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.
