Archive for August 16, 2012

Understanding “Extended Contribution”

Anyone who believes that successful retailers are driven purely by the numbers are either studying for their CPA, new to retailing, or perhaps both.  Walmart, Kroger, Wegmans, Publix, HEB, and  other successful grocers were  all founded by visionary entrepreneurs who understood that providing a pleasurable shopping environment along with the right products at a reasonable price, with an added touch of special service was the perquisite for success.

The aforementioned group of retailers were certainly not oblivious the science of retailing.  They know very well the numbers and the processes that make for a profitability, but rather they understood that some elements of  retailing remain imperative even if they can not be directly attributable to significant sales and resulting profits.

Here are a few offerings and amenities that often are not profitable as individual entities;

  • In-Store Pharmacies
  • Nutritional Programs
  • Organic Products
  • Sushi Bars
  • Coffee Bars
  • Salad & Soup Bars
  • Home Delivery Service (and In-Store Pick-Up Service)
  • Home Meal Replacement Programs
  • Carry-out Service
  • Bulk Foods
  • Service Seafood

So why do we still find many of these offerings in very successful and profitable stores?   The quick answer is these services promote the image of the store and the all-important aspect of variety that many shoppers expect their traditional supermarket to offer.  Given financial analysis of these offerings, individually, it becomes a no-brainer for their elimination.  However, take away any one of the listed services and you will likely lose shoppers or shopping trips of your existing customers that transcends that individual offering.

The savvy, “artful” retailer understands this principle.  They have learned to discern the difference between the individual financial profile of each offering and its “extended contribution” to the business.  Measuring this contribution can be difficult.  If you are a retailer that uses surveys to gauge customer perspectives, you already have a tool in place to score these amenities and services to better understand their perceived important to your customer base.  If you happen to have customer data at the household level, you have an opportunity to profile users of these amenities and determine how these shoppers rank in terms of their importance to your business.

No matter how you determine the “softer” contribution of these often forgotten bits of the business, eliminating them purely on the direct financial contribution, can be disastrous, especially if they happen to be important to your image and to your most profitable and prolific shoppers!

 

mh