Downtown Grocery Coming To Detroit Lofts?

[Gaspar]

I have some experience dealing with Grocery stores.  From 1993 to 2000 I was a loss prevention consultant for a number of retail chains, among those was Kroger, a major convenience store chain, and IGA.  I gained a very broad understanding of how these stores maintain profit margin and reduce loss.  I also understand how the little loss leaders work.

Deli, bakery, and prepared meals all operate at a loss.  The goal is to mitigate that loss by increasing volume in shelf sales and in some cases shelf lease.

The reason these areas operate at a loss is because of the # of employees necessary to operate, the energy costs, initial equipment, continuing maintenance costs and the daily shrink.  At the end of the day a lot of food goes into the dumpster, or (as is the case with Kroger) is donated.

If a customer comes into the store to buy a sandwich and leaves with only a sandwich, the store has lost money, even though that sandwich may have cost the customer more than say a Subway down the street.  Why?  Because the Subway down the street does not have $600,000 of perishable products on the shelves or a 10,000sqft footprint.  Sure, that sandwich may have only cost $2 to make, but it actually cost the store upwards of $7 when you apply all of the logic.

The VP of Kroger used to tell me that anyone that came into their store and bought less than $20 in shelf products cost them money.

The convenience store industry had a very different model but the challenge was the same.  Nothing in their store is of much value to them.  Fuel is what they sell.  The "convenience" is there to sell the gas.  

So. . .Long story short. . .All of this coffee bar-onsite chief-catering-bakery-barbershop-wine bar nonsense is not supportive of the profit necessary to make the "Market" side of the equation work.  Every shelf in a market represents negative income and/or locked up capital unless enough volume can be generated to turn product at a reliable pace.  If the coffee bar-onsite chief-catering-bakery-barbershop-wine bar nonsense actually brings in customers that spend $xx on shelf items durring every visit, than we have another story.

The reason I keep inquiring about sqft#s is because that will dictate what the $xx per visit is.

[YoungTulsan]

The sandwich which took 3 minutes of combined labor at $10/hour ($0.50) and had a food cost of $1.50 including average waste, sold at $5.00 is still contributing $3.00 to the effort.  $$ per visit would go down with more visitors.  The guy coming in isn't costing them because of his visit.   He is still moving things $3 closer towards black ink.  At most, the overhead hit from his visit should be calculated on the footprint of the store being used by them offering that product versus not offering that product.   And what would squarefoot really matter?  Cost per squarefoot being paid would be the factor.  The prepared foods need a fast turnover so more people can come through and volume will be high.   QT has to be making a fortune off of their prepared sandwiches.  I could see the deli counter at the very back of a giant grocery store being prohibitive of turning a profit due to bad design.

[ZYX]

Gaspar, you're statement that convenience stores make their money off of gas is simply incorrect. Right now the cost of a barrel of oil is about $108. One barrel of oil is equal to  42 gallons of oil. 108 divided by 42 equals 2.57. So it costs $2.57 for a galling of gas. Next add in shipping costs for that gas. After all these expenses are paid, most gas stations don't really make any money off of gas. They are not charging you an unfairly high amount. They are simply trying to not lose money.

What a completely, entirely, utterly idiotic statement. Maybe I should try thinking before I post...

[RecycleMichael]

This site tracks gasoline in California...

http://energyalmanac.ca.gov/gasoline/margins/index.html

They show profits around 3% to the retailer

[Cats Cats Cats]

Yeah, Saying you "lost" money on a sandwich because you attribute costs like the whole rest of the food in the grocery store is not correct.

[Red Arrow]

Right now the cost of a barrel of oil is about $108. One barrel of oil is equal to  42 gallons of oil. 108 divided by 42 equals 2.57. So it costs $2.57 for a galling of gas.

My car requires premium gasoline, not crude oil.

[Hoss]

My car requires premium gasoline, not crude oil.

It's obvious that many people do not understand the fluctuating costs that are involved in refining crude oil to use as gasoline.  I'm no genius when it comes to that, but my dad did work for Sun Refinery for 25 years, and my grandfather worked there before him so I'd say I have a little knowledge.  It's not as simple as taking the cost of crude and dividing it by the amount of gallons contained within a barrel of it.

[Red Arrow]

If a customer comes into the store to buy a sandwich and leaves with only a sandwich, the store has lost money, even though that sandwich may have cost the customer more than say a Subway down the street.  Why?  Because the Subway down the street does not have $600,000 of perishable products on the shelves or a 10,000sqft footprint.  Sure, that sandwich may have only cost $2 to make, but it actually cost the store upwards of $7 when you apply all of the logic.

The VP of Kroger used to tell me that anyone that came into their store and bought less than $20 in shelf products cost them money.

The obvious answer is to stop sellling those sandwiches.  They couldl also require a cover charge or minimum purchase like bars with live entertainment often do to make sure everyone spends at least $20.

[Red Arrow]

It's obvious that many people do not understand the fluctuating costs that are involved in refining crude oil to use as gasoline.  I'm no genius when it comes to that, but my dad did work for Sun Refinery for 25 years, and my grandfather worked there before him so I'd say I have a little knowledge.  It's not as simple as taking the cost of crude and dividing it by the amount of gallons contained within a barrel of it.

Stay a night in a Holiday Inn Express.

[Gaspar]

The sandwich which took 3 minutes of combined labor at $10/hour ($0.50) and had a food cost of $1.50 including average waste, sold at $5.00 is still contributing $3.00 to the effort.  $$ per visit would go down with more visitors.  The guy coming in isn't costing them because of his visit.   He is still moving things $3 closer towards black ink.  At most, the overhead hit from his visit should be calculated on the footprint of the store being used by them offering that product versus not offering that product.   And what would squarefoot really matter?  Cost per squarefoot being paid would be the factor.  The prepared foods need a fast turnover so more people can come through and volume will be high.   QT has to be making a fortune off of their prepared sandwiches.  I could see the deli counter at the very back of a giant grocery store being prohibitive of turning a profit due to bad design.

Again, it's not jut the cost per sqft.  Each sqft is tied to an inventory investment with a very low margin.  A sqft may represent $100 worth of inventory that only generates $1-$2 in profit when sold.  The longer that inventory sits the higher the shrink.  If it sits for over a month, the shrink may be 100% of the profit and the product is sold at a loss.

[Gonesouth1234]

I have some experience dealing with Grocery stores.  From 1993 to 2000 I was a loss prevention consultant for a number of retail chains, among those was Kroger, a major convenience store chain, and IGA.  I gained a very broad understanding of how these stores maintain profit margin and reduce loss.  I also understand how the little loss leaders work.

Deli, bakery, and prepared meals all operate at a loss.  The goal is to mitigate that loss by increasing volume in shelf sales and in some cases shelf lease.

The reason these areas operate at a loss is because of the # of employees necessary to operate, the energy costs, initial equipment, continuing maintenance costs and the daily shrink.  At the end of the day a lot of food goes into the dumpster, or (as is the case with Kroger) is donated.

If a customer comes into the store to buy a sandwich and leaves with only a sandwich, the store has lost money, even though that sandwich may have cost the customer more than say a Subway down the street.  Why?  Because the Subway down the street does not have $600,000 of perishable products on the shelves or a 10,000sqft footprint.  Sure, that sandwich may have only cost $2 to make, but it actually cost the store upwards of $7 when you apply all of the logic.

The VP of Kroger used to tell me that anyone that came into their store and bought less than $20 in shelf products cost them money.

The convenience store industry had a very different model but the challenge was the same.  Nothing in their store is of much value to them.  Fuel is what they sell.  The "convenience" is there to sell the gas.  

So. . .Long story short. . .All of this coffee bar-onsite chief-catering-bakery-barbershop-wine bar nonsense is not supportive of the profit necessary to make the "Market" side of the equation work.  Every shelf in a market represents negative income and/or locked up capital unless enough volume can be generated to turn product at a reliable pace.  If the coffee bar-onsite chief-catering-bakery-barbershop-wine bar nonsense actually brings in customers that spend $xx on shelf items durring every visit, than we have another story.

The reason I keep inquiring about sqft#s is because that will dictate what the $xx per visit is.

I agree with Gaspar.

The CFO of one  c store chain that shall remain nameless, not locally based  but with a big local-/6 state footprint-told me that the shelf lease in each of their stores-the beer signs cutouts  with the bimbo of the day wrapped around a Nascar driver, the specialty merchandise by the door , the toppers on the gas pumps, the promo items on the counter where there was about enough room to put down your six pack to check out..... this more than paid the overhead for all of the stores,  everything.  Any gas bought was a profit, and most everything else in the store was loss leader.

I think we're kind of comparing dollars to sheckels. 

Gaspar is right, if the sq ft. numbers don't pan out, something needs to tweaked or moved out of the store.

One chain that I have worked with constantly runs numbers on the sq. ft. sales of each item, daily.  If the numbers fall below a certain level, it triggers all sorts of reviews, both with the vendor and without the vendor. And vendors may shortly be removed from the store if sales stay below a certain level.

And any competent small retail owner/operator  keeps a constant eye on the numbers, and can probably tell you exactly how much is in the cash register, and almost exactly how much inventory is in the store, what is moving, and what works.

I use the comparison, because the small "market" concept is closer in similarity than the larger sq.ft. operation, 10,000 sq. 

And if the service is good, a loyal customer base can be built, inventory can be tweaked, etc.

However, all of this said, the operation may be successfully run, but the biggest problem that causes immediate death in most small businesses is that of under capitalization.   I've seen it again and again in retail, in many different areas, from Men's clothing to restaurants , these having  the highest mortality rates in retail, to c stores operations to car dealerships.   

Stores with excellent products and merchandising, good advertising, well trained staff, good location, but no backup capital, and this was what led to the vacant storefront in a couple of years.

And in today's current climate, credit or  a lifeline of some nature  if market conditions cause a slowdown in traffic, or if the city decides to tear up the intersection or street in front of the store-is hard to obtain.  So many small business owners all of the cash into the buildout and merchandise, but don't have or have access to an "emergency" stash to get them over the rough spots.

[Gaspar]

Gaspar, you're statement that convenience stores make their money off of gas is simply incorrect. Right now the cost of a barrel of oil is about $108. One barrel of oil is equal to  42 gallons of oil. 108 divided by 42 equals 2.57. So it costs $2.57 for a galling of gas. Next add in shipping costs for that gas. After all these expenses are paid, most gas stations don't really make any money off of gas. They are not charging you an unfairly high amount. They are simply trying to not lose money.

They do make money and it is a fair profit (of course I don't believe there is such a thing as an "unfair profit").  They make about $.09 - $.15 per gallon.  That does not sound like much, but compared to their profits on shelf items, the volume of sales, and the low overhead associated with pumps as compared to the convenience side, it is quite significant.

Take QuikTrip for instance, the (577) stores have up to 20 pumps and turn around 7.5 billion in Fuel sales equaling about 750 million in gross profit.  These same stores sell about 500 million in grocery/fountan/and beer equaling only $10 million in gross profit.  Now, if you subtract the overhead associated with the food sales vs the fuel sales, it's not even a competition.

Now. . .just for fun, take away the gas sales and try to run the 577 stores on the market alone.  Their yearly GROSS profit per store would be $17,300.  Now subtract the volume generated from people stoping for gas and buying a slim-jim and 6 pack of Keystone Light, and your in the red!

[sgrizzle]

Gaspar, you're statement that convenience stores make their money off of gas is simply incorrect. Right now the cost of a barrel of oil is about $108. One barrel of oil is equal to  42 gallons of oil. 108 divided by 42 equals 2.57. So it costs $2.57 for a galling of gas. Next add in shipping costs for that gas. After all these expenses are paid, most gas stations don't really make any money off of gas. They are not charging you an unfairly high amount. They are simply trying to not lose money.

1. One barrel of oil = only about 19-20 gallons of gas.
2. You are quoting prices for "oil futures" not the actual cost of oil

[Gaspar]

Most businesses fail because people allow emotion to overrule logic.  Just because you perceive a need for a product or service does not mean that you can simply provide that product at a sustainable profit.

[Gaspar]

Yeah, Saying you "lost" money on a sandwich because you attribute costs like the whole rest of the food in the grocery store is not correct.

Yes, it actually is, but thanks for playing.