Cash gross profit
Sector Deep DivesGross profit measured in absolute currency rather than as a percentage of sales, which is what actually covers a retailer's fixed costs.
Also written: cash margin, cash gross margin, gross profit in cash
Percentage gross margin and cash gross profit answer different questions and can move in opposite directions. The percentage measures how much of each unit of revenue survives cost of sales. The absolute figure measures how much money there is to pay rent, wages and everything else. Rent is not billed as a percentage, which is why a retailer's fixed cost base cares only about the second one.
The divergence shows up wherever mix moves toward a lower priced, higher margin line. Private label is the classic case in grocery, but the same arithmetic applies to a discount format taking share from a full price one, or to an own brand replacing a concession.
This is the reason a grocer reporting margin expansion in a trade down period is not necessarily reporting a better outcome. Sales fall, so like for like goes backwards, and cash gross profit falls with it while the percentage improves. Three numbers, all true, pointing in two directions.
The practical habit is to ask for the cash number first and treat the percentage as a diagnostic on top of it. Where a management team leads with margin percentage during a period of trading down, that choice is itself informative.
Worked example
Illustrative, in euros. A branded unit sells at 3.00 on a 30% margin, giving 0.90 of gross profit. An own label unit sells at 2.00 on a 40% margin, giving 0.80.
Ten points of extra margin, ten cents less cash. A basket that moves 40 of 100 units across sees revenue fall from 300 to 260, cash gross profit fall from 90 to 86, and reported margin rise from 30.0% to 33.1%.