 09 30—59.09 Above 60 Total Average number of days Number of Stores in Each Class 14 37 25 13 89 38.17 Several stores had accounts on their books for 185 and 240 days. When nothing was allowed for cash, the average per cent of cash sales for 15 stores was 41 per cent; when a discount of $.05 a bag was made, 47 stores had an average of 53 per cent cash sales; and likewise for $.10 and $.15 a bag the average respective cash sales were 57 and 60 per cent. Monthly Statement As a general nde, no monthly statement was sent out from the stores. Only 29 out of 122 stores mailed statements regularly to their customers. Duplicate sales slips, one for the customer and the other to be placed on file, were more commonly used showing the amount carried forward and an itemized statement of the goods sold. There were sections where the managers found they caused dissatisfaction among their customers through sending statements. In other sections, the trade has become accustomed to receiving a statement and often T.\BLE 17 — Distribution of Percentage Cash Sales According to Cash Discounts, Reported by 83 Stores in State Survey of 1926 Number Stores in Each Class Per cent Cash Sales No Discount Discount per Bag $.05 $.10 $.15 Less than 10 3 2 6 1 1 7 8 4 13 7 6 1 1 1 2 4 4 4 3 1 10 19 9 20 29 9 30 39 9 40 — 49 9 50 — 59 9 1 BO — 69 9 1 70 — 79 9 80 — ^89 9 90 — 99 9 Total 15 41 47 53 19 57 2 Average per cent cash sales . . 60 24 N. H. Agri. Experiment Station [Bulletin 251 waits for it before paying the bill. The amount of time given varied from 7 to 90 clays for 73 stores, while 47 stores had no time limit. PRICE ANALYSIS When a customer purchases a sack of grain, he pays for several other services although grain is the primary object of the transaction. The dealer who keeps the store open from 7 A. M. until 5 P. M. is making it possible for his customers to buy grain at any time they are likely to want it. When the customers are given the opportunity to purchase large or small amounts at the car or the store or have it delivered, they are receiving form and place utilities. When credit is extended, they are receiving still another service. Often the trade confuses these services and compares a credit price at the store with a cash price at the car door. The previous discussion has shown that these distributing services cost money and that there is a great difference in the efficiency with which they are carried out. Those stores which have favorable ratios of fixed, labor, delivery and other charges are in the best position to sell grain at the lowest price, although some take advantage of the lack of competition to charge a higher price and to make a larger profit even though their costs are low. Some store managers are much shrewder buyers than others and are able to make savings which help to reduce the general overhead. Because of these differ- ences, the prices charged for grain and feeds of the same standard and brand varied considerably throughout the state. Weekly retail cash store prices were obtained in 1928 from 62 stores iu New Hampshire, for approximately a whole year, for corn, wheat, middlings, bran, scratch feed, dry mash, dairy feed, cottonseed and gluten feed. Because the number of stores were not equally distri- buted by counties it does not seem desirable to make comparisons on that basis. However, when the prices were averaged by counties some were consistently low and others high. Prices for one week in July and one in November were selected for comparison. The smallest range in average prices between counties occurred with middlings, for which there was only 6 cents per cwt. difference be- tween the lowest and highest prices; similarly for corn there was a range of only 10 cents per cwt. The greatest difference in price be- tween coimties occurred with wheat and cottonseed, for which there were ranges of 48 cents and 57 cents per cwt., respectively. In order to determine which feeds showed the greatest variations in price throughout the year, all the low and all the high weekly retail prices were averaged for each. The greatest range is $.79 and $.74 per cwt. respectively for poultry wheat and cottonseed meal, and the smallest range is $.11 per cwt. for two poultrv feeds of the same brand. (Table 18). When all the retail prices for a year are averaged for each standard grain or brand of mixed feed, and compared with the average whole- sale distributor price, the greatest difference is $.31 per cwt. for two poultry feeds of the same brand and the smallest is $.11 per cwii. for corn. July, 1930] Operating Costs of Grain Stores 25 T.\BLE 18 — Average Retail Cash Prices of 62 Stores Compared with Average Wholesale Mixed Car Prices of 10 Distributors for Year 1928* Grains and Feeds No. 2 corn Poultry wheat Standard bran Standard middlings. . . . Bufialo gluten Cottonseed meal — 36%. Dry mash Dr}' mash Dry mash Scratch feed Scratch feetl Scratch feed Dairy feed Dairy feed A. B. C. A. B. C. A. B. Retail Lowest Highest Price Range Average Average Average Retail Price Price Price $2.24 $2.57 $.33 $2.39 2.48 3.27 ,79 2.76 2 04 2.43 .39 2.24 2 11 2.62 .51 2.32 2.40 2. SI .41 2.62 2.57 3.31 .74 2.94 3.07 3.35 .28 3.21 3.10 3.41 .31 3.25 3.16 3.27 .11 3.21 2.71 2.97 .26 2.82 2.71 2.98 .27 2.85 2.80 2.91 .11 2.86 2.71 3.11 .40 2.91 2.72 2.95 .23 2.84 \\'holesale Distrii)utor Average Price $2.28 2 . 49 2.05 2.12 2.45 2.77 2 90 2.99 2.91 2.51 2.60 2.60 2.77 Difference Between Average Retail and \\ holesale Prices 5.11 ,27 .19 ,20 ,17 ,17 .31 .26 .30 .31 .25 .26 .14 .12 *A11 goods sacked; wholesale prices to New Hampshire receiving points. The group of stores having the lowest average price during the year sold grain and feed for less than replacement costs. Undoubt- edly they purchased their supplies on a favorable market and passed these savings on to their customers. On the other hand, the group which charged the highest average price during the year took consid- erable gross margin over replacement values. According to the weekly ciuotations given in the Boston Produce ]\Iarket Report, 40 changes occurred in the price of No. 2 yellow corn* during 1928. In contrast to these market changes the retailers shifted prices on an average of 14.5 times. The average of the up-market corn changes was $.057, and the down was $.061 per cwt. On the other hand, the average of all retail price changes when up was $.07, and when down $.075 per cwt. This seems to show that the stores are no more apt to follow changes in the market upward than downward. When the net deviation for each store was figured on the basis of its price change being greater or smaller than the market change, 28 stores were found which did not change the retail price of corn as much as the market and 7 which made greater changes than the market. *In spite of the fact that requests for prices were asked for on the basis of No. 2 yellow com, there is of course a possibility of confusion of grades. A study of the quotations given in the Boston Produce Market Report shows that com prices of the same grade vary from 1 to 2 cents a bushel; also that differences between the highest quotation for No. 2 yellow corn and the high- est quotation of No. 3 yellow corn vary from 1 to 4 cents a bushel. These market variations for corn prices and similarly for other grains and feeds could account for a small part of the difference in prices between stores. 26 N. H. Agki. Experiment Station [Bulletin 251 Table 19— Retail Cash Prices per Cwt. of 41 Stores During the First Week in December, 1928 Store Reference Number 47 49 178 192 142 195 8 160 201 156 51 189 185 6 167 197 125 149 19 128 129 193 5 126 124 127 179 198 168 131 184 7 132 186 154 148 4 188 171 18 130 Average price. , Average whole sale price ... No. 2 Yellow Corn 52.25 2.35 2.15 2 25 2.30 2.25 2.30 2.20 2.25 2.10 2.20 2.25 2.30 10 20 30 10 10 25 25 10 2. 2. 2. 2. 2 2 2 2. 2.10 2.10 30 40 2.50 2.30 2.20 2.25 2.15 2.20 2.20 2.40 2.10 2.23 2.08 Poultry \^ heat 40 85 25 50 40 20 30 25 25 20 40 35 35 30 75 20 20 35 20 20 25 30 20 20 20 55 40 30 60 30 50 40 35 20 25 40 40 40 20 34 15 Standard Bran 12.25 2 30 2.35 2.30 2.35 2.20 2 05 2.35 15 20 20 20 15 00 30 20 35 30 30 30 25 30 30 30 30 15 15 10 10 25 20 25 20 15 2.30 2.23 2.18 Standard Middlings |;2.25 2.35 2.35 2.35 2.40 2.20 2.20 2.40 2.30 2 15 2.35 2.25 2.25 2.30 2.25 2.30 2.25 2.45 2.30 2 30 2.20 2 30 2.30 2.30 2.30 2.35 2.25 2.30 2.35 2.30 2.15 2.15 2.20 2.30 2.20 2.25 2.20 2.30 2.15 2.30 2.11 Cottonseed Qacrr S2.S0 2.80 2.85 2.95 2.85 2.70 3.25 2 70 70 75 85 75 75 75 75 75 75 75 80 75 75 3.00 2.75 2,80 2.65 2.75 2.79 2.62 Gluten Feed $2 . 80 2 . 60 2.65 2.65 2.70 2.65 2.60 2 55 2.65 2.60 2.70 2.60 2.55 60 85 2 2 2 2 2 2 2 2.55 2 '7 55 80 60 55 55 70 2.60 2.75 2.50 2.60 2.60 2.70 2.55 2.60 2.70 2.65 2.55 2.62 2.51 July, 1930J Operating Costs of Grain Stores 27 Further comparison of store prices with market quotations reveals that a time lag does exist between them. As the market rose, the av- erage time lag of all stores was 2.6 weeks, but when it fell there was an average lag of 4.8 weeks. Retail Store Prices Compared for One Week Weekly jn-ices during the first week in December, 1928, for No. 2 yellow corn, poultry wheat, standard bran, standard middlings, 36% cottonseed and gluten feed are given in Table 19 by stores. These figures show a considerable variation in prices. The greatest range is 65 cents and appears in wheat prices and the smallest is 30 cents api)earing in bran, middlings and gluten prices. Some stores were consistently k)w in price for all goods, while others were regularly high. By referring to the store numbers in Tables 19 — 22 and Figure 1, the effect of low or high costs on gross margins may be seen. Since the gross margin reveals the effect of low or high cost factors, store prices to the consumer are likewise high or low as the gross margin rises or falls. On the whole, the more efficient managers, operating stores at low costs, are passing the savings on to the buyer, although a few take advantage of the lack of competition to obtain bigger profits. Close competition more frequently works to the advantage of the customers than does seeming lack of it against them. There were instances where competition forced the managers to operate at a loss because they dared not raise the margin for fear of losing trade. Their only salvation is to reduce overhead costs; they may have too many em- ployees, or be too liberal with credit, thus increasing the investment and interest on net worth with the added possibility of large bad debts. Effect of Credit on Retail Store Prices Grain quotations secured from the dealers were on the basis of the retail cash selling price per sack at the store. It will be recalled that some of these stores were on a cash basis while others extended large amounts of credit to their patrons. When the stores are arranged according to the percentage of an- nual cash sales along with their respective gross margins, it is seen that store credit costs money and that the trade is paying for it. (Table 20). The stores on practically a cash basis averaged $.0990 gross margin on eveiy dollar of sales. The stores having cash sales ranging from 35 to 65 per cent averaged $.1200, and those with less than 35 per cent averaged $.1270 gross margin per dollar of sales. The relationship between cash sales and gross margins is better il- lustrated when the corn prices for one week are compared wath the percentage of yearly sales which were for cash. (Table 21). The stores which were doing a cash business sold corn at an average price of $2.17 per c^^'t; but those with cash sales below 35 per cent, averaged $2.31 per cwt. for corn. These differences occurred even though all stores quoted cash prices. This shows that the customers obtaining store credit are not paying in full for the service rendered because the 28 N. H. Agri. Experiment Station [Bulletin 251 cash men are also contributing toward the cost of credit and are pay- ing for a service which they do not obtain. An almost exactly sim- ilar trend could be shown with poultry wheat and to a lesser extent for cottonseed meal and gluten feed. On the other hand, opposite re- sults were obtained for bran and middlings; there was a difference of $.07 a cwt. for bran and $.01 a cwt. for middlings in favor of the credit stores. Evidently corn and wheat are used as leaders and are more likely to be changed in price than are either bran or middlings. T.\BLE 21 — Cotnparisons of A'o. 2 Corn Prices with Percentage of Cash Sales Price for Corn Percentage Cash Sales — Class Limits per Cwt. Less than 35 Week Ending Dec. 1, 192S 90 to 100 35 to 65 $2.05 2.10 1 2.15 7 1 2.20 1 4 2.25 2 3 4 2.30 5 4 2.35 2 1 2.40 2 2 45 2.50 1 Number stores in each class 10 15 13 Average price per cwt 2.17 2.25 2.31 As more credit is extended by the stores, the cash customer pays more for corn. CONCLUSIONS Because cases vary, it is impossible to set up operating cost stan- dards and say they are attainable by all stores alike. Conditions differ between stores. The location of buildings as well as the ar- rangement of buildings and equipment and other factors are not alike. What might ai)ply to one case would not to another. Furthermore, it is a fallacy to assume that all managers of the 41 stores are equally efficient and capable. Throughout the previous discussions, the operating expenses of grain stores have been referred to under fixed, labor, delivery and other costs. The stores have been pointed out which have low, medi- um and high costs. Also the important factors w^hich have contributed to their size have been presented and discussed. All of this informa- tion is based on data from the 41 stores. If now we assemble the lowest cost for each of the four headings from the 41 stores and make up a composite total cost, which would represent the most efficient possible method of store operation, we find the following costs per dollar of sales: fixed $.0107; labor $.0352; delivery $.00; other costs $.0022, a total cost of $.0481. Of those stores having delivery equipment which is used only for hauling grain from the car to the store, the lowest delivery cost per July. 19301 Operating Costs of Grain Stores 29 O ■TS o O «2 o c •to o < A vcrage (iross Margin $.1270 . 1200 0990 Number of stores in each Class t^ CO — ^ $.1800 to $.1899 r-4 $.1700 to $.1799 T— < 1-H o 2 ^H 1—1 ic 3 ^ 1— ( 1—1 $.1400 to $.1499 1—1 ^-1 03 a O $.1300 to $.1399 01 CO a o o $.1200 to $.1299 01 $.1100 to $.1199 CO 1—1 1—1 c 3 — "^1 '-' t^ $.0900 to $.0999 1—1 1—1 $.0800 to $.0899 ^ CO $.0700 to $.0799 ^ ^ Ol i. /o Class Limits Less than 35. . . 35—65 c c: T-H c a EC o a o a: a;! a: a CO to C '5c c3 02 o a 30 N. H. Agri. Experiment Station [Bulletin 251 dollar of sales is $.0011. For a store delivering 5 per cent of the grain, the cost per dollar of sales is $.002. This ratio increases as the amount delivered increases, but for reasons explained in the pre- vious discussion, it is impossible to state the net cost for delivery. When the five lowest and the five highest combinations of fixed, labor, deliveiy and other cost ratios are selected, the average possi- ble costs of these stores show extremes of $.0581 and $.2009 per dol- lar of sales. It is apparent that there is considerable chance for im- provement. In general, the results obtained from tlie survey suggest that the managers have not thought of their business in terms of operating ratios and turnovers. The usual procedure followed in attempting to reduce costs was through increasing total sales. Although this is con- sidered a good method, it is not the only way; neither is it certain to reduce costs. Much depends upon the management and how carefully the costs have been analyzed and the gross margin budgeted, whether or not the business will show a profit instead of a loss. There are stores where readjustments can be brought about with the present volume of business operating at the same gross margin which will show a profit providing the flexible costs such as labor are reduced. When sales per man vary $40,000, it would seem that either more business should be forthcoming to some stores or the number of peo- ple employed reduced. Further study should be made of the labor distribution in the efficiently operated stores where there are low labor costs per dollar of sales and high average yearly sales for those em- ployed. The limited amount of information on this subject given in this report indicates that there are possibilities of checking on the reasons for the great differences in labor costs between stores. Fur- thermore, labor costs usually constitute over half the total costs and are flexible whereas many of the other costs are not so easily changed. Grain dealers appreciate that they are not bankers and many wished they were on a cash basis. In fact they considered credit their worst problem. The amount of information at hand shows the cash stores do have an advantage. They had lower costs, took smaller margins and sold grain at a lower average price than those extending credit. Basing final opinion on the data presented, there is no doubt but that considerable variation does occur in the operating costs of grain stores as well as in the selling prices of feed and grain. It has been pointed out that some of these costs are flexible so that they can be changed. In other words, there are opportunities to reduce costs in many stores and bring about a greater net profit as well as to reduce the gross margin or the part which the fanner pays to the dealer for his services. July, 1930J Operating Costs of Oraix Stores 31 X o Urn Per Dollar Sales + or — 0 re 0 c CO c — c: — 'e re — C 0 — re M ei CO M le — CO 0 CO 0: X X le 0 1^ c^i -H 0 le 0 'e -r — M -^ 1 »te w — c •— — -r r- 1~ — oc — cu- re c '.e -p '.e c X 05 CO ei 05 ei c'j X CO i^ 0 'e t^ .-H X re r: 05 ot^ >.e ce re 3 CM « '.e oc ej CI CM -— X — c M c ^ C ^ ^ re 0 c -^ 0 c^i CO t M re '0 CM 0 X -f CM 0 ^ c-i c ^ oocooocoooooooooooooooooooooooooooooooooo 1 +++ 1 + 1 +++++++ 1 1 +++ 1 ++ 1 + 1 + 1 +++ 1 1 -f+ 1 ++++ \ 1 1 + — $632.00 +722.47 +.52.63 +625.65 —404 . 53 + 1,807. 50 —3. 8.58. 50 + 1.101. 52 + 1.. 506. 53 + 1.. 529. 77 + 1.242.44 +5.3.'}5.00 4-788.86 +487.45 -1.749.40 —48.41 + 1.272.97 +2.. 595. 82 + 1.351.32 —896.24 +3,698.64 +883.37 —679 . 1 1 + 1.203.80 — 9(J3.47 +2.371.05 -6 . 589 . IS +5.388 t)5 +3. 127. .33 +4.452.76 —6 , 300 . 87 —3,353.12 +963.19 + 11,158.97 -6,899.90 +3,334.50 +472.06 +5,. 3.38.. 53 +3,8(19.36 — 1.467.96 -11.916.90 1 o o Per Dollar Sale.s — xooooocoi^ — 'rx-^'ecot~^xt~'r'>'05t^-r-T-fret^-TCC«x-ri.ecico = cco-i< ■e CO c -< CO r- 0 0 — -o 05 -H 0 CD '.e 05 re X ro re re X — re re re X -r X 1- 0 'e r5 oj — 'O re 0 '-e 'O re — 'corot^ — >-eo2ccre'i — — — O^-H — — 0 — 0 — O-hO — '-■^ — ""0« M> 2 $2, 07 3. 50 3 . 989 . 35 3 . 87 1 . 35 5. 301. 52 4.015. 00 5.. 500 00 3.720.66 7.032 74 7.322 72 9 , 1 35 . ,54 5,761.69 12.00000 8.0.54.09 4.975.79 6.449.46 9 . 753 .56 8.64(1 13 11.632 80 9.834 40 9 . 060 30 9.937.22 7.789 24 12.013.85 10.3.86.46 10,414 37 10,719.34 9. 24 8.. 86 19. 371. 57 11,6.'«1.25 16.741.74 9.. 892. 00 13.991.87 10.1.59.00 22.000.00 14.408.71 15.. 599. 69 1 7. 361, 52 23. (139. 79 28,0(X).00 15.. 383. 97 82.359.26 § Q Per Dollar Sales 1.501 1.365 1290 1510 127(1 10.50 18.50 1330 1046 121(1 0701 1007 lOSl 0035 10S7 1200 ()XS2 134(1 09S1 11.3(1 0649 0698 12,S3 0914 1130 0SO.5 1511 12.59 0719 1000 1307 i:503 0(1(17 0784 1.500 0820 1101 110(1 1249 0828 1192 - 1 3 < $2,705 .50 3.2(1(1 88 3,818,72 4.675,87 4. 4 19. 53 3,692 ,50 7.. 579, 16 5.931 22 5,81(1 19 7,605,77 4,519 25 6.(165.00 7.265 23 4, 18S,34 ,S, 198 .S6 9.. SO 1,97 7.373, 1(1 9.036,98 8.483,08 9.9.5(1 .54 6 , 238 , 58 6.905,87 12.692,96 9. 182,(10 1 . 377 84 8.348,29 15.83S.04 13.982 92 8,. 508, 92 12.2,88,98 16, 192. 87 17,344 99 9,195 81 10,, 841 03 21..'«)8 61 12.265 19 1 6 . 889 46 18.301 26 24.1.'iO (14 16.851,93 94,276.16 Per Dollar Sales $ , 0(J44 0117 , 0220 0100 .0121 Ol.'JO .0709 .0300 01 65 .0109 .0032 ,0128 ,0131 ,0111 0209 O170 ,0049 0317 O099 ,0227 ,0022 ,00(12 0143 .0049 .00.50 .0080 O300 01.50 0229 01(10 01 73 01. S2 0052 . 0286 . 0367 0170 .0111 0200 .01.50 .0105 .0161 Amount $.80 , 00 281,27 673 37 310 00 420 31 460 00 2 . 90.'{ , 38 1 , .307 38 918 24 681. 53 206,00 8.50 00 884 , 48 786,49 1.. 581 37 1 , 398 , .50 411 28 2.6.57 02 861 27 1,989,64 213 90 617 33 1,416 12 499 10 500,82 835.92 3.142.53 1.672. 30 2.715.13 2,034.07 2.145.02 2.421.64 721 70 3. 951. 57 5.218 44 2,. 536. 05 1.745 93 3 , 596 09 2.895 14 2, 144, 59 12,753.64 C O >. > Per Dollar Sales ^ — 0 — 0 — C re « -H'e 0 t^OM-eeie) re re s t» x ci siei^re — oootxo 05 CM CO re X i-e CO X M -H Tf ^ 'p t^ t- 0 w o -0 — X M x -r co x o re co cj -j- -^ — 05 1^ o^-H — ocMe)OCMOO-H —.00—1—'-' — -HOC OS — Oreo — ocm-x^-oo oooocooooooo 000000 000000 0000 ooocooo «l. 3 * 224. 88 345. 15 .500 00 451 00 281 00 1 , 028 34 1,175 85 461 91 1,386 19 75.00 300 00 944 . 05 1,104 21 566 5,3 597 04 881 23 1,486 68 892 44 1 05 1.617 77 1.131 13 806 08 276 94 925.32 470.73 1.917.03 1 . 055 56 4. 083. 55 458.76 2.293 45 374 20 3,(170 31 209 99 2 , 206 . 50 1,996.85 5.908.51 .4^ o 3 Per Dollar Sales $.1052 .0894 O740 .07.50 Oddl 0.590 ,0698 , 0570 , 055 1 . 0552 .0425 04 (19 .0(139 . 0392 . 0.582 .0.590 .0.549 .03,89 04 12 .0405 .0428 0499 .07(13 . 0524 .0.551 .0427 .0(114 .0602 . 0352 . 0490 . Od.52 . 0(1.57 .0410 .0391 . 0598 . 0500 .0(101 .0440 .0422 .0492 .0712 < $1,895.00 2,137.85 2. 191 00 2.320 00 2. 299 00 2.0(10 00 2.860.00 2.. 570. 55 3,063.47 3 , 449 . 50 2 . 736 00 3.10000 4 . 284 . 50 2 . 765 38 4.386.65 4.780 .50 4.591 18 3.266 .50 3,. 560 25 3.. 548 01 4,108 80 4, 930 00 7 , 538 50 5,260 92 5,. 54 5 29 4,428.86 6,434 33 6 , 679 00 4,165 23 5,920.26 8,063 80 8,749.39 5. 725 05 5.400 83 8.481 23 7,404 76 9. 190. 50 8.036.64 8,1.50 00 10.0(J5.91 .56,366.56 o Per Dollar Sales $.0405 . 0260 .0210 . 0.500 . 036 1 . 0250 .0192 .0200 .0247 .0334 0233 . 0365 .0171 .0132 0149 0370 .0212 0535 .0298 .0402 .0199 .0137 .0214 .0228 .0449 .0271 .0509 . 0465 .0138 .0190 .0397 .0157 .0166 .0107 . 0374 .0130 .0149 . 035(1 . 0.5(13 .0133 .0244 -rt $7:50 .50 (122 88 609.20 1.. 54 5 ,87 1 . 249 22 891 .50 787.44 877.44 l,;i72 57 2. 088., 55 I,. 502. 25 2.415.00 1.1.52.20 936 47 I, 126 (13 3.0.56 44 1.773 (16 2,232 23 2,, 574 88 3,526 45 1,914.83 1,3.58. 54 2. 120. 57 2,291 51 4,525.65 2, 80(1.. 57 5.335.8(1 5. 160.89 1,628 .5(1 2,417 (12 4,928,49 2,090 41 2,290.30 1,488.63 5,315.49 1,9.50.18 2.282.72 6.4.58 54 10.879 00 2,704.58 19,247.45 03 $18,000.00 23,910 23 29.610 22 30.967 30 ,34,. 587 00 35.00000 40.924.62 43,812.86 .55.. 59 1.0(1 62.495.35 64 . 377 . 48 66.000 00 67.037.34 70.522.09 75.3.52 .56 8 1,467 00 83,618 31 83 , 764 . .59 86.4.57 97 87.621 46 96,104.60 98 , 625 70 98 . 686 . 03 100,449.31 100,719.25 103.(168.64 104.700 .53 110.. 8.53. 32 118.247 14 122.608.99 123,631 74 133,017 94 137,. 507 00 1.38,000 00 141,873 51 148,0.30 22 1.52.724 40 180,962 59 193.000 00 203,330.63 791,1,59.27 Store Num- ber I^cTX'N'Nl-'eooo.-0'^05'ncD^^t--lOOl050oc5c>5'CcoTtoxx CO o5 (N Tj. rt CM CM o5 1^ ^ ^ t; 2 z 2 2 22 — 2 2S« 2 Fixed Cost Labor Cost DELIVERY Co5r wm Other costs .:^:■v;^:>\:A^v^'-\y^^:^■JAi^V:■:■t■/V.^v.■.■::;..^ 1 Z 3 4 9 6 7 e 9 10 11 IZ 13 14 15 16 17 Total Co 5T per Dollar of 5ale5 (In Cents) Fi^. 1. Distribution of operating costs of 41 grain stores. 18 19 I i ■■iiiilli; I m- iiiii! liiiiii: I iiiil Iliili ifiiiil •'',<',• i It