Growing Sales And Growing Gross Profits
For years we have been hearing bad economic news. The business climate is deteriorating, the consumer is cash-strapped, everyone has fewer disposable dollars, and retailers are having a more difficult time enticing customers to shop in their stores. Consciously or not, after so much bad news, almost everyone is now more selective about where they shop for a cup of coffee, a soda or a pack of cigarettes.
7-Eleven has done a good job of recognizing the changing economic climate, and now most of our new programs revolve around offering value. But at what cost? Some programs have been successful, and some have not. Using the KVI (Key Value Item) approach of lowering costs on well-known items we have been able to draw more foot traffic, but to compensate for lower gross profit we have had to adjust retails on other items. We are trying to highlight private label products, but even with these changes our GP is suffering.
7-Eleven promotional activities have helped generate additional sales in our stores, but many of these sales come at a lower gross profit due to promos and discounting. Franchisees know that when we focus on several specific items, we sell a lot of those items. If we look at the purpose of the program, which is to increase sales, it is a success, but if you look at the cost in terms of gross profit, sometimes it is not.
Our monthly sales plan lays out the focus items and what promotions we are running. During Quality Visits (QVs) The focus items get much attention, because Field Consultants are concerned with driving numbers sold. Consequently, total units sold for those items becomes something franchisees worry about, and this takes away from other promotions we may be running—such as holiday promotions, beer, and chips—and displays. We lose focus on some of the traditional promotions that we’ve done for years. The idea is to have broader view of promotions and not focus on several specific items because they are being monitored and tracked.
I believe most franchisees support SEI’s decision on the cigarette contract, because we know it is not a good business practice to let our suppliers dictate price. We are one of the largest tobacco retailers in the country, and Philip Morris is well aware of how much product goes into our stores. It takes guts and strength of numbers to stand up to the largest tobacco company, but that’s how things work in a free market. If Philip Morris has 50 percent of the cigarette category with one brand, and that brand has to be the lowest priced in the store, 50 percent of our sales are affected. Even thought the cigarette category produces a low GP, since it is a big portion of our total sales, any discounting activity puts a lot of pressure on franchisee gross profit. Hence, we if we lose 10 percent of that gross profit we have to sell a lot of Slurpees and sodas to compensate. It’s a category we want to protect until we can shift some of these sales to other categories.
As tobacco sales decrease, we can migrate from tobacco to fresh and hot foods. We all want to move away from cigarettes to foodservice, but our customers come in wanting cigarettes and chips and beer, so the consumer shift is going to take some time. If our fresh food initiatives are to be successful, we need to make a shift in perception to a fresh food destination— and we are trying, with CMR, AQIPs and advertising. AQIPs need to happen much faster than they have in recent years, as this is a big part of changing customer perception.
Some franchisees in the Northeast feel that CMR has not produced the results we had hoped for. In spite of advertising and market rollouts, sales increases have been mixed. We need to revisit that approach and make some adjustments, keeping in mind that each 7-Eleven store has a unique customer set with unique needs. Franchisees need to figure out if increased sales with additional gross profit and higher labor expenses are adding to their net income.
We need to grow sales, but at what cost? Franchisees have been asked for years to invest ourselves and our businesses in the programs our franchisor creates for us, but we need to see results for complying with new requirements. The company has to be sensitive about how these programs affect a franchisee’s net income. In the future, ongoing programs need to be designed to have both shareholders in our system benefiting with additional net income, or franchisee moral and enthusiasm will suffer.