Simply put, margin management is the practice of minimizing costs to maximize profit. And if you can’t make a profit, why stay in business? That’s why we’ve focused our recent posts on this topic. We’ve provided tips, techniques, and technologies retail grocers can use as part of their strategy to protect and improve their margins. For example, how to minimize waste due to product recalls, to optimize the types and quantities of prepared foods, how to save on labor costs with electronic shelf labels, and much more.
As you can see, there are numerous technologies that can help protect your bottom line. Some are perhaps less obvious than others, but others many grocers overlook simply because they seem too obvious.
This week and next week, we’ll briefly touch on some of these other ways of improving your grocery store profit margins. You may have already applied some of them. Others may be eye-openers. And maybe you’ll come away needing more info about a technique or technology you thought you already knew. At any rate, here’s to improving your bottom line.
#1 Price optimization analytics
Price optimization pairs analytics software with the massive amount of data collected by in-store system including point of sale and item inventory systems. Such software can analyze movement of products in various categories to show how sales of one product—say sliced cheese—affects sales of another, like crackers or luncheon meat. It can then make recommendations about how to price such products to further encourage multiple item purchases.
With insights like these, store managers can better pair items for weekly sales or optimize end cap displays, leading to increased sales of all these items.
#2 Split/limit pricing to promote upselling
Split and limit pricing is a pricing strategy supported by a number of TRUNO store and headquarters solutions to allow you to offer specials like “Buy 10 for $10.” Some customers will buy all 10 items, even if they don’t need them—that’s good for volume. However, for shoppers who don’t, most stores still give them the discounted per-item price ($1 in this case), which cuts into the profit margins on the items. Configured differently, the system can charge the regular price if the customer doesn’t meet the required quantity. While this practice may be up to a store’s policies, not using it to increase margins is often a matter of not knowing what the system is capable of doing.
#3 Basket analytics
The basket analytics standard in most POS systems tell you the number of shoppers, the number of items per shopper, and the dollar amount. However, real basket analysis is about affinity items, knowing which items customers tend to buy together. This is a powerful tool that can increase items purchased per customer, even if they didn’t come into the store to buy them. Think of how online retailers display “People who have looked at this item also looked at these items" to suggest and guide shoppers to purchase additional items.
For example, if your basket analytics showed that 64% of shoppers who buy frozen French fries also buy ketchup, you might then setup an aisle display for ketchup near the appropriate freezer case.
#4 Customer loyalty programs and targeted promotions
Unlike other forms of grocery advertising, customer loyalty programs allow grocers a unique opportunity. By analyzing a loyalty customer’s purchase history and demographics, grocers can target promotions directly at the individual.
Let’s say a customer buys laundry detergent every five weeks. You can send them a digital coupon for their favorite brand in “week four,” virtually guaranteeing they’ll buy it from you. Or you might notice a customer doesn’t shop a certain department, and a coupon might get them to try it out. They may even make a special trip and pick up a few additional items while there.
#5 The many faces of loss management
Loss management may not technically be one of the ways to increase margin, but it can prevent it from going down. Loss management include shrink, waste and inventory management, each of which has its own supporting processes and technologies. The goal? To prevent products from going unpaid-for, missing or simply thrown away—all of which will negatively impact the bottom line.
Because loss, waste and inventory management are themselves big topics, we’ll dig into the wide-ranging challenges they present in future posts. Stay tuned.
#6 Back door receiving policies and procedures
A back door policy starts with publishing what times of day vendors can make deliveries. But it is enforcing that policy—holding vendors accountable for adhering to it—that’s critical, and for more than just keeping your shelves stocked. If vendors show up any time they choose, you have to keep extra staff on hand—or pull someone from another department or away from their other work—at unpredictable times. That eats into your labor dollars and your profit margin.
Back door policies and procedures should also guarantee you know in advance when a vendor will introduce new products or price changes, especially for vendors that stock their own products. Without this knowledge, you can’t schedule staff to add products nor update pricing in the system, which can again cost you unexpected labor dollars.
Stay tuned for more tips for improving your grocery store profit margins
That’s it for this week. I hope this list has shined a light on some less-obvious ways you can improve or protect your bottom line. Come back next week for Part 2.
Ready to find out how TRUNO retail technology solutions can improve your overall profit margins from the front to the back of the store? We’ve compiled Four Mindsets for Maximizing Grocery Store Profit Margins: