Recalling his time profitably running his college’s Student Union, Jordan Peterson, author of 12 Rules for Life, said: “How can you lose money when selling beer to college kids?”
Why it matters?
The point is that before he took over, the Student Union was not making a profit. Selling beer to college kids is easy to say but it is often not clear which product is the profit generator.
While most local retail owners are constantly looking for the product that will be the big profit driver, many put too much reliance on their wholesale vendors to deliver the product for them.
This passive attitude to range management may become more of an issue because of market changes as consumers become more comfortable buying more things on their phones. One-click while sitting at home is the ultimate convenience purchase!
How the supply chain works
In the past TV advertising used to send consumers running in-store to buy the latest brands. But the consistent quality of most packaged goods brands makes them ideal for selling off a screen. There is no need for the shopper to poke them to check for freshness.
There are two risks for the local retail owner. First, the behaviour of shoppers may be invisible to them because they cannot see them at home buying online.
Second, big brands invest a lot in owning the centre aisles of supermarkets. But if footfall continues to decline this spend could move to direct-to-consumer channels, like Delliveroo. Less investment in the supermarkets will have a knock-on effect on the wholesale supply chain as brands choose to spend their marketing budget closer to consumers.
Most local shops buy from a price list order form (PLOF) that includes the best sellers on average across all supplied locations. An understanding of what your customers want to buy has to be provided by you.
What you can do
The first thing local owners need to do is to start actively managing the inventory that they stock. Remove slow-selling lines. This is good business. Waitrose has just done this. By cutting 11% of its stock-keeping units across two-thirds of its inventory it has grown sales and margins. In the first half of this year, gross margin improvements more than covered higher wages and marketing costs.
The second thing local owners need to do is to plan to operate more than one store. It is hard work to take control of your inventory. But once you have put the processes in place to do this, they will scale to any other shop that you operate. This will give you a competitive advantage against other local operators who are simply relying on their suppliers to get it right for them.
And once you get to around five or six shops then you will start to find that your suppliers really will be able to help you with extra merchandising support and better deals. At this point, you will have had to develop the leadership skills to hire and retain motivated staff, who can take your business forward.
One of the lessons of the 1990s, when John Irish encouraged SPAR owners to adopt longer opening hours, was that the new business disciplines that were required gave them a competitive advantage.
Both these actions will move your business forward today and position you to keep a place in the minds of tomorrow’s convenience shoppers.