Tip of the week
A Radical New Idea -2
Sharing in a sense of ownership within an environment of trust and respect are key elements necessary for the success of any group, organization, small shop… even for a Fortune 100 company. I have yet to meet someone who has truly ‘done it alone’. Employees who have a sense of ownership are more honest, more dedicated, more motivated and far more valuable to an enterprise than those who aren’t.
I’ve worked with hundreds, if not thousands of convenience store personnel, both in the stores and at company headquarters. I have found some of them to be quite remarkable, but all of them capable of adding much greater value to a company than is expected of them. Yes, you may be wasting extremely valuable resources you don’t even know about. I can promise you, there are diamonds in the rough just waiting to be polished.
Interested? A good place to start is with your second most valuable asset, the inventory in your stores. If you’re like most convenience store retailers, you have two or three shifts. Take the number of employees you have and divide your stores into sections. Make each employee a ‘section manager,’ and ask them to take responsibility for the section(s) they manage. Have your store managers grade them on the section’s cleanliness and presentation. Once a week, give out a blue ribbon to be placed on the winning section and maybe a small gift… a coupon to use in the store, five gallons of gas to help them get to and from work, or maybe just a pat on the back and a ‘thank you’ note from a company manager. Employees work for pay… but they long for praise.
The store’s inventory should be audited by the store’s employees and spot-checked occasionally by a store supervisor. You can’t do this unless your computer tracks the number of items of each brand in your store. Using our system, we provide our clients with a printout at the beginning of each shift, targeting items that were over or short on the prior shift.
Starting on page 85 of our book, “Turning Convenience Stores Into Cash Generating Monsters,” Jim and I go into far more detail, but what we discovered when we began auditing our client’s stores in 2004, was that on subsequent audits, 85 – 90 percent of the items in the stores were neither over or short. That means in a store with around 2,700 items, between 270 and 405 items are considered high risk.
Auditing the store requires approximately three hours per day, most of the time devoted to the high-risk items, and our experience tells us there is more than ample slack-time to accomplish this task, with selected high risk items to be audited daily, and the remaining low-risk items audited during a two to four-week period. It breaks down to about two hours and twenty-four minutes dedicated to high-risk items, and the remaining thirty-six minutes for low-risk ones. Spot checks by store supervisors on high-risk items, helps to remind store personnel how important those items are to you.
When a high risk item pops up on the shift’s high-risk list, an employee who may have forgotten to pay for the item will be reminded of the importance of that item to the company.
Audits are taken with a hand-held data terminal and transmitted to the SRDC computers the instant an item is scanned; the system adjusts the inventory, recalculates a new moving-average cost for the product and is used to prepare the next shift’s high-risk list. For example, if a pack of Marlboro Lights 100 goes missing on the first shift, an employee on the second shift will scan it again. The more often an item shows up on the list, the more likely it is it will reappear on the next shift’s list. It’s a decision made by the SRDC computer and based on on-going historical data for all stores networked to the system.
In most retail operations, I frown on items coming in unannounced, but if it’s already clogging up your aisles or sitting in your storerooms, you most likely will decide to put it on the sales floors and make it available for purchase. As a consequence, you may have no alternative but to start with the suggested retail price or even an arbitrary mark-up figure based on a category.
In the case of the latter, remember our formula from a previous exercise: Retail = Cost / (1 = %Cost), or if you’d rather use a markup figure, remember the mark-up multipliers are 30% profit = Cost *1.4286; 18% profit = Cost * 1.2195, 45% profit = Cost * 1.8182, etc.
Hint: You can create a simple table of common markup multipliers using the following exercise: 1 / (1 - %Cost as a decimal): e.g. 30% profit = (1 / 1 - 0.30) = 1.4286, 18% profit = (1 / 1 - 0.18) = 1.2195 and 45% profit = (1 / 1 – 0.45) = 1.8182. Better yet, you can put these formulas into a simple spreadsheet… see explanation at http://www.cstorepod.com/html/exercise__4_-6.html, and let your PC do the calculations for you.
Before you decide to accept a new brand in your store, remember these famous words: ‘NEW COKE’. It was one of the greatest business blunders since IBM relinquished the PC market to Microsoft. A new brand either has to wean its consumers away from its competition or it has the harder task of creating a new market for itself.
The process of making a new brand successful is so complicated I won’t even attempt to go into it now. Suffice it to say, 28 to 55 percent of all new products introduced into the market fail, and if they fail in your store, most likely you’ll be the one to end up absorbing the losses. The sinister side of this is: even if the product fails completely, the manufacturer benefits, because he gets more of your cooler space.
Your store should not be a test lab for new product introductions. It’s bad enough when a manufacturer test a new product in one store, but when they test one in all of your stores, the failure rate multiplies against your favor.
Let’s say you receive forty-eight items of a new SKU in each of your stores. If you have ten stores, it adds up to 480 items that have an average failure rate of 42 percent. The problem is, your supplier should be doing extensive research before ordering new products from their manufacturers, but honestly, so many new products hit the market every day, we can’t blame them for not be able to keep up.
Even when new brands are successful, adding them to your store doesn’t necessary spell ‘profits’. Consider a statement made six years ago by Morgan Stanley analysts William Pecoriello: "While Bud Select has grabbed a 1.3% share ... it appears to be almost entirely cannibalistic of other [Anheuser Bush] brands.'' Jim Arndorfer of High Beam Research added, “…overall the brewer lost nearly a share point in supermarkets, prompting experts to suggest that Bud Select is eating its own.” Unfortunately these pearls of wisdom often come too late to retailers who have suffered losses from manufacturers’ failed experiments.
Pricing new brands in your stores is a toss-up, and with an average 42 percent failure rate among all new brands, it emphasizes the need to be more accurate in your pricing. If manufacturers aren’t capable of accurately forecasting sales and setting MSRP’s properly, then suppliers surely aren’t, and you will have to do the job for them… or stop accepting unproven products in your stores. The result of sudden unexpected arrivals of new and unproven products is just one of several reasons your profits are as low as they are.