Benchmarking
May/June
2002
Margins
and profits Ö
this is where the fun starts
By Ian Brown
When young F. W. Woolworth was a store clerk, he tried
to convince his boss to have a ten-cent sale to reduce inventory. The
boss agreed, and the idea was a resounding success. This inspired Woolworth
to open his own store and price items at a nickel and a dime. He needed
capital for such a venture, so he asked his boss to supply the capital
for part interest in the store.
His boss turned him down flat. "The idea is too risky,"
he told Woolworth. "There are not enough items to sell for five
and ten cents." Woolworth went ahead without his boss's backing.
He was not only successful in his first store, he eventually owned a
chain of F. W. Woolworth stores across the nation. Later, his former
boss was heard to remark, "As far as I can figure out, every word
I used to turn Woolworth down cost me about a million dollars."
Our article in the March /April 2002 issue looked at three
ways to improve your convenience store. These included maximising Gross
Profit, control of Non-Salary overheads and understanding how many people
you need in your store by monitoring Sales per person.
Most of us focus immediately on how we can maximise profit
so what better place to start?
Competitor changeÖ.
Some significant changes have taken place over the past few years making
it harder for convenience and cornerstore operators to make a living.
There has been increased pressure in regional centres with the establishment
of large shopping complexes. This, combined with 24 hour trading, has
forced many convenience stores to look long and hard at how they are
going to remain a shopping option for people in their area. Fast food
has been one popular option in the last few years. Providing Al Fresco
facilities has also met with appeal, enticing customers to feel a little
more special in eating and socialising outside the store.
We have noticed that those who are coping with the pressure
are opting for well lit, bright premises with clearly laid out shelf
areas and reasonable space for customers to walk around. The days of
cluttered dark stores are numbered as cornerstores change themselves
to meet and beat this competition.
Some simple taking care of profit strategiesÖ
The following simple strategies may seem like common sense to you, yet
they will in fact contribute to the bottom line profit for the store.
Hang onto your stockÖ
How often have you despaired at finding the closing stock on hand being
less than what should have been there? Well whilst you are probably
not on your own, that is cold comfort when you add up the loss you have
incurred. By taking the following preventative actions you will control
this loss of gross profit.
Prevent:
« Shoplifting
of minor items
« Staff pilferage
of minor items
« Damage or
evaporation while stock is in storage or on display
« Stock received
but not checked against delivery dockets or invoices - ensure you are
not paying for more stock than you have received.
Quick
Benchmark:
Cornerstore:
Cost of goods sold 75% or less
Gross Profit 25% or more
Service Stations:
Cost of goods sold 91.01% or less
Gross Profit 14.09% or more
Make money by saving costsÖ
Actively try and achieve the following to improve the bottom line with
cost savings by:
« Avoiding too many small orders with high freight costs for
accessories or grocery items
« Take advantage of settlement discounts where they are worthwhile
« Where possible rationalise the stock and achieve quantity discounts
from fewer suppliers
Quick
Benchmark:
Cornerstore:
Gross profit per $ of wage $1.51, or more
Service Stations:
Gross profit per $ of wage $2.24, or more
Manage the stock
for more returnÖ
Acting upon the following steps have allowed many businesses to improve
their Gross Profit
« Inaccurate cost prices or excessive discounting can cost you
dearly
« Reprice quickly on old lines or after a promotion to achieve
your current desired selling price
« Strengthen your sales mix to ensure enough sales of higher
margin lines
« Ensure that you can achieve clean, bright attractive display
of all stock and merchandise.
« Think about where you position the stock in the store. Put
the fast sellers at eye level - give them more shelf space and so on.
Quick
Benchmark:
Cornerstore:
Stock turn rate 21
Service Stations:
Stock turn rate 38
Where to from here...
Well you don't need us to tell you that many of these tactics are known
yet they will deliver more Gross Profit without your customers even
noticing. Only if these changes fail might you need to look at raising
pricesÖ. even then be selective.
Feedback corner:
Thank you to those readers that were in touch following our last issue.
We were please to help a number of cornerstore operators.
Let us know what you would like addressed in future issues
and we will be pleased to pull together some suitable material. Your
questions will be shared by others so get in touch with us. Call
us on 1300555334 and speak to Catherine or Ross.
Ian Brown is Director, FMRC Benchmarking.