What Separates Retailers in The Top 25% of Profits From the Rest?
The top 25% of independent grocers, year over year, make, on average, 3 times the profit of the average independent grocer. So, what is the secret sauce that makes them so much more successful?
Over the next four articles, we will take a deep dive into those areas in which top profit makers excel and what they do to stay on top.
First, their shrink rates are 1% lower than their counterparts – independent grocers reported 3.3% overall shrink, compared to 2.2% at profit leaders. Considering the average profits are approximately 1.2%, this is one of the biggest areas of opportunity.
Second, profit leaders not only manage labor, but they also retain it. Because their turnover rates are lower, they have employees with experience. While that results in higher wages over time, these retailers also see higher sales per man hour. Trained employees are more productive and there is a correlation between lower shrink and training programs.
Another 1.3% of the profit variance came in the form of labor costs. With a higher SPMH, retention of employees, and training programs, it is no wonder their labor figures are so solid.
Third is reinvestment – these companies average higher capital expenditures and, on average, have a lower debt to equity ratio and a lower long-term debt to total liabilities ratio. These companies reinvest their above-average profits to help continue their success in the future.
While these strategies are useful, the critical edge is sales, which are the top priority, because strong sales can cure many ills. These retailers average a higher per-transaction size of 16% over the average independent. Many have loyalty programs (over 60%) and many have defined cross-merchandising and display plans. While wholesalers can be a great asset to store sets, please remember that your neighborhood(s) are unique, and you know them best. Take the time to tweak your merchandising plans if they are provided for you or even consider developing your own. Also – a good plan is just that, a plan. Profit leaders execute on plans.
Profit leaders also drive foot traffic. Depending on your location and community, you have many different options to explore to make your store(s) interesting enough to get people in and shopping.
The above information was derived from the FMS/NGA Independent Grocers Financial Survey. While numbers tell us the areas of success, we will take these figures a step further with real-life examples and how to guides. Our objective with this series will be to bring you new ideas that can help you become a profit leader, not a member of the pack.
In the next article will focus on store shrink, looking at those averages nationally and for-profit leaders, as well as the ways profit leaders, drive those losses down. Meanwhile, if you choose to accept, your homework is to calculate your known shrink and total shrink for 2018 by departments.