Scanning for Profits II
By Bill Scott
“The definition of insanity is doing the same thing over and over and
expecting different results. ” -Benjamin Franklin
I’ve been serving the c-store industry since 1978. Over the past 29 years I have watched them flourish in good times, struggle in bad times, seen them passed from father to son to nephew to daughter….. and now, I am watching them die. Ask yourself this question, “Have things gotten better or worse in the c-store industry over the past 20 years?”
The system is broken. There is an answer. The problems are solvable, and the solution is relatively simple. The “fix” is INVENTORY CONTROL. The industry has totally lost control of its inventory. We have dumbed down our stores and relegated the job of replenishing our stores to our suppliers. As a result, c-stores have become auxiliary warehouses for suppliers.
Category Management has its place, but honestly it provides little or no assistance in the area of inventory control. Do you know the value of your inventory in your stores? Do you know how long the Snicker bars will last? Do you know how much profit is in that 20 ounce bottle of Coca-Cola? Do you know how long those Vienna Sausages will last before you run out? Do your managers?
Case in point: I recently observed a beer vendor cram three months worth of a particular brand of beer in one store’s cooler. I observed a cold drink vendor bring in an eight-foot “train” of soft drinks and I heard him tell the store manager, “If you don’t accept the entire order, the pre-salesman directed me to take everything back.”
Chewing gum and cigarette lighters are crammed into every nook and crany Excess inventory is flooding counter space, cabinets, coolers and back rooms - inventory you have paid for that the stores will never sell. Shippers clog sales floors while its un-saleable product litters the floor around them.
Cigarette vendors fill your shelves with products that do not sell so you can take advantage of their “deals”. Rack jobbers shove inventory onto your shelves and push competitor’s products out of their way while managers are busy frying chicken. Managers make up orders without the time or the knowledge to make informed replenishment decisions and your store receives product based upon that flawed information.
Almost every invoice has errors - product is charged on invoices that never arrives, and product arrives that is not on the invoice. You are billed too much for some products and too little for others. Why? Your suppliers have lost control of their inventories too. Their systems are often decades old, and the controls that should exist between ordering, picking and delivery are non-existent. You have no idea what items actually cost you without wading through hundreds of pounds of paper, and your sales prices are based more on size with little or no consideration given to cost. Months, even years may pass before retail prices are adjusted to follow cost. How can any retail business operate when product is sold with no regards to what it cost? Mark-up based on departmental percentages with no regards to turns is ridiculous. Every product has a retail value, and they are not always 40% above cost.
Realize that everyone that is trying to help you is doing it for their own personal gain – financially or otherwise. Most of your advisors have alliances with your suppliers and your competitors and some of these alliances may not serve to be in your best interest.
Your supervisors and managers receive perks, through you or directly from your suppliers, skewing their decisions in favor of the suppliers. I want to say right off that I do not believe there is dishonesty here – at least I hope not. The methods employed to replenish the stores has created a catastrophic loss of control, up and down the entire supply chain. This loss of control is costing c-stores and suppliers BILLIONS of dollars a year. Convenience stores cannot function efficiently unless management knows what’s in their stores and what it’s worth. Dependence on ‘Category management’ to control inventory is killing the industry. You only need to look at the statistics to understand that we need a change.
Don’t you think it’s time somebody stepped up to the plate and asked the hard questions - “Who is leading this industry? Who do you look up to? When are the people you support and pay for support going to start coming up with solutions that work? How long are we going to stand by and watch Wal-Mart, Tesco, Alimentation Couche-Tard, and others dismantle everything we have worked so hard to build-up?”
Store managers are forced to make split-second decisions that cost you thousands of dollars every day, because suppliers bully them (in some cases) into thinking they are acting in your behalf, when in fact they are acting (naturally) in their superior’s behalf. Personnel employed in most c-stores are poorly trained and constantly looking for better jobs. Full integration of BOTTOM-UP information with TOP-DOWN business strategies is absolutely required for the success of all retail operations. Information from outside sources is of secondary importance. Currently, bottom up information, if it is given any value at all, is systematically discounted or simply ignored.
Over all, convenience stores are terribly inefficient operations. The average convenience store has $56,000 worth of inside inventory. That’s about $26,000 more than it needs to function efficiently and meet customer demand. This mountain of unneeded inventory is clogging up aisles and coolers, packed in stockrooms and making it more difficult for customers to shop. Take that extra money and increase your product lines.
I make it a rule not to look into my customer’s financial business unless I am asked, and most of the time I am not asked. Consequently, most of my information comes from sources over the Internet, CSP Magazine, the NACS bulletins, CStore Decision, questions and comments from existing customers and calls I receive from operators that are directed to me via our website (StoreReport.com). What I am hearing is not good. My customers are going out of business.
I read somewhere the other day that convenience store profits from inside sales are down to about 2.2% before taxes. I can’t understand why everyone doesn’t just close their stores and put their money in CD’s. Why would anyone invest their money in a business that returns 2.2% and comes with this much aggravation?
A few weeks ago, I spoke to several of the accountants that work for my customers and asked them straight out, “Why does your boss keep convenience stores open that produce so little profits?” I got several different answers that were surprisingly similar. The gist of the answers I received indicates to me that management does not want to accept what their accountants are telling them. “The definition of insanity is doing the same thing over and over and expecting different results.” Let’s do something different
“Each day, retail management makes multimillion dollar decisions in less than five minutes, without the benefit of real analysis, Most of the time, the potential impact of these decisions is never known.” – Source ‘The Art and Science of Computer Assisted Ordering, Methods of Management – Barbara V. Anderson’..
Bottom-up information from customers and employees must have a direct impact on management. “Bottom-up information” does not mean information provided by outside experts. Slashing salaries and expenses at the store level is not the answer to improving feedback from your employees or your customers. In fact, in most cases it has a negative impact on profits for a variety of reasons. Cutting back on expenses to become more efficient is one thing, but cutting expenses in an attempt to increase profits is like lowering the octane rating of gasoline to get better mileage.
Increased customer service level – Competitive pressures drive the need to improve customer service and cost simultaneously. Knowing how to provide superior customer service at the lowest possible cost is imperative to survive and prosper in the current competitive environment. – Source Oracle.
Hiring more people that will work for minimum wage is not a good way to increase customer service. Working your current employees to exhaustion by reducing your staff does not improve customer service. Cutting back on maintenance and image does nothing for customer service, and where did the practice of having full shelves regardless of their content add up to increased customer service level? “Variety” should take precedence over volume. The practice of letting suppliers take control over inventory replenishment may have been a good idea in the beginning, but it has gone terribly wrong, resulting in hundreds if not thousands of day’s worth of product flooding the aisles and stock rooms in every c-store in America.
Walking through the stores I often bend over to pick candy up from the floor that has fallen from the shelves. After an audit, my hands are black with dirt and grime that covers products that has been there, in some cases for years. “Variety” is not in your supplier’s best interest. We must stop the practice of allowing vendors to cram everything they have from their warehouses onto our shelves. We need to take control of every item that sits on our shelves and get rid of items that are not selling to make room for items that will sell. I was at Home Depot last weekend. They have a “Graveyard” section in their garden center. Most convenience stores need a graveyard for about 10% of the stuff clogging their shelves.
Remember the above quote - “Knowing how to provide superior customer service at the lowest possible cost is imperative to survive and prosper in the current competitive environment.”
Customers don’t come into your store to buy XYZ milk. They are there to buy MILK, the brand is not important enough to justify stocking more brands than you need. Recently one store manager told me, “The practice of ordering a full case of a product to satisfy one customer has got to stop, but I DON’T KNOW WHAT TO DO ABOUT IT. No one pays attention to what I tell them”.
Your store employees know more about your inventory than you realize. As long as they are treated like ignorant minimum-wage workers, they will continue to act like ignorant minimum-wage workers. We need to give them the information they need to base their management decisions in our favor.
The first supplier that starts “helping” operators manage their inventories by working with them to insure the right amount of the right product get to the stores at the right time will have an unbeatable strategy for success. Suppliers need to start looking for ways to make their customer’s stores more efficient. Everyone will benefit.