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

Busy street, empty shop, missed profits

True in part to my New Year resolution, I held a business meeting in an independent coffee shop today just next door to a Starbucks. The cafe was presented well and four staff were busy preparing for the lunchtime rush, at 11am. As my guests were late, I had a half hour overview of footfall on the street outside and in the restaurant. Six customers. Barely enough to form the queue in Starbucks or Pret-a-Manger just down the road. Plus one Italian girl who dropped off her CV. Some people stopped to look at the posters in the window and moved on. The owners seemed quite happy. When I left just after 1215, they were doing brisk trade. However, I have the impression that the business is not working hard enough. It could easily have managed 120 customers between 11 and 12, instead of 12. This is lost profit as the fixed overheads and staff costs are already in place. The owners are clearly busy - perhaps too busy to take time to look at the potential that their cafe has. What shou...
2 comments
Read more

Sticks and stones do hurt

My 17 year-old son returned from a rock festival this week wearing a wristband proudly declaring him 0ver 18. He explained how easy it had been to use someone else's ID to get the identification and said it was ironic that he had not needed to show the over 18 band when buying alcohol. Today, Scottish retailer Abdul Qadar is complaining that public authorities are asking people to lie about their age when making test purchases. What trading standards officers may be forgetting is that the fact that retailers invest in a business premises and trade consistently from it make their job much, much easier. The alternative, a world of markets and itinerant traders, will be far harder to police. Mr Qadar's sense of injustice is fair. Those retailers, like Mr Qadar, who value their investment will seek to trade legally and will not sell alcohol to people under the age of 18. Asking children to lie about their age to local traders is a slander on all retailers.
2 comments
Read more