Margin leakage in a growing food manufacturing business
Revenue was compounding while EBITDA and cash conversion were not. The review separated profitable growth from complexity-led growth across customers, SKUs, channels and cost-to-serve.
Real advisory experience — details generalised
Situation
Sales performance looked positive at the top line. Behind it, the business was becoming more complex: more SKUs, more customers, more service exceptions, higher inventory and rising cash pressure. Nobody disputed the growth; nobody could explain why it was not converting to EBITDA or cash.
Illustrative image only. It does not depict a client or facility.
What the review focused on
- Revenue growth versus EBITDA movement
- Customer contribution and channel profitability
- SKU complexity and product range impact
- Rebates, discounts and promotional leakage
- Cost-to-serve by customer and channel
- Inventory growth and working-capital pressure
- Urgent freight, service recovery and operational cost leakage
- Margin ownership across sales, finance and operations
Risks examined
- Scaling revenue that does not create cash or EBITDA
- Over-serving low-margin customers
- Keeping too many SKUs with hidden complexity cost
- Expanding before understanding true contribution
- Treating the issue as only a pricing problem when it is also an operating model problem
Approach
- Rebuild margin visibility by customer, SKU and channel rather than by total business
- Load cost-to-serve, rebates and service recovery back onto the accounts that caused them
- Separate growth that funds itself from growth that consumes cash
- Give one function clear ownership of margin, instead of splitting it between sales, finance and operations
Outcome
Before approving further growth or capital, leadership had to be able to state contribution by customer, SKU and channel after cost-to-serve. Where that view did not exist, the honest position was that the business did not yet know which growth to accelerate. The review pushed for that visibility first and volume commitments second.
The practical value was to separate profitable growth from complexity-led growth, and to force a review of margin by customer, SKU and channel before further growth or investment was approved. No financial figures are published here.
Questions that decided the outcome
Detail has been removed or generalised so no client or company is identifiable.
- Which of our growing customers are growing at negative contribution?
- What share of SKUs delivers the last five percent of revenue, and what does that tail cost to run?
- Are promotions and rebates funded by margin, or absorbed by it?
- Is growth consuming cash faster than it creates it?
- Who in this business owns margin, in practice?
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Operating judgment for food, dairy and manufacturing decisions.
Practical notes on manufacturing, co-packing, margin and market entry.
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