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Bibby Line, the owner of Costcutter, is a 206 year old family-owned company and its non-executive chairman Simon Sherrard recently wrote to the FT in response to a column on unforced errors made by entrepreneurs. "We manage our business for cash and not for profit as we have nowhere to turn if the cash runs out," he wrote. "We have coined the phrase that you can often have cashless profit but you very rarely have profitless cash." My friend David Adams challenged me as to how many retailers understand this rule. His view was that it would be close to 100 per cent. I am not sure that he is correct. How do you rate your skills in this respect? The second thought comes from Bibby's website and its observations on the strengths of Costcutter, which it says delivers the best advice to its retail partners plus a national brand, marketing and store development support. "Arguably, these together generate the highest profit margins in the sector....

The value of UK c-store businesses are near the bottom as a five year pattern of decline looks to have slowed, leading business agent Christie + Co said this week. In its 2013 business outlook, the company said that an 0.9 per cent fall in average sale prices in 2012 compares to the previous year bucked the trend compared to hotels, pubs and restaurants, where it also has a leading market position. Steve Rodell, the director who heads its retail team, suggested reasons for optimism even though the market remains polarised. Both the major supermarket companies and the co-ops are competing strongly for good c-store sites, particularly with petrol attached, and these businesses are getting good prices. Again the south east is strongest but Christie's teams make a good case to look at the profit potential in suburban Manchester, for example. The business outlook report tends to reflect current thinking about the market overall rather than lead thinking but this year Chr...

City analysts are in the business of talking shares up and talking them back down again. So you have to treat what they say with caution. Even so, their feedback about Tesco, offers some pointers about where the convenience market may be headed. At Citigroup they talked about a future Tesco that within a few years would be an "entity without growth or cash flow generation." That is, it would not longer be opening new space and it would be forced into cutting prices. The issues are: concerns that new space opened will reduce profit margins (which may include on line sales as delivery costs are subsidised by bricks and mortar shoppers) competition from Aldi, which is about 25 per cent cheaper and growing strongly. In the UK, Tesco has 39.1 million square feet of selling space. In the last half year it achieved sales of £23.9bn in the UK. That is just over £23 of sales a week per square foot. This compares with estimates for Spar of £13, Premier of £12 and Londis of £11...

Key insights and practical lessons from the world’s largest retailer, promises the cover of Natalie Berg and Bryan Roberts’ new book, simply called Walmart. Selling at £29.99 (or £22.99 on Amazon ), this book will represent fantastic value for local retailers who want to understand how their industry works. The first Walmart was opened in rural America in 1952 by Sam Walton and its success was driven by his obsessions. Other books may tell the story with greater panache but Berg and Roberts capture the key moments with studied neutrality. They are both retail analysts. The audience that the authors have in mind are the major global suppliers who want to be listed by Walmart. For them this is a handbook that explains how to work with Walmart and provides hints at what to expect. “There is a difference between being tough and being obnoxious,” Claude Harris, Walmart’s first-ever buyer, says. “Every buyer has to be tough. That’s the job. You’re not negotiating for Walmart, you’re ne...

Bob Gorton's book Boosting Sales  (Bloomsbury, £9.99) available on Amazon,  gives the owner of every business a lasting insight into the simple rules that will help you make more money than you are today. The success of the book is not because it is full of new ideas but because it presents simple business rules in a way that is easy to grasp and easy to follow. "I once tried sport parachuting," Bob writes, "and when I had stopped trembling for long enough to listen to him, the jump master taught me a very important lesson. He said: 'Once you are out there, look at the white cross on the ground, because people generally hit what they are staring at.' So those people who look hard and constantly at the competition...seem to find a lot of it. Look hardest at your customers, you will better understand their wants and needs and find more customers." The book is organised logically. Bob is an engineer and he is sharing the rules for business success, rul...

Read through Sainsbury's annual report and you can find some good statistics to use in checking how your shop or shops is/are doing. One figure I like is measuring sales per square foot. For Sainsbury in 2010/11 it was £20.04 (including VAT, for which is has made adjustments). If you have a 400 square foot shop, then you would need to be selling just more than £8,000 a week to match them. A thousand square feet and it is just more than £20,000. But Sainsbury also publishes its figures for the past five years that show it has moved from £19.30 up to a peak of £20.42 in 2009/10. Meaning its sales fell by 1.9 per cent in the latest year but are up by 5.8 per cent across five years. But remember, this is an average across 934 outlets in the latest year and 788 five years ago so its best shops will be doing much better. And its worst...perhaps they will be on the market? At the same time its sales area has risen by 21.6 per cent to just more than 19.1 million square feet. Obviou...

There is an advertisement from Coca-Cola Enterprises in the last issue of Retail Newsagent of 2010 that says: "71 per cent of customers are more likely to buy a product with a price-marked pack." The research by HIM that supports this view is not particularly new but the execution of the advertisement by CCE is very impactful. It is illustrated with an array of 10 strong CCE brands in price-marked packs. The message underpins a huge change in what independent retailers are prepared to stock. When Mars, armed with similar insight, tried in the 1990s to champion price-marked products, the retail trade refused to stock its products. Today, shopkeepers understand the power of price-marking in generating sales and often seek out the price-marked option. However, with a fixed price comes a fixed margin. In making this trade off, retailers need to be clear about the overall impact on their sales and to get the mix of price-marked and higher margin products in the right balance. ...

Retail analyst Dave McCarthy says that the big four UK grocers are planning to add 5 million square feet of extra selling space each year in the next four, increasing total floor space by more than 20 per cent by the end of 2014. Are shoppers going to be spending 20 per cent more? Not likely. So what will the impact be? "It is inevitable that the big four will be going head to head more than at any time in history, with consequences for sales, profits and returns," says Mr McCarthy. At first look, independent retailers may think this is terrible news. But that assumes that the 75 per cent market share of the big four can grow. The other side of the coin is that the big four have already reached the maximum share that they can reach and each new square foot of selling space will impact on their own profitability. Two stories from local retailers this week bear consideration. Navin Bupthani assured me that a large Tesco Express near his shop was missing its numbers and fe...

Most local shopkeepers are uncertain if they are making enough profit from their sales. Benchmarks are hard to come by. In the news, all we hear about are the companies that make vast fortunes - or lose them. Money buys you a little happiness, Nick Powdthavee writes in the latest issue of FT Weekend Magazine. "According to economist Richard Easterlin, part of the reason for this is that we care a great deal more about what other people earn than we do ourselves," he explains. "For those whose most basic needs are already met, money buys additional happiness only if it can lead to higher status in society, which is hard when everyone else is getting richer over time." Bob Phibbs , whose blog on the worst case of local marketing is fascinating reading, has worked out that the average American business makes about three cents on the dollar in profit. "Yes, that is a really good business in average times," he says. It would be useful to hear from UK co...

Retailers need to introduce new products to provide their shoppers with "good news" and to generate interest. But for each new product that you introduce you need to consider delisting an existing line. Easy, you might think. I will just print out the list of products in the category and take off the one with the lowest sales. However, if you do this research from the US suggest you might be wrong. What you need to consider is what sort of demand you have for each product, a white paper by Demand Tec, a US specialist software provider shows. It says that there are two kinds of sales: incremental sales, when products add to the total shopper spend and are not readily substituted by another item transferable sales, where shoppers find an alternative easily when it is not available. Using its software, it shows a category with 50 products from top seller to bottom seller. At the same time it also measures the incremental sales each product provides. The number 50 in ove...

A US study into why some people get into trouble with their mortgages suggests that a lack of numeracy may be the reason. In the latest issue of the Economist under the witty headline of 'The fear of all sums', Stephan Meier says that the innumerate may be worse at managing their daily finances, leaving them with little room for manouevre when things get difficult. The study shows that the behaviour of the numerate and innumerate mortgage holders were similar. They bought similar financial instruments. They borrowed similar amounts relative to their income. The value of loan to the value of property was similar. Which means that suppliers would find the two groups hard to tell apart. What might this mean for the independent retailer sector? Most suppliers assume that shopkeepers are good at working out the margins on what they sell. However, start talking margins with retailers and you find that most are reluctant to say much. Part of this is a fear that they are not doin...

In the last quarter Sainsbury's sales rose by 1.7% year on year, compared to 3.7% in the previous six months. For local shopkeepers in the UK, this is a useful figure to benchmark your sales against. If you have been tracking 2% in the first three months of this year, then you have been doing better than one of the big four supermarkets. A big chunk of the fall is because food inflation has dropped to 1%. The second reason is because shoppers have less money to spend. At the same time, Sainsbury's reports that it had increased its weekly transactions from 18 million to 19 million year on year, which is a 5.6% increase. In the last quarter, all sales, including those from new sites, were up 4.4%. This means that the average spend is falling. However, new shops include 51 convenience stores out of 102 new and extended sites, so perhaps that explains it. Even so, as the VAT rate, which is included in the sales figures, has returned to 17.5% in the latest quarter, you can see that ...

Making shoppers feel special requires some careful calculation by local retailers as to the value that offers provide to their customers. In a recent Retail Newsagent magazine it suggested that local retailers think about providing loyalty cards to encourage regular coffee purchases, for example a "buy 10 cups and get one free" offer. Is this generous enough for most shoppers to appreciate the value that you are offering them enough so that they change their behaviour? Doing the maths, if the cost of each hot coffee to go is 50p and you sell them for £1, then on a deal where someone buys 10 to get the 11th cup free, the discount is worth 10% to the shopper and it costs you 50p to give this value to him or her (the sales tax does not apply). The impact on your cash profit is that it falls by 14.2% from £3.50 to £3. If you do the offer at "buy six cups and get the seventh free", then the potential cost to you is 23.7% from £2.11 to £1.61. However, you also need to f...

Shopkeepers should make a note to regularly visit the supermarket dotcom stores and check prices. Supermarket groups raise and lower so many prices that shoppers are left confused, analysis by The Guardian last week suggests. Former competition watchdog head John Bridgeman claimed this could add £15 to a £100 shopping basket. The stores studied said most of the increases were because promotions came to an end. For local shops, it is the sheer scale of price volatility that will be the major challenge. The study, for a three week period ending 22 December, saw Tesco increase prices on more than 1,500 shop keeping units (SKUs) and lower them on more than 2,600. At Asda, 2,000 went up. (A separate study by Paul Dobson of Loughborough University has found the most common price cut is 1p.) The newspaper notes that Asda increased the price of four Duracell AA batteries by 103% to £2.98, up from £1.47. Local shops would find it difficult to buy this pack for much under £2 and are being ...

Last week's announcement by Wal-Mart that it had set up a partnership with Li & Fung is big news. Perhaps not for UK corner shops today. But read on and think how this deal could make Asda stronger over the next five years. Li & Fung started out as a company that sourced products in China for wholesalers and distributors. It then moved into distribution and beyond. For example, today it runs shops in south east Asia for brands like Calvin Klein and Gant. It provides marketing, logistics and manufacturing services. "As we do not own any brands, we devote all our resources and efforts to supporting our clients," it says on its website. Now Wal-Mart seems to agree, saying that it will save between $4bn to $12bn on purchasing over the next five years. That is a lot of extra profit...or support to shoppers in the form of lower prices. The challenge is for UK wholesale suppliers of corner shops to come up with something similar. Local retailers need to pay attenti...

In all businesses it is fairly easy to calculate the hypothetical profit margin that you could make but the important thing is to work out the actual profit margin that you do make. In a shop, work out the average daily running costs and then take this away from takings and you have a basic measure of profit. Where it gets interesting is when you try to work out which parts of your business are delivering the profits. For many businesses, putting in place the processes to break down and measure profitability is a big task. Starting from scratch, you have to think hard about where costs should be allocated. You then have to work out what the actual sales figures really are. In retailing, many retailers make the mistake of focusing on mark-up and forgetting rate of sale. If you have a product with a 100% mark up that sells once a week, you may find that a product with a 20% mark up that sells 100 times a day is the real profit generator. The process of finding out is also good for ...

Another thing to measure is the percentage of sales each department generates in your shop. A typical breakdown could be grocery food, grocery non food, fresh and chilled, alcohol, tobacco, news and services (lottery etc). Grocery food could be broken down into snacks, confectionery and so on. At the same time measure the percentage of profit each department generates. From this you will see which parts of the business are providing you with cash profit and these are the areas that you need to focus on. Work on your strengths first, then your weaknesses. If you are not already doing this start by analysing each month. If it helps you change things, then think about doing it weekly. You should also remember to communicate the outcome of your findings. Tell your staff which departments are doing well and where to focus their attention.

In a retail business one of the key measures is staff costs and how you organise your rotas to optimise profitability. Optimise here means to make the most money you can without compromising on the quality of the work that you provide your staff or the quality of the products and services that you provide to shoppers. The calculation is simple. Put down your sales total (excluding from services) and then divide it by the hours that you are open. To add up the staff cost calculate the number of hours worked by each staff member multiplied by their hourly rate plus taxes; add these together and divide by the hours that you are open. Then divide the hourly revenues by the hourly staff cost and measure this percentage. If you set a target to reduce the percentage staff costs, look at the jobs that you need people to do and when the quiet times are in the shop. Moving restocking to times when the shop is not busy is an obvious area for savings. Your staff payroll is an investment and y...

Earlier this year I attended a seminar that explained the success secrets behind Primi, a South African restaurant that is famous for generating the highest profit per square foot in shopping malls. The outcome for me is that I now look at restaurants to spot all the things that people do right and wrong. Last night, my mother took a big family party out to a mid-market chain pizza restaurant and in our 45 minute wait after sitting down before our drinks were served we could see how a lack of basic organisation meant that the five waiters and three kitchen staff kept on hitting log jams. One of Primi rules is that all the waiting staff walk the whole restaurant all the time and look to serve people straight away - especially those on tables that other waiters have served. Last night, we could see three waiters pretending to be busy while two waiters were hopelessly overworked. This was presumably a result of a random allocation of tables as diners arrived. The manager at the end, apolo...