Ask any retailer, and you’ll be hard pressed to find one that isn’t worried about rising competition from online shopping. eCommerce technology solutions can help retailers fight back on that front. However, according to Forbes, the true disruptors aren’t online giants like Amazon or Walmart. Instead, there’s a quieter and stealthier threat to the strained margins of traditional grocers: the “dollar stores.”
At more than 30,000 stores across the United States and counting, the two largest dollar store chains have more stores than the country’s six largest retailers. While these discount stores are quickly crowding out struggling local grocery stores in rural areas—driving even Walmart out of town—they aren’t strangers to urban areas, either. Often little more than warehouse shells, the stores offer fewer frills and services than traditional stores. (You certainly won’t find online ordering or delivery, and you may even have to bag your own items.) But they are able to offer prices lower than the competition, and when they do that, other stores lose. And in many situations, those stores close.
In an industry where effective margin management is already critical to keeping the doors open, how can grocers—both rural and urban—protect themselves?
Margin management lets you play your advantage profitably
You can’t single-handedly stop the expansion of these box discount stores, but you do hold some cards in your favor. For one thing, you can offer conveniences your customers want, including online capabilities. Even more important is the ability to offer your customers the variety of items that they actually want. A dollar store can’t—and doesn’t—stock the wide selection of items a traditional grocer can. And while some of them might offer milk and soda in a cooler by the cash register, you can forget finding fresh (or even frozen) meats and produce.
But without granular insight into your inventory and item movement, this ace can end up being a deuce. You might be offering customers more of what they want, true, but ordering too many of any item can lead to waste or spoilage, especially with specialty or fresh foods. After all, if you are going to offer such variety—something the dollar stores can’t—you have to do it profitably.
For example, how many prime rib roasts does each location sell in a week, as opposed to chopped steak or even ground meat? How have sales of each fruit and vegetable variety changed over time or from store to store? Most grocery items, even canned food, have a shelf life, but maximizing profit requires you minimize shrinkage and waste due to spoilage and expiration. Using a data-driven approach to inventory management and ordering can help retailers do just that. Your customers get what they want, and you waste as little as possible.
If you can’t join them, beat them at their own game
Of course, that’s a single example of how effective margin management can protect your bottom line. A comprehensive margin management solution lets you identify, analyze and optimize operational inefficiencies across your entire operation—from headquarters to your warehouse to the individual stores. So, while you may not be able to stop the spread of discount dollar stores, you can offer shoppers the variety of foods and customer experience they want, while getting a better return on your investment. When has the local discount barn done that?
Looking for more ways to improve your retail margin management? We’ve compiled Four Mindsets for Maximizing Grocery Store Profit Margins: