Grocery store profit margins are naturally thin. Larger economic and cultural forces are squeezing those margins ever-tighter, creating challenges for even the most experienced store owners.
These and other forces are beyond any individual store owner’s control. To protect grocery profit margins in such a rapidly changing and competitive marketplace, you have to focus on what you can control.
Primary among those things is your own thinking—specifically, the way you think about your day-to-day store operations. What if they didn’t merely represent the cost of doing business, but were drivers of revenue and increased profit margins? With a shift in mindset, you can make that happen. Here are four mindset shifts we recommend.
Mindset #1: I will get the most from my pricing strategies.Minimizing costs is just one aspect of increasing your profit margins. Maximizing the effectiveness of your pricing is just as essential—and a strategy that’s often overlooked.
While many grocers employ split/limit pricing to boost volume, just as many fail to configure their systems to account for the various purchasing scenarios it creates. Let’s say you decide to offer a “Buy 10 for $10” special on individual rolls of paper towels. Some of your customers will take advantage of this deal and stock up. However, if the proper policies and protocols haven’t been established, shoppers who buy in quantities below your limit may be taking that same discount. Closing this loop with smart system administration is key to maintaining a healthy profit margin on items priced for upselling purposes.
All grocery stores are subject to the laws of supply and demand, but so are a grocer’s vendors. Being mindful of that fact can help you generate extra margin. Take holiday promotions. In the run-up to the Fourth of July, one of your suppliers reduces the wholesale price on charcoal briquettes by $0.50. Why not take advantage of that special pricing and lay away additional inventory in anticipation of what happens after the promotion? What you purchased at a discount in late June you can sell at a premium price point when demand spikes later in the summer—perhaps over the busy Labor Day weekend.
Mindset #2: I will get the most from my data.Every transaction you process generates data. For many store owners, that accumulated data remains an untapped resource. With the right approach—and the proper tools—you can mine that data for actionable insights.
Basket analytics delves deeper than just the standard data points: number of shoppers, number of items per shopper, and total dollar amount. Real basket analysis pinpoints affinity items—those products customers habitually make part of the same purchase. If your basket analytics show that 64 percent of all shoppers buy jelly when they buy peanut butter, that’s valuable information. With the right messaging and displays, you can encourage the other 36 percent of shoppers to purchase both items even when they enter your store intending to purchase only one of them.
Customer loyalty programs generate a wealth of information about what participants buy, when they shop, and who they are. Each customer profile thus represents a unique opportunity to build even more customer loyalty and additional sales revenue, provided you have the ability to individualize your offerings. The first step in doing so is investing in analytics.
For example, if you know a customer buys dishwashing liquid every six weeks, you can virtually guarantee they’ll buy it from you by emailing a digital coupon for their preferred brand during “week five.” Moreover, knowing what your customers do not buy (or do) can be valuable intelligence. A targeted promotion might encourage a customer to shop aisles they rarely browse, or to make a special visit to take advantage of an irresistible deal—and purchase additional items in the process.
Mindset #3: I will get the most from my inventory.Inventory is expensive, and overbuying can do serious harm to any grocery store’s profit margins. On the other hand, you can’t sell what you don’t have in stock. But remember: inventory is both a verb and a noun. Getting the most out of the assets lining your store’s shelves means finding better ways to be proactive about managing them.
Perpetual inventory is the process of electronically documenting every step of the journey each piece of inventory takes, from your loading dock to your checkout counter. Here, “perpetual” refers to the real-time insights this system provides. Imagine being able to reorder and restock based on a computer-generated report that can be created on demand. Such instant insights can lead to immediate cost and labor savings.
That said, automated retail inventory management hasn’t quite enabled true perpetual inventory. The reason? It cannot fully account for waste, inventory shrinkage, and stolen or damaged items. Instead, automated processes should be viewed as a supplement to your regular manual audits of actual inventory.
Treat walking your aisles to look for empty shelves as a discipline, not a chore. Create a fixed schedule for these inspections and have your team members stick to it. The goal? To make keeping inventory in stock and on the shelves a pillar of your business culture.
Mindset #4: I will get the most out of my staff.Good help is not always easy to find. You spend a lot to recruit, retain, and reward worthy employees. But getting the most out of your staff isn’t so much about hiring and firing as it is about nurturing talent and wisely allocating responsibilities.
Eighty-seven percent of those shoppers who opt for self checkout do so because they don’t want to wait for a checker who is assisting other customers. Your staff may be offering excellent customer service, but waiting in line can still be a source of friction. That’s because there’s a time and a place for every approach. When item counts are lower—at the end of the workday, for example—having one cashier monitor a pod of four self checkout terminals may make more sense than keeping open four traditional checkout lanes, each staffed by an individual cashier. Beyond the labor savings it promises, self checkout can keep your grocery store competitive in a retail economy where customers measure their satisfaction in terms of convenience.
Slow cashiers cost you money, and they can frustrate shoppers who end up in their lanes. Luckily, you can help those employees improve their performance by giving them additional training, or by assigning them new duties that let them shine.
But what about the cashier who is consistently short or off with their end-of-shift balances? A dishonest employee may be costing you more than the wages you’re paying them. You need a system that can reliably identify sweethearting and other forms of theft. By examining percentages and allocations across your departments and inventory types, you can more easily distinguish between inefficiencies which can be corrected and activity suspicious enough to merit investigation.
Conclusion: I will make the most of technology. Fully adopting these new mindsets is a matter of investing in the right technological solutions. Such solutions integrate your organization’s traditionally siloed inventory, POS, human resources, and other systems. An integrated solution also includes robust analytics designed to enable truly strategic decision making. In other words, effective margin management does more than preserve your existing grocery store profit margins. It widens them by giving you the insights and business intelligence you need to stay agile and adaptable.
With the retail industry’s most comprehensive margin management solutions, your grocery store can go from surviving to thriving. Learn more by exploring TRUNO’s best-in-class product portfolio, which includes secure, stable and integrated technology solutions in point of sale, margin management, productivity, digital commerce, and risk management.
