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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.
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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

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