CHICAGO -- In an industry in which profit margins can range from pennies on a fuel transaction to more than 50% on foodservice, numbers matter and digits make a difference. Knowing what’s selling well vs. gathering dust, how to best promote, bundle and merchandise wares, and how to staff stores appropriately requires more than gut instinct. It demands deep data.
Front-end POS software can collect the empirical evidence. But it’s in the back-office business intelligence (BI) software where the true analytics magic can happen and the quantitative wheat can be separated from the chaff for closer study.
Problem is, many convenience retailers aren’t using these BI tools effectively—or at all. But c-store tech experts say parsing the right numbers can greatly improve operations.
Ask Jerome Sedelmeyer and he’ll tell you that having access to deep data is crucial.
“You need to be able to understand sales velocity by item and the right kind of data to tell you what’s moving and not moving off your shelves,” says Sedelmeyer, director of business growth for CMI Solutions, Charlotte, N.C. Without data, too much cash can be tied up in inventory, and the retailer isn’t able to adjust its gross-profit margin contribution at the item level.
“That leaves pennies on the table that quickly add up to dollars,” says Sedelmeyer.
But data remains elusive without the means to properly process and analyze it.
“What’s really essential is having the right software to digest all that data, and then slice it and dice it, providing you the key insights on what is working for your business and what is not,” says Chris Kiernan, director of retail applications for ADD Systems, Flanders, N.J.
That’s where BI software comes in handy. Major back-office application publishers number more than two dozen, among them ADD Systems, CMI Solutions, DataMax, PDI, Petrosoft and Service Station Computer Systems (SSCS). All offer some degree of pricebook management and reporting, sales and inventory tracking, as well as overall number-crunching capabilities. Advanced features can include accounting solutions, forecasting, EDI (electronic data interchange) and invoice processing, payroll and time-clock management, and lottery management.
Multistore operators and major chains have made back-office software a mainstay. But some convenience retailers are not making the most of all the data coming from a POS system, which back-office and reporting systems can then analyze. And that’s a mistake, says Jim Wade, vice president of product development for PDI, Temple, Texas.
“Your POS system provides basic, foundational information,” Wade says. “But leveraging the market-basket transactional journal data also supplied by the POS is what’s really driving change today.” This treasure trove includes what product is moving, when and to whom, and how it all ties to a retailer’s loyalty program.
“More sophisticated operators are starting to leverage this now in their data set,” says Wade.
For Bryce Carr, customer insights manager for Maverik Inc., Salt Lake City, back-office software is essential because it democratizes insights.
“Managers and buyers can go in and look at the data too,” says Carr. “For example, a snacks category manager can see how their most recent chips promotion performed vs. their most recent sunflower seeds promotion and compare them to how they’ve fared in the past, or against two different brands.”
The added value here is negotiating leverage.
“With the data, you can be on the same page as your vendor when it comes to new-product performance, whether that means it’s not performing as promised or it’s exceeding expectations,” Carr says. “Maybe they can offer a renegotiated rebate, or help design a promotion to push the product to help drive units.”
The ability to finely filter and sort data also makes back-office apps indispensable.
“BI reporting can reveal inconsistencies as soon as the data becomes available,” says Kiernan. He points to cashier violations such as voids and sales reversals, which contribute to shrink. “But managing by exception can also allow you to see opportunities for more sales.”
Case in point: A fine-tuning of software can generate a report that indicates when a c-store sells one Milky Way for every three bottles of Mountain Dew. If the app is especially intuitive, as many are, it can automatically suggest that the retailer launch a bundled promotion of these items, Kiernan says.
Further digging can also match item sales to inventory positions.
“One of our retailer clients used his data to learn that he had a high sell-through rate on an item,” Kiernan says. “By setting up better inventory management via back-office software, he was able to make inventory replenishment adjustments, keep his item in stock and keep the sales rolling.”
Whether a retailer is eager to invest in BI resources for the first time or seeks to maximize the software the company already has, it can be daunting to know where to start. The following tips can help guide retailers toward clarity:
Invest in the right tools. “Look for vendors who are familiar with and understand all the data that affects your bottom line and can provide BI software that incorporates all the data to drive better decision-making,” Kiernan says.
Don’t dig too deep up front. “Start small, which can lead to big results, but continue to dig deeper into your data and look for opportunities for improvement across your business,” says Kiernan. He recommends retailers begin with top-tier items, using BI tools to reduce out-of-stocks and inventory for products outside that tier.
Maximize—and rationalize—your SKUs. “First, understand at an item level what’s not selling,” Sedelmeyer says. “Second, determine your gross-profit margin contribution for each individual item. Third, understand what your item movement is and the gross-profit margin contribution over a period of time, so you can have the right conversations with your vendors.”
Reduce staffing costs. “Leverage data that tells you when your customers are coming into the store and what type of products they’re buying so you can be more intelligent on labor scheduling,” Wade says.
Trust in smart software’s suggestions. Depending on the app, it may be able to recommend how to allocate labor budgets across the day and week, bundle items for the best combo promotions and eliminate SKU dead weight.
If in doubt, enlist the right talent. “Hire or contract someone who is a true data analyst with technical skills and knows how to query, organize and present the data to your organization,” says Wade.
Democratize the data. Don’t just offer access to analysts or administrators; rather, empower category managers and store merchandisers with data too. “This allows people with very specific roles to specifically apply the data to what they do,” says Carr.
Don’t overlook qualitative data. “When you’re looking at how a promotion performed, it’s great to see the numbers, but also look at customer comments,” says Carr. His stores encourage shoppers to complete a survey by requesting this at the bottom of every receipt, the responses to which have proved useful in comparing with hard numbers.
Sell collected data to companies. Some research firms and manufacturers are willing to pay for it, giving the retailer a faster ROI.
It’s time for retailers to face the facts: The analytics age is here, and a POS system’s stats will only get them so far. They can either embrace the zeitgeist by adopting and maximizing back-office technology to their advantage, or risk slipping behind their rivals.
And remember: Intuition is no substitute for real business intelligence.
“In the past, we thought we were making informed decisions with the information we had, but quickly found out after using [BI software] that most often we were simply relying on experience or a gut feeling,” says Barrett Sims, vice president and controller for Amarillo, Texas-based Pak-A-Sak Inc.
Now, Sims says, “there is hard evidence of what is occurring. … It has been an eye-opener for us.”
Retailers shouldn’t be daunted by the likely learning curve, either.
“Some investment may be needed,” says Kiernan. “But knowing your data and leveraging that data will lead to a more profitable tomorrow. The need for analyzing your data will only continue to grow, so don’t put it off any longer.”
The Winding Road to Deep Data
Opting for access to more data seems like a no-brainer. But for many c-store owners, several obstacles have impeded the path to back-office business intelligence software and more productive use of these tools.
“Retailers who are not accessing the available data either don’t have the time to do it alone or lack a proper reporting tool that helps to sift the information into useful content,” says Chris Kiernan, director of retail applications for ADD Systems.
Barrett Sims, vice president and controller for Pak-A-Sak, says the tech learning curve can be steep for some operators.
“The data may be readily available, but the end user still must have a solid understanding of what it is they’re studying,” says Sims. “Someone who is tech-savvy and skilled in database querying and reporting can extract almost any information. But the real challenge is finding a product and process that allows the rest of the population to access the most useful database information.”
Reliance by some on human marketing intuition instead of hard numbers is another stumbling block, as is justifying return on investment.
“It’s a big IT project to roll out back-office software and start collecting data,” says Jim Wade, vice president of product development for PDI. “And many retailers are looking for the tipping point of ROI that is actionable.”