August 18, 2013 Business

Who knew there was a similarity between convenience stores and the Titanic?

Below is a true story and one that I believe is happening in our industry all across the country in all sizes of business. To paraphrase what they said on Dragnet – The story you are about to read is true only the names have been left out to protect the innocent.

This past year my company was working with a mid sized chain with wholesale fuel, dealers, and retail sites that they own and operate. After working with them over a period of time during which we built a mutual level of comfort and understanding the CFO thanked me for the work we had done to date and then said “I am really very concerned because with all of the areas of potential improvement you have identified I feel like we have only seen the tip of the iceberg and I am scared about what else we might find.” Then he made a comment that was even more surprising he said “sometimes we make money inspite of ourselves” These were without a doubt the most honest comments I have ever heard from a client and the fact that he had the confidence to say them only increased my respect for him. Since hearing those comments I have looked back over the last few years and realized that we have come across very similar situations with other clients as well but in those cases either the client did not realize it on a concious level or they were too uncomfortable with the idea to voice it to us. With the client who did voice this concern something interesting happened. We completed the project we were initially hired for and the client was very happy with the results but none of the other off shoot projects that were discussed have been addressed. This was something that really bothered me for a time and it was only after a follow up conversation with the client and me filling in the parts that he left unsaid that I understood the why.

• The company is doing well, they are making good margins on the fuel side of things and they do not want to rock the boat
• The concern that there might be additional issues that would be uncovered and how would ownership react to that
• The management team at this company like so many of our clients is very lean and already works long hours to deal with their existing to do’s so the very concept of adding to their workload not just in time and effort but with potential headache’s is more than they can deal with.

Some of the different issues we identified with various clients include:

• Lack of central purchasing control – If you have multiple stores it is imperative that you have one person in charge of all purchasing. Recently we worked with a 10 store chain that allowed each manager to choose what products to carry, what promotions to run and how to allocate shelf space and we found many areas where they were losing money, were not carry some necessary items while being overstocked with slow moving items, and were not able to control their business effectively

• Lack of monitoring of contracts and rebates – How are you tracking pricing contracts and rebates? While reviewing a clients contracts with various suppliers we found numerous products that were being delivered at higher than agreed to costs and rebates that were promised that were either not being paid or were being paid at a lower then agreed to dollar amount.

• Bonus programs that were written 20 years ago and are based on bad math – Bonuses should be based on increasing profitability be it from better margins, increased sales, lowering employee turnover or other such things not based on things that aren’t putting more money in your pocket such as increased gross dollars because you added a new store. Bonuses are meant to be something for going above and beyond the basic job description not just for showing up every day.

• Poor onboarding and training programs leading to less then stellar employees – Many clients just don’t understand the costs involved with employee turnover such as higher unemployment costs, more overtime, other work that needed to be done but isn’t because people are covering shifts, interviewing and doing training as well as unhappy customers. This is an area that is woefully neglected by most companies in this industry.

My concern and caution is that like all things gas margins are cyclical and when they do go down what will happen is that the other issues will become exposed and unlike now when this company has cash on hand they might not be in such a strong position later and may suffer far more then as opposed to if they had addressed the issues now. Please remember just because you have always done it this way and right now things are good does not mean you don’t have hidden issues and it does not mean you could not be doing better.

 

Click here to downlaod a pdf copy of the article.

Mark Lotstein

Mark Lotstein President, ROG Consulting Retail Optimization Group LLC mark@retailgroup.com

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