How To Double Your Profit

By Bill Scott

My fascination with convenience stores began in 1950, when I was a child growing up in Shreveport, La.

I used to ride in the car with my Mom to a Pak-A-Sak convenience store that was located just a little too far outside of the imaginary boundaries set for a wandering seven-year-old boy. Our local Pak-A-Sak was managed by Mr. Thompson.

Mr. Thompson was a short man, shorter than my Mom, and he had black-framed glasses, he was always clean shaven, and always wore a crisp, clean, white shirt, black tie and a matching apron. I assumed Mr. Thompson owned the store, because I never saw anyone else working there. It became apparent later that he was just an employee that ran one store without help.

As Pak-A-Saks began to saturate the landscape where we lived, it marked the closing of the neighborhood drug stores and grocery stores that once serviced neighborhoods through the 1940’s. Many a day in my youth, I had climbed up on a stool at the local drug store and marveled at the polished stainless-steel walls while carefully watching the ‘soda jerk’ as he created an authentic, Chocolate Malt masterpiece just for me.

The job of ‘Soda Jerk’ has evaporated along with the scores of other $0.40/hr. minimum wage jobs that were plentiful in the 1940’s and the 1950’s. If you are wondering, keeping pace with inflation, and using the CPI data provided by the Bureau of Labor and Statistics, in 2016 dollars that would be about $5.32/hr.—a great deal less than what convenience store employees are paid today.

In the beginning our Pak-A-Sak did not sell fuel, an anomaly that I encountered later when I lived for three years in Hawaii, where fuel sales were restricted to only certain locations.

But, I am getting off topic and way ahead of myself as usual. Let’s go back to 1964 while I was working as an advertising salesman and part time disc-jockey at KJOE radio in downtown Shreveport.

One day, I called on the corporate offices of the local Pak-A-Sak convenience store chain. They were running a series of silly ads on our station using an actor who said things like, “I used to not have any friends. But, I started shopping at Pak-A-Sak, and now, I have friends.” Silly little ads that made you giggle to yourself whenever they lit up your radio.

I had several long visits with that particular senior management official at Pak-A-Sak, and one thing that stuck in my mind was when he said:

“If I could get my employees to do one simple thing, it would double the profits in all of my stores.”

What he was referring to was his obsession to train his employees at the point of the sale, before they rang up the customer’s purchase, to ask the shopper if they needed anything else, and if they said “No,” the cashiers would suggest an item on sale. Of course, his intention was to increase the size of the market basket by one additional item. One extra item seems innocuous by itself, but if that could be done with every market basket, the results over the course of one year will astound you.

For example: in one of our customer’s stores, yesterday, I counted 858 market baskets that went through the register, Assuming an mere $0.25 profit from the sale of one additional item in each basket would have increased the store’s profit an additional $214.50. If you could do that for 365 days it would add $78,292.50 to the store’s NET profit. HOW? Because, all of the administrative costs had already been accounted for. This is significant, because it puts the value earned by a second or third item to be pure profit you wouldn’t have received otherwise. The customer is already there, the cashier is being paid the same regardless of whether a second or third item is sold, so the cost of making that additional sale is $0.00.

ONE OF THE MAJOR FAILURES in operating a convenience store, is the lack of attention to detail. In my book “Retail Is Detail,” I try to point out the fortunes that could be made if you consider each item in your store as a ‘tiny little machine that generates $Cash$’. It’s a well-known fact that in retail, ‘Cash Is King’. Volume of sales means nothing without profit, and the more bodies that come through your stores does not necessarily represent the additional dollars you get to keep.

Imagine your inventory as a factory consisting of 3,000 tiny little machines generating profits for you. Our research has proven that somewhere around 350 or dead, 1,650 are marginal and costing you money by being there, and the remaining 1,000 are producing all of your profit and cross-subsidizing the losses incurred by the 2,000 items that are practically worthless.

How did it get this way?

Convenience store operators, have yet to take the contents of their stores seriously. They went to their suppliers and requested they keep their stores filled, and that’s exactly what suppliers have done. To suggest suppliers know what sells best in a particular location makes no sense. Having no knowledge of turn rates, for the most part, suppliers send you what you received in your last shipment.

Suppliers, they have heard you. “Lots of stock make the stores look good. Not enough makes a store looked ‘picked over,’” and who wants that? The truth is that convenience stores would make more money if they kept their stores stocked with no more than 10 days’ worth of stock. That’s about the same amount you can sell before the invoice becomes due.

However, before you can do this, you need to know the items you are selling and their turn rates. If an item turns once a day, you need no more than 10 of those items at any given time to meet customer service level… and a few extra, just enough needed to replenish the shelves between deliveries to ‘make the store look full.’

“Well, that’s too much work!”

No, it isn’t. Not if you limit your stock to what your customers will buy during that 10-day cycle. Imagine the money you’ll save. Managed properly, you can cut your investment in working capital by 63% or more.

“But, I’ll make less sales!”

No, the opposite will occur. Your sales will increase by as much as 40% or more, because customers will be able to find the items they want much faster and you will eliminate out-of-stocks on your fast movers.

“What will I do with all the empty space?”

Remove a few gondolas. Widen the aisles so customers aren’t bumping into each other. Add some decorative promotional signs, even plants will enhance your customers’ shopping experience. Filling stores with unsalable stock is the worst thing you can do to make the stores presentable. Limiting your stock will also reduce theft and out-of-dates.

The greatest push-back I have received from this idea is the loss of kick-backs and volume pricing deals from suppliers by not signing contracts, which are heavily weighted in favor of suppliers. When you consider the money you will save overall, those deals you are getting from storing your suppliers’ inventory for them is nowhere near as profitable as you might think.

The days of overstocked stores are coming to an end. As we move further down the road toward total automation, the handwriting is on the wall. Get rid of your overstock before it’s too late.

 

 

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