Waste is 100% Profit – Retailers have become addicted to discounting. And so begins the vicious cycle of discounting – retailers discount to attract footfall, in turn their sales diminish and margins decrease, which calls for further discounting and the cycle continues. Born out of this problem came Market Hub, the solution.
MarketHub has built a team on a deep understanding of retail chill distribution with expertise in key areas such as stock management, distribution, waste, sales and supply chain logistics. In chill distribution if your waste exceeds 1% of sales, and if you have poor stock utilisation, you do not make money.
Waste is 100% of profit lost. Waste should not only be seen as what goes in the bin. Waste is as much about overstocking and stock utilisation (both which tie up cash) and price overrides at the till (which reduces the actual true margin of a product). In a typical retail grocery store waste runs at about 1.5% and price overrides or at the till discounting can nearly be double at 3% which is a whopping 4.5%.
If you think carefully about this and go through the numbers of a small grocery store with c.€3m is sales per annum with a gross margin of 20% or €600k in gross profit after costs net profit could be a low as €30k. At 4.5% of waste and price overrides the retailer is losing €135k a year in net profit or c.400% of their net profit purely by failing to deal with not inefficiencies and trends related to waste.
In eliminating waste it is required nor advised to do by implementing a discount plan. A better plan is to reduce the amount of stock that goes into the bin and on discount by over 50%, without compromising on sales and fulfilment.
The key is achieving sub 1% of waste in a store and sub 2% of price discounting, is by analysing trend and ensuring optimum stock selection. What I mean by trend analysis is very simple in both concept and practise however it is often the one thing that stores cannot see on sale reports, so naturally it isn’t acted up on the shop floor.
Put it simply if you had consistent waste and price overrides on a product for over 5 weeks and the average selling price and net margin for the product group was less than half of what the target it would make sense to order less of that particular product. Phase the ordering so you have the right amount of stock on the days that you have peak demand or you build a waste plan and put it on a watch list to monitor its performance?
All the above is easier said than done especially in stores what have thousands of products in stores but that is what MarketHub has developed for stores through its product and sales analysis tool Pulse. Pulse helps retailers identify these trends, products and insights and bring them to retailers in a concise and actionable way.
With Market Hub, if we only took action on the 10 products with waste and 10 products with high levels of discounting, and the store is told how to deal with these items. If we then track the performance and report the outputs then over time the store not only works through the list of the repeat offenders it also changes the behaviour in store and the team starts to see the positive impact of waste, price overrides and proper stock management. The impact is a sub 1% waste and sub 2% price overrides which leads to a 2% increase of the gross margin in store.