The New Operational Basics for Continued Profitability

The reason retail basics continue to be so important is that profit margins in the grocery industry are slim and getting slimmer. Labor, cost of living and competition have contributed to mounting financial pressures, and staying focused on good operations is the difference between a profit and loss. That’s always been true.

Yet the game-changer today is all about maintaining strong systems in an industry increasingly reliant on technology to provide back-of-the-house efficiencies. The new operational basics require cutting-edge technological approaches to managing labor, margin and inventory—and without them operators are seriously disadvantaged.

“We need to continue training people and increase their knowledge far beyond what they may already know,” said Brittany Baird, operational and financial improvement consultant. “For example, margin goals are basic to retailing, but there’s so much more higher-level training that needs to go into it regarding inventory turns, gross profit, and net profit management.” From her perspective, it’s a lack of understanding of how to manage margin, as well as other financial systems, that causes businesses to lose money. For her, the basics mean adequate systems and training.

“The complexity of our model is that the point of sale system acts as an intermediary between finance and information technology departments, and there’s not always clear accountability. Margins may be bad but there’s no systemic understanding of how to monitor the results.”

Baird points out that financial management systems should work synergistically so people know what their goals are and clearly understand if they are meeting them. The reporting systems must support achieving financial goals by providing people with the right kind of information that helps them deliver profitability. Capturing data from clunky systems, or people not making use of the information that reporting systems can provide, are inefficiencies rampant in independent operators. Corporate competition has mastered the use of current technology to benefit their price image and serve customers eager for convenience.

“Even in high functioning co-ops we’re seeing large gaps in financial reporting, price management systems and inventory controls. All these things affect profitability and price image. In these areas we need to increase our retail sophistication. We need to raise the bar to compete with the efficiency of our competitor’s operational systems, otherwise money just flows out the window.”

Baird also notes that great customer service drives sales, and businesses struggling to make money also need to make that a critical piece of profit management. “So often we rely on charismatic people to fill the gaps rather than tightening our systems for accountability and on-boarding to ensure that we are consistently training people.”

Trying to compete in a grocery industry that was not designed for implementing cooperative values or prioritizing local economic activity is enormously challenging in any situation. Maintaining a focus on customer service and relationships is equally demanding and necessary.

James Morrell, produce and operational improvement and produce systems consultant pointed out that investments in training programs are often the first thing to get cut when things get tough, and he advised against it. “From all the things I’m seeing in our industry, the customer experience is what drives sales and loyalty.” Because everything is available online or through delivery, retailers need to ensure a higher level of personal service. “It’s a new customizable economy, yet people are still looking for positive real-world experiences. We don’t want to overlook the things that are making us successful.”

Morrell acknowledges a huge culture shift is underway for grocery cooperatives. Retaining staff and providing a living wage are issues that have been affected by marketplace competition, and the co-op’s intentions may sometimes conflict with co-op profitability. When operational decisions are made to keep the business sustainable, some people think the co-op has forfeited its values. That’s why Morell said it’s important to keep conversations about co-op impact always at the forefront.

“It’s sometimes challenging to talk about because it can become a charged subject. Asking these questions—what are our priorities and in what order?—is a great starting point. Having conversations about co-op priorities on a periodic basis among all stakeholders helps build alignment around them.” And this is not something a co-op has to do alone. It’s important to draw on resources including consultants and peers who will help keep the co-op healthy and evolving.

Ultimately, a continued focus on improvement and what’s important will inform co-op operations. “We will erode the impact we’re trying to have if we are not constantly supporting operational training and education.”

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By |April 10th, 2019|Categories: Articles, Featured, Solutions|Tags: , |

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