The retail industry is changing every day, and so is the convenience channel — new competitors, new shopper expectations, new data and technology, online shopping, and new shoppers.
Single-store owners and small operators have the challenge of remaining relevant in this more competitive landscape, and making better, fact-based decisions for their stores to compete in this more complex environment.
In any business, you need strategies, processes and best practices to create the foundation for your business. Here are seven approaches for you to become more strategic at your c-store using some components of category management to help you out:
1. WHO YOU ARE & WHAT YOU’RE TRYING TO DO
Your overall strategy should help to guide you and your staff on what you’re trying to accomplish for your store. Consider, for example, the type of store you own or manage. Smaller stores usually have higher reliance on fuel and less on foodservice. Larger stores have more offerings. Your store type — whether you are a neighborhood store, commuter store or interstate store — also has a significant effect on store layout, target consumer, and the types of products and services you offer.
2. YOUR OBJECTIVES & HOW YOU’LL ACHIEVE THEM
What are your objectives and how are you going to reach them? Consider whether you will achieve your objectives through:
- Service — including convenience, store location, access to the store, parking and customer service. What does service stand for in your store? Service needs to tie in with the operations side of your business, including a great shopping experience for your shoppers, while providing a great work environment for your staff.
- Product Assortment — which relates to the categories you sell in your store, as well as the items that you carry in your store within each of those categories.
- Merchandising — or shelving, which defines strategies related to the way your store is laid out, including aisle layouts, category adjacencies and category layouts. You should have a merchandising plan that helps your staff understand how to stock the store and why it is important. By emphasizing the importance of these activities and having processes and standards in place, you will arm your staff with the details necessary to ensure they make the best decisions for your store.
- Pricing — including what types of strategies you use for both regular prices and sale prices. Pricing maximizes value to your shoppers and can improve shopper satisfaction. The difference of a few cents in price can have a significant impact on both sales and profit, and ultimately how much cash you are putting in the bank. You should have processes in place to verify price accuracy on the shelf, and teach your employees how to spot pricing discrepancies and what to do about it.
- Promotion — including the importance of promotions to your shoppers, and the types of promotions you run in your store. Promotions are a great way to drive traffic and improve the value perception for your target shopper.
3. YOUR TARGET SHOPPER
Your shopper is the one who spends money in your store and drives your business up or down. But sometimes we don’t pay enough attention to them, or neglect to think about who our target shopper is. You shouldn’t target “everyone” because you will have a hard time completely satisfying each of the different shopper’s needs. You should target the shopper groups that are most loyal and the heaviest buyers in your store.
Have a well-articulated description of who your most important shopper is. By knowing this and sharing it with your staff, you will be able to make better decisions about in-store merchandising, product assortment, pricing and promotion to better meet their needs.
Once your target shopper is defined, it’s easier to define your targeted competition, based on who has the same target shopper as you. Ultimately, you need to satisfy your target shopper’s needs better than your competitors. And you will be able to identify how to do this by continually improving your understanding of your target shopper and testing out the best ways to meet their needs through exemplary customer service and improved value perception.
4. YOUR CATEGORY STRATEGIES
To make the best decisions for your store, you need to know and understand your business — not just intuitively, where we tend to rely on what we think vs. what we know.
For your most important categories, they should have their own strategies, goals and tactics:
- Define Your Most Important Categories: As part of your store strategy, you need to define your categories and then segment them based on what is known about the target shopper. For example, what’s included in cold beverages, snacks or confection? How do you separate between instant consumption and takeaway? How do you properly shelve the category? You may be able to get some perspective on the best approach by talking to your dealer and/or the salespeople that call on your store.
- Assign Category Roles & Strategies: Not all categories play as important of a role for your store. Your biggest categories should have the biggest emphasis and focus for you. There are five distinct category roles in the convenience channel: destination driver, staple, niche, occasional/seasonal and fill-in. Category roles provide guidance for how you treat the different categories in your store. Once you understand the roles in detail, you should do the actual work of assigning roles to your categories. For example, categories that are assigned the “destination driver” role are your most important categories in terms of sales and driving shoppers to your store. Examples of destination driver categories may be tobacco, beer, cold beverages, foodservice and fuel. You should allocate a high percentage of time and resources against these categories.
5. KNOWING & UNDERSTANDING YOUR INCOME STATEMENT
Every choice you make in your store — how much product to buy, what to keep as inventory in your back room, what to price, promote, how to shelve your products, and what products to carry — has a direct influence on your financial income statement. You will be much more strategic in your overall store management by better understanding the ways to influence margin:
- By increasing sales through changes in your key drivers of volume and profit (based on the strategies you have in place for pricing and promotion, based on knowing your target shopper and competition);
- By decreasing your cost of goods sold through better pricing and promotional strategies and a focus on inventory management (the product that is sitting in your store and not selling); and/or
- By decreasing operating expenses (through improved efficiencies, more knowledgeable and motivated employees, and better understanding of the business).
Thinking about your business this way will help you make better choices that will improve your net profit. And who doesn’t want that? Also, by giving your employees the tools to help them think more about what you’re trying to accomplish from a financial perspective, they will be armed with better decision-making skills as well.
6. ANALYZING & UNDERSTANDING YOUR MOST IMPORTANT CATEGORIES
There are a handful of categories in your store that typically represent about 80 percent of your overall sales and profit. You need to know these categories and have strategies in place for them (as I mentioned in point No. 4 above). Then, you need to analyze and develop category plans for each of these key categories based on the data you have available.
Here are some ways you can do this:
- Start by understanding the size of the category relative to store sales. What percentage of total store sales do your key categories represent? Look at how they are growing vs. a year ago and which segments and brands are driving the growth.
- Ask your suppliers/distributors how the category is performing in the total convenience channel and compare this to your results. Identify the biggest areas of opportunity.
Once you have a strong understanding of your category performance, you need to analyze each of your tactics in more detail.
7. GETTING YOUR TACTICS RIGHT
I mentioned in point No. 2 above the importance of having overall store strategies for service, assortment, merchandising, pricing and promotion. You need to make sure that for your most important categories, and based on your target shopper, you get your tactics right to create the best value proposition for your shoppers. This includes:
- Efficient Assortment: Deciding what items you carry for your category should include an analysis of your existing items and comparing them to the top items carried in the market. You should have a fact-based decision-making process for determining the right items to carry (and evaluating new items) that are best for your target shopper. This will ultimately increase sales and profit and reduce expensive and unproductive inventory in your store.
- Merchandising/Space Management: You should have easy-to-implement planograms provided by your suppliers that align to your overall category strategies and your target shopper. Make sure you understand the key measures associated with the shelf (share of shelf, turns, etc.) and educate your employees on the proper setup of your category planograms (particularly those top categories most important to your business)
- Pricing: Retail price has a significant impact on sales and profit for your categories, and ultimately for your store. Keep an eye on your key value item pricing vs. your competition by determining the highest profile items for a category and visiting competitors a few times per year. Establish gross margin objectives for your categories with acceptable prices for your target shopper. Generate enough margin for you to be profitable. Realize that it’s not the gross margin percentage that you take to the bank, it’s the dollars.
- Promotions: Your promotions, including reduced prices, drive incremental sales (sales that wouldn’t have happened without you running the promotion). For major upcoming promotions in your store, review historical promotions to help anticipate how much sales the promotion will generate, and to determine the right price point for the promotion. You also need to understand the seasonality of your most important categories — complete additional analysis to drive incremental sales when specific categories are “in season.”
So, where are your biggest areas of opportunity?
For some, it may simply be to put “pen to paper” and articulate what you are trying to accomplish (vs. only keeping it in your head), which is sometimes more difficult than it sounds. For others, it may be an emphasis on analyzing your sales data to better understand your most important categories and where your opportunities for improvement are. Or perhaps it’s to start educating your employees on why you want them to do things a certain way so that they have the skills to make better decisions on their own that reflect your strategies and your target shopper.
The worst thing you can do is nothing. You should always be striving to improve your approach for better business results. This will help you to survive and thrive in this competitive retail landscape.
Sue Nicholls is founder and president of Calgary-based Category Management Knowledge Group (CMKG). She is a speaker and consultant, working with business partners to bring category management training solutions to different areas of retailing like the convenience channel. Editor’s note: The opinions expressed in this article are the author’s and do not necessarily reflect the views of Convenience Store News.