Archive for Retail Metrics

Operation “Wallet Recovery”

I’ve heard it said many times by more than one supermarket retailer that they believe they have a very loyal shopper following.  Many of these same retailers are shocked when they discover that they are only supplying about half of these shopper’s grocery needs.  In fact, I have tracked the “wallet share” of several retailers with strong “loyalty” programs  only to watch a precipitous drop in their share of shopper requirements over the past five years, especially among their very best shoppers.

Yes, despite the best efforts of some very good retailers, they are losing their grip on their best shoppers. Certainly some this attrition is unavoidable.  New competitors  from other retailer channels are taking a bite out of the supermarket pie.  On-line retailers, Amazon for sure, are now selling shelf stable center store products on-line to a growing audience.  Big boxes and specialty retailers are taking significant share on both the “price” and the “fresh” pieces of the business.  Finally, with the lingering recessionary environment, shoppers have drastically expanded their “consideration set” for all their sources of grocery items as they have adapted a renewed “cost-containment” mentality.

Yet, growing the business for many supermarket chains is still possible, all the bleak aforementioned realities withstanding.  However, to be successful at winning back lost shopper share requires a plan that should include the following steps;

  • The first step in operation “wallet recovery” is understanding where the leaks are occurring and how big they actually are.  Both primary and secondary research will be needed in this step, but basic stuff, nothing terribly sophisticated needed to create this learning.
  • The second step is developing a strategy to recover this lost business, given the limited resources you have to do so.  This means not chasing every shopper, every dollar in every category.  It requires customer data, analysis and actionable strategies.
  •  Thirdly, the retailer must understand that winning back their shoppers share of wallet is an ongoing, never-ending process that must optimize limited resources and involve merchandising, marketing, merchandising and even human resources.  Consequently, great focus and commitment is required.

Customer loyalty is not dead, but it has changed.  It more elusive and less sustainable.  Successful loyalty marketing now requires new strategies and a focused, committed approach.  More to come on this topic.





Finding Common Ground….that isn’t at the bottom of a pit

U.S. Supermarkets generate nearly $700 billion in sales and over 22 billion transactions per year.  With so much money and many shoppers in play, it should be no surprise about that the industry has traditional been a magnet for huge investments from the consumer package goods (CPG) community.  But there has always been something missing from brand and retailer interactions.  It is often very difficult to get into this topic very deeply without writing an entire book.  Incidentally,  Glen Terbeek did just that back in 1999 with a book entitled the “Agentry Agenda”.

The book described the “friction” created by brands and retailers in the grocery channel pipeline and the inefficiencies this friction fostered. Diverting, slotting allowances, misuse of trade funds and dozens of other trade practices designed to solve short term financial needs, have cluttered this ecosystem at the detriment of the consumer.  Years ahead of his time, Mr. Terbeek understood that with new digital devices and systems, eventually consumers were going to seize the reins of this inefficient process and find other ways to acquire grocery products if bricks and mortar retailers and their brand partners don’t start playing “nice”.

So let’s define the current environment, which I believe is the antithesis of  “nice”.  Having toiled on the retail side of this business for several decades, I can safely say that the retail version of not-so-nice involves a variety of practices couched in receiving as much brand money and content from brand partners without providing the brands much in return.  Further, retailers can be very short-sighted and tactical when it comes to their interactions with brands and almost always believe that their brands have more money to give them than they receive.

Retailers have implicitly admitted that making money by selling to shoppers is getting more difficult by the day.  Consequently they are looking to the brands for increasing support and funds to become more profitable buyers, not better sellers!

Playing not-so-nice for the brand community is exemplified as their short-term priority of driving cases sales of the product even if the retailer or consumer demand of the product does not warrant the product in the system.  This practice leads to ah hoc promotions which continue to “push” products into the system as opposed to being “pulled” by consumer demand.   This mentality also leads to diverting and other short-term trade practices that distort and clutter the pipeline.

For the sake of brevity, I have somewhat over-simplified the process and have intentionally indicted the entire food industry for inefficient practices.  My apologies to all retailer and brands that have broken out of this paradigm of short-sighted, self-serving objectives.  For sure, some have taken a longer view and are making headway towards actually creating synergies from their combined efforts.  For those that are moving forward, they are likely trading data, working together to layer their collective promotional efforts, and are being upfront with one another every step of the way, understanding the needs of the other out of the partnership and working in earnest to achieve those goals.

Finally and the point of all of this, if brands and retailers do not evolve to become better “agents” of the consumer, lurking around the corner, are new players positioning themselves to assume command. This proverbial paradigm shift will not be easy.  Mr. Terbeek sent out the first warning flare thirteen years ago with his book.  Little has changed since.  Together, brand and retailer incumbents have dug a pretty deep pit from which to climb out of.    Systems, intelligence and the models now are in place to begin to create synergistic partnerships.  Let’s hope brands and retailers can soon find new common ground……. somewhere other than in the bottom of the pit.












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!




The Most Important Retail Metric of All

In all my years in the retail industry, I never had the question posed to me, “What is the most important measurement for retailers to monitor”?  Despite no one every asking, it’s a fair question I think.  Given that most retailers appear to be driven by the metrics that interest the financial community,  the list of candidates likely starts with metrics like comparable store sales, revenue, and of course profit.

As important as all of these common metrics are, none really speak to the “potential” that a retailer has to improve on any given number.  To place performance in context, at least in my view, one needs to include spatial metrics that speak how efficient a retailer is producing profit with the allotment of retail selling space they have to work with.  Can you see where I’m headed here?

About twenty years ago, spatial measurements were emerging as space management tools such as Apollo and Spaceman came on the scene.  For the first time, supermarket retailers had the means to understand how the placement of products in the store and on the shelf impacted sales and profit.  As a result, epiphanies were common place as retailers began to adjust space allotments and placements to a variety of items and results could be projected.  I had the privilege of working with Dr. Brian Harris, the founder of Apollo Space Management as well as the ensuing scientific approach to category management back in the early 90’s.  One of the key learnings that emerged from his work then was that we could actually combined sales performance with space performance we then had a metric that could help us understand if our performance was being both profitable and efficient.

Enter GMROI.   GMROI, (Gross Margin Return on Inventory Invested), calculates profit generated by the dollars (measured in average inventory cost) on each item placed on the shelf.

GMROI=  Gross Margin/Average Inventory Costs

The formula is simple, but in order to calculate Average Inventory Costs, you need a space management tool that calculates days of supply, holding costs, etc that comprise Average Inventory Costs.

Armed with GMROI numbers retailers could make judgements category by category, item by item, store by store.  Below is a quick view report from the 1992 Marsh Super Study that uses GMROI as the defining index to measure category performance.  Any number over 1 denotes the category is returning positively over the investment, but beyond that, the metric provides a relative unit of measure to compare items and categories.



The above report depicts a variety of metrics related to spatial performance.  Anyone of them are of potential value to the retailer as a means to adjust and improve performance .  GMROI, which is depicted in the far right hand side column in the table above, begins to paint the picture that category managers can use to fine tune space allotment, sku rationalization, and other decisions.  But if the retailer is not privy to “advance” spatial metrics offered by space management tools, a simpler metric, Gross Margin/Retail Square Foot is still a very telling number, however, it is much more difficult to look at any level of meaningful granularity without the space management tools.

So, with the admission that we need a number of measurements to manage the business,  my vote for most important retail metric above all others is GMROI.  It provides the combination of profit that is earned by manageable business units with how smartly the unit being measure is positioned and allocated in the store.   GMROI averages can be the yardstick for departments, categories,and even items, allowing  comparisons and categorizations so that retailers can make adjustments in pricing, space allotment, stocking and handling practices, and even positioning within the layout of the store.  I know of some retailers with well-seasoned space management departments are using this metric successfully.  Others should try it!


The Forgotten Category Metric…”Location”

I could very quickly list about a dozen metrics that category managers use with some regularity to evaluate  category performance.  Dollars per linear foot, percentage of total sales (distribution), days of supply, and inventory holding costs are just a few of those.   As a matter of fact, the savvy category manager more often complains of having too much data and too many metrics than not enough.

But yet among the plethora of information there is an almost “mystical” absence of any information about how the placement of categories and departments effects performance.

Let me explain.  Many of us have seen thermal maps that depict where shoppers go (and don’t go) when they shop the store.  Simply put, there are aisles, alcoves, and even perimeter locations that are dying from under exposure.  Shoppers just don’t go there.

The thermal map here depicts a supermarket all the various areas of the store that are well populated with shoppers (green-yellow-red) and those areas that are less frequently traversed, (blue-deep blue).  Notice there’s more blue than any other color?

The reason for these “vast wastelands of retail” are two fold.  One is rather intuitive.   The products that are merchandised there have little or no appeal to the shopper.  They are either redundant with other similar products that shopper has already purchased, or they are just very uncommonly purchased items, with very low household penetration numbers.

The second dynamic in play is less intuitive and almost completely off the retailer’s radar screen.  It is that there are overt reasons why shoppers shop the way the do, where they tend to go, and how they tend to get there.  These tendencies are so common and  have been proved to be so universal they are principles in my mind.  Without getting  into detail the individual principles here, (I would recommend you read some of the great work my mentor and ex-boss, and fellow RetailWire contributor,  Herb Sorensen has published on this topic), I will list several of the key principles for context.

1.  Shoppers like to shop counter-clockwise (right to left).  (Right handed stores are good Left handed stores, not so much)

2.  Shoppers are much more productive spenders early in their trip and spending diminishes as they progress through the store.  (There are diminishing returns on long trips)

3.  Shoppers spend only about 25% of their time “shopping” and about 75% “going” from spot to spot in the store to shop. (Improving “shopping time” can be very fruitful for the retailer)

4.  Shoppers migrate to open spaces, they don’t like aisles and cubbies, they also like open sight lines.  (Store design and layout implications are abundant.)

5.  When shoppers do visit aisles, they frequent the polar ends of the aisles much more so than the center of the aisle. (Be careful what you merchandise in the middle of the aisle, it may die of loneliness.)

Ok, I could go on and on with dozens of additional scientifically proved principals.  But I think you get the drift that with the aforementioned dynamics in play, it does matter where in the heck you put things in the store.  Here’s one example:

Looking at two nearly identical stores with similar square footage and layouts, the Household Cleaner Category in the left side diagram is place earlier in the shopper’s trip cycle when they are spending faster and in more volume and where 25% of all the shoppers are exposed to the category.

On the right side, we see the same category placement later in the shopper’s trip and in a aisle where only 12% of shoppers visit.  The end result is 6% of the shoppers make a purchase in the category in when the category is in a superior location….3X over the sales it generates in an inferior location.  This might be really important to know, if you find your Household Cleaner Category being commandeered by the big box stores.

I understand fully that not all categories can be placed in the stores “hot spots”.  But the point is that categories will perform radically differently depending up where they are placed in the store.  The good news is, there is a process that can rank and prioritize categories and match those categories to the where the shoppers are going in the store.  The results can be unbelievably lucrative for not only the category, but the overall store in terms of basket size, profitability and even shopper satisfaction….it works, I’ve seen it!!







Style over Content?

Mobile technologies, QR codes, Near Field Communications are wonderful.  They are quickly changing the conversation and the way shoppers engage merchants.  But is the technology ahead of the content?  Is it ahead of the strategy, or even the ability of retailers and brands to even measure and understand these new engagements?

More likely than not, the prevailing answer to each of the aforementioned is yes.  Not that we should get caught up in pedantic detail of thirty page strategies or lengthy reports…..but we should be devoting some major attention to both. But what cannot be overlooked is the inherent elevated expectations from the consumer that the quality and volume of the content we deliver via these new technologies is worthy of the delivery mechanism.  Better said, great technology demands great content.  

Great content contains three vital elements.  Relevancy, Value, and Timeliness.  To be relevant, we retailers must use customer data and transactional history to learn quickly what floats the shopper’s boat.  Value can be both monetary and an informationally based, but more the former than the latter.  Timeliness implies a sense of urgency, a call to action.   There is no quick and cheap ways to make this happen.  But in the retailer, brand, third party partner triage, there are some basic rules of engagement that should be considered.

Retailers must make investments of people, offer expense, and promotion in channeling existing offers and deals to these new media, understanding that there are no magic buckets of new money from their brand partners that will suffice as the sole source of offer content.  There is no substitution for the retailer’s own content to dominate.

Brands, when new funds can be made available, should rightly insist that their retailer partners have both the sophistication and the willingness to share customer insights and investment results to qualify for their fair share of these funds.  But once the brand partner has access to the retailer’s data, they have an added responsibility to help the retailer honestly grow the category and their business, not just the brand’s own share at that particular retailer.  Brands must be prepared to adjust their content to adapt to the retailer’s customer, not force a pre-conceived brand strategy down the pipeline if it is not a good fit.

Content and Technology Partners have a role to play as well.  They need to solicit constant feedback from the brands and retailers to refine and strengthen their technology or their content to insure the consumer remains engaged and does not become weary of antiquated technology as others around them are becoming more efficient.

In real estate it’s location, location, location!   

In technology enabled CRM, it’s content, content, content!










Strategy Matters


Managing by the Numbers Often Leads to Really Bad Numbers!

Let’s face facts, somehow along the way, the accountants have taken over much of our business. In some organizations they are calling most of the shots these days without having a basic understanding of what drives the business.  Instead of assuming their more traditional role of an internal service provider, most now are setting the direction for the business, sending out mandates, rules, and budget templates, everything on their timeline!!  If I can continue the whining just a bit more, we marketers now must “cost justify” everything we do, even though much of marketing is based on qualitative relationship building, sponsorships and community involvement….etc, etc.  Marketing Armageddon is here!!

As means of full disclosure, I am a business-marketing major that suffered (and I do mean suffered) through three mandatory finance and accounting classes some years ago at Indiana University.  In each of those classes I was painfully weary that someday I would need to remember the how to read a P&L sheet or understand the concept of  “net present values”.  But it was my fervent hope that those “accounting” moments would be few and far between.

But when it came time in my business career to interact with these accounting and financial tools, it became immediately evident to me that these numbers and techniques were actually very useful to a marketer or the care-taker of the brand. Much due to the fact that there are now means and metrics to measure most of the marketing efforts.  In fact, armed with customer data, I was in better shape to analyze and decipher program results and promotional investments than anyone in the organization.   But it also became very clear to me that how companies prioritize and position these tools and their metrics, has everything to do with what type of company they become…..or if they even survive!

Let me explain.   When companies are led by their finance and accounting department’s generated sales goals, margin

“Beans I understand, the rest of the store, not so much”!

rate requirements, etc.. in many cases these spreadsheet projections do not reflect the competitive landscape, nor the aggregate goals of each part of the business. In this top-down budgeting model there is little empathy for the economic impact of customer service, marketing, sponsorships, pricing, and all the other components of the brand affect those numbers.  When sales are built from a list of financial requirements, bad decisions are almost always the result.

I call it the Retail Law of Unintended Consequences (RLUC). The essence of the law is …..

For every positive manipulation of numbers on a spreadsheet to improve profit and grow sales there is VERY STRONG potential opposite negative impact that could damage customer service, employee morale, and the shopping experience”.

While short-term minded accountants, financial gurus, and efficiency consultants often dismiss these effects as necessary pain points to reach financial obligations or objectives, they (more often than not) find themselves wondering why their manipulations do not result in the intended profit gains prognosticated by their spreadsheets.

The answer to this dilemma is spelled out in the (RLUC)  It is well understood by good, long-standing, profitable companies everywhere. Cutting expenses, managing labor numbers, reducing store hours, without regard to the aforementioned consequences, will chase customers away, reduce sales and ultimately put the enterprise in a worse, not better  financial situation .

But there is hope.  Good senior executives, even some controllers and CFO’s  are learning to ask the right questions before advocating and implementing any alluring spreadsheet maneuvers.  Some of these questions are;

  • Are your financial goals reasonable given your marketing position in the marketplace, your competitive environment. etc?
  • Are your margin rates tenable given your competition and the shopping experience you offer and the lingering down economy?
  • What effect does the service or offering that is to be cut or eliminated have on sales?  Does it negatively impact a competitive advantage?
  • If expense reduction is advocated, how could this reduction diminish the “value proposition” you have with your customers, your trade partners, and your employees?

The list could go on for several pages, but the gist of the message is that even the smartest of retailers can sometimes become infatuated with consultants who make their living off of shaving expenses and the promise of enhanced EBITDA (on paper at least).  While some of these expenses could represent real savings and true efficiencies, many represent real opportunities for damaging your brand and suppressing sales.

Someone smarter than I told me a long time ago the best way for a retailer to “take more money to the bank” is by growing sales and customers, thoughtfully….not cutting services, hours, amenities, etc. But as in most things retail, a balance between more “artful” sales and customer-driven investments and the spreadsheet efficiencies is the optimal environment.  Also important is having the right checks and balances in the organization so that financial-based decisions are properly examined and vetted before being put into play.

This is my experience speaking… to hear from you.