Skip to main content

Profit per customer visit

In Good to Great by Jim Collins he devotes a chapter to the Hedgehog Concept, the one big thing that a company must focus on to become a great company. Every business can learn from this.

The retail example that he uses at the start of the chapter is a company called Walgreens, which is what Americans call a drug store and in the UK we call a chemist. Its strategy was to be the best company at operating convenient drugstores and its economic denominator was to measure the profit per customer visit rather than profit per store.

The economic driver is interesting as it systematically closed all its shops that were in inconvenient locations and opened new shops in convenient locations. "If a great corner location would open up just half a block away from a profitable Walgreens store in a good location, the company would close the good store (even at a cost of $1 million to get out of the lease) to open a great new store on the corner," wrote Mr Collins.

It pioneered drive through pharmacies and in urban areas it clustered its stores tightly together so no-one had to walk far to reach a Walgreens.

Next it added high margin services like photo developing to increase its profit per shopper visit. "More convenience led to more customer visits, which, when multiplied times increased profit per customer visit, threw cash back into the system to build even more convenient stores," writes Mr Collins.

Simple really, which is what Cork Walgreen said when he was interviewed by Mr Collins. "Look, it just wasn't that complicated! Once we understood the concept, we just moved straight ahead."

Sounds simple but it is not. Understanding your concept can take years - four on average suggests Mr Collins - and then you have to have the guts to stick to it. A great many successful local retailers understand what to do and are successful. However, the profit per customer visit idea is like compound interest and is what local retailers need to search for.
Labels:

Comments

  1. The Village Postmaster29 January 2011 at 17:52

    Ah the refill market, now that used to WH Smith's stock in trade. everything from pen refills to the next chart hit, but they went from great to well, some what below good.

    Newsagents/convemience stores are definately in the refill market, tomorrows newspaper is one of the ultimate refills!

    ReplyDelete

Post a Comment

Popular posts from this blog

Three secrets of great merchandising

Look at the ceiling and top wall of this McDonalds restaurant. There is a picture of two good looking healthy people having fun and some bright primary colours. Ask yourself what is the purpose of this picture? In the latest issue of Retail Newsagent in a feature on merchandising, Andrew Knight of RI tells its independent readers that they need to think about using sharp pictures of non-packaged products linked to people consuming goods. Perhaps this has been taken to the next level by the fast food chain - that is selling the feeling of being happy and healthy rather than the products. A second, related tip from the same feature is made by most contributors - it is vital to keep windows clean and clear of clutter. "I believe that less is more," says Roli Ranger, a retailer from Ascot, Berkshire. He has posters for promotions in between the windows that are regularly updated and discreet signs in the windows. Third, a highly visible well-stocked promotion at the entranc
3 comments
Read more

Overcoming a price disadvantage

Planning for his speech at the Independent Achievers Academy last week, Theo Paphitis asked an assistant to buy a basket of six essentials from a Tesco, a Londis (independent operator in a symbol group) and a One Stop (Tesco's CTN/convenience chain). Tesco was cheapest by a big margin. Second came Londis. The most expensive was One Stop. Mr Paphitis understands the power of the supermarkets and he says the way to counter them is to focus on how to make the experience of shopping with you more relevant to shoppers or more enjoyable for them. John Heynan, sales director of Molson Coors, told Retail Newsagent at about the same time that occasional beer buyers will pay 13 per cent more for their beer in an independent convenience store, provided the retailer targets them appropriately. Tesco has carved itself out this 13 per cent head start. Looking at pricing, if Tesco is 100, then Tesco Express is 108, One Stop is 112, a good symbol group is 115 and non-affiliated independents
2 comments
Read more

A sign of retail stress perhaps

It must have been four months since this window was broken in the Tesco Express on Pentonville Road and I simply cannot believe that it has not been fixed. This is the sort of lack of focus that independent shops usually get criticised for. The only purpose in sharing this image is to encourage those independents with high standards who are finding the going tough that they can do better than this.
3 comments
Read more