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.

Digital disruption in the UK wholesale space

“Twenty years ago I was driving boxes to the post office in my Chevy Blazer and dreaming of a forklift,” says Jeff Bezos in his most recent letter to shareholders. A blink later and he points out that the company has grown from 30,000 employees in 2010 to 230,000 now. But his ambition is the same. “We want to be a large company that’s also an invention machine. We want to combine the extraordinary customer-serving capabilities that are enabled by size with the speed of movement, nimbleness and risk-acceptance mentality that is normally associated with entrepreneurial start-ups.” Amazon is great at disruption because of its customers focus and the fact that the internet means it needs none (or very few) people between its warehouses and the shopper. The threat of Prime, its membership service, is the biggest challenge facing the UK retail market and the wholesale market by extension. It is both a direct threat and an indirect threat in that is inspiring countless numbers of othe...

New look: big copy small?

The owners of B&Q are talking up how they have cut the price of a store refit from £2.5m to £1m by using wood-effect vinyl instead of wood and painted MDF backboards for displays. Managers are learning to live with grey shelving instead of a warmer-looking cream. Shoppers notice the produce, not the fixtures, suggests one executive. Up to a point! Most local retailers will extract the maximum possible life from their fixtures, sometimes taking too long to change equipment that has become tired. As in all business, it is getting the balance right. Shops need to be refreshed and with a purpose.

What do shoppers see

I read a good post (http://www.newsagencyblog.com.au/2009/08/28/what-do-newsagents-charge-for-faxing.html) asking what price local shops charge for providing a fax service. The blogger had attached a photograph of his sign with his prices on it. What struck me was the message on the sign. "You drop, we fax," it said. "Pressed for time, drop your documents with us and we'll do it for you at no extra charge." That is a message that will persuade most shoppers that you want to give them good value, even if they stay to do the copying or faxing themselves.

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