The Insight Aisle – APT's Grocery and Convenience Blog

Washington D.C. – Energy Management Systems (EMS) are becoming more and more commonplace in both convenience and grocery stores. The promise of reduced energy consumption and costs coupled with a desire to go green is driving leading retailers to try out new EMS offerings across their networks. Kwik Trip, Stripes and Green Valley are among the early adopters benefiting from new EMS technologies targeted at c-stores. Supermarket News reports of similar enthusiasm among forward-thinking grocers.

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Washington D.C. – The New York Times is reporting that many retailers are going back to the true and tried strategy of stocking their shelves, aisles and backrooms with more inventory. As we discussed before, the notion of shoppers preferring to have less choice is a myth. Many retailers learned this the hard way in the last 3-5 years: SKU rationalization efforts have not worked as well as merchants at the leading retailers have hoped.

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UPDATE: CVS & Walmart are testing new fuel discounts tied to minimum spend levels in their retail stores

Shoppers in many markets around the U.S. take advantage of them, but are discounts on gasoline an effective way to build supermarket shopper loyalty and drive traffic into stores?

Kroger certainly believes so. In announcing his chain’s strong first quarter earnings for 2011, Kroger chairman and CEO David Dillon commented that “the combination of having gas near our supermarkets is a very strong convenience… [customers] like the tie-in with our store sales.”

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Washington D.C. – Is grocery moving online? BusinessWeek reported earlier that Walmart is said to be experimenting with online grocery delivery. At the same time, many supermarket chains are expanding their grocery curbside pickup services. SuperMarket News is reporting that Harris Teeter is slashing its shop-online-pickup-groceries-curbside-at-the-store fee from $4.95 to $1.95. At $1.95, the fee likely only covers the cost of processing the online payment for Harris Teeter. At the same time other grocers are actively testing the curbside pickup options at their stores as well. Why do it?

Benefits and costs

According to the annual report, a typical Harris Teeter store averages about $400K in sales and $119K in gross profit every week, as Harris Teeter earns a pretty typical for grocery industry 30% gross margin rate. Assuming an average shopper basket of $35, in an average week a store draws in about 11.3K customers, each bringing in about $10.50 in gross margin (again, using the 30% margin rate). But online orders that are picked up at the store are likely much larger than $35 per basket. Often seen as a convenient alternative to stocking up at warehouse retailers (Costco, Sam’s Club), and cheaper than grocery home delivery, these baskets are likely 3 to 5 larger than average. In other words, the curbside pickup customers average closer to anywhere from $105 in sales & $31.50 in margin (3x larger than average) to $175 in sales & $52.50 in gross margin (5x larger than average).

It probably takes anywhere from 25 (for $105 baskets) to 40 minutes (for $175 baskets) for in-store personnel to assemble the ordered items, bag them and deliver them curbside for customer pickup. Ignoring for a minute other expenses such as installation of the required technology to process online orders for curbside pickup, handling of payments for customers who are pulling into the parking lot to pick up their groceries, to name just a few, 25-40 minutes of clerk time translates into $5-$8 in labor costs (assuming a $12/hour average for a clerk position).

So, to review, the online-ordered baskets average $31.50 to $52.50 in gross margin, and it costs Harris Teeter $5-$8 to pick them. So, net benefit is anywhere from $26.50 to $44.50, right? Not exactly!

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Washington D.C. – In case you missed it, Business Excellence Magazine has a great article by APT SVP Phil Marlsland on why companies need rigorous market trials to maximize ROI on their investments. Examples are from Wawa, Big Lots, Family Mart, Boots and other companies.

Washington D.C. – Ever since Wanamaker uttered his succinct, if over-cited, quote about the challenge in correctly attributing the impact of advertising, many a pundit has spilled ink pontificating about the right way to measure returns. Marketing leaders  (and frequently, their finance counterparts) roller-coaster between gut-wrenching agony when a campaign doesn’t impact sales to sheer ebullience when finding a hit that drives dollars and creates buzz.

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Washington D.C. – In case you missed it, Harvard Business Review has an interesting Step-by-Step Guide to Smart Business Experiments. Eric Anderson and Duncan Simester discuss how sophisticated executives are answering this question leveraging the scientific method. While seemingly straightforward, even the most advanced companies find it difficult to design rigorous, in-market, consumer-facing tests and use insights from these tests to guide strategy. Most Fortune 500 companies are now using APT to successfully design and learn from smart business experiments.

Washington D.C. – In case you missed it, Fast Company published an interview with APT SVP Jonathan Marek detailing the ways in which in-market tests are allowing retailers, restaurant, and other consumer facing businesses to measure the impact of location-based services like Foursquare and Facebook. It is a great read if you are interested in seeing beyond the hype and wanting to understand the true incremental impact social media has on an average consumer.

Washington D.C. – In what has become a seasonal ritual, the Girl Scouts set up shop in front of our office building in March to sell their fabled mix of cookies. Mysteriously missing was one of my favorites: Dulce de Leche. No worries, more money to buy Thin Mints, my thinking went.

It was only after a colleague forwarded a Wall Street Journal article highlighting innovative changes being made in this year’s cookie line-up that I realized how much grocery and convenience retailers could learn from the Girl Scouts.

Girl Scouts and SKU Rationalization

It turns out the girl scouts are in the midst of reducing their assortment. But it is the way in which they are going about the SKU rationalization effort that is truly admirable. To quote from the article:

A dozen councils testing the cutbacks with licensed baker Little Brownie Bakers, which is owned by Kellogg Co., hope to streamline sales, speed up cookie delivery and, ultimately, increase profits.

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