CHICAGO — Several years ago, I attended a meeting where the CEO asked the question, “What do good business people do?” On that day, the correct answer was “make money.” His obvious intent was to remind us that long-term success depends on reinvesting in the business: new stores, remodels, people, infrastructure, etc. Everyone works to increase sales and profits as much as they can. But given the ongoing cost increases in labor and credit cards and thin fuel margins, there is a need to positively affect profits every day via just running the store. I call these methods the “quiet moneymakers.”
It’s not necessarily profound, but two categories—cigarettes and lottery—should not be taken for granted.
A Critical Category
I flinch each time I read that cigarettes are a dying category. Granted, fewer people are smoking compared to past years, resulting in the current 3%-5% annual category sales decline, and combustibles will probably continue to slide. But when considering cigarettes still represent 20% to 45% of many c-stores’ sales volume and are probably the highest gross-profit dollar contributor, marketing teams should manage this category with the same energy and attention to analysis as foodservice. Retaining a single cigarette customer, or gaining a few new ones, will be worth the energy and preserve valuable incidental purchases.
Product assortment, ordering and space management are key, but it’s not always easy to implement. Homing in on the proper number of SKUs to carry is critical. Understanding what the A, B and C sellers are, including their daily velocity, is significant.
Whether it turns out to be 85 or more than 100 SKUs, it is important to satisfy your core customer base and not over-SKU on a brand that will sell just one or two packs every month or so. The cost of holding slow inventory can run into the thousands. Obviously, getting rid of unneeded cigarette carton inventory results in onetime savings, but the aim is not to allow it to happen repeatedly. For a multi-store chain, excess carton inventory can mean big money, so complete SKU rationalization by store. Manufacturer contracts can affect SKU assortment, but having good data will typically eliminate conflicts, especially on optional SKUs.
Retaining a single cigarette customer, or gaining a few new ones, will be worth the energy.
Ordering and having the proper in-stock levels is critical. In most cases, 70% to 80% of cigarette purchases are still in premium brands, meaning never, ever allow out-of-stocks on the top 20 to 30 SKUs. The question is how to do this. Whether you manually order or use an electronic replenishment system, the correct data and inputs are critical.
The goal on the top 10 SKUs is to have at least a third of the weekly volume on hand when deliveries arrive. Adjustments can be made from there on B sellers. The key is inventory consistency, assuring that customers can rely on their store—always.
Lottery and how it’s advertised also has a quiet positive effect on profits. Granted, the ROI on lottery is low unless winning tickets are sold, and some feel lottery customers inconvenience other shoppers who make more profitable purchases. However, lottery seems to be recession-proof and can have a significant effect on a store’s daily customer count.
Mega Millions was recently about $600 million, driving thousands to the nearest ticket counter. However, this usually occurs only when the media reminds the public of the major value of the next drawing. An electronic lottery board displayed in one of the front windows will bring in additional customers every day because the psychological effect is such that even smaller amounts look enticing.
When people see Mega Millions or Powerball games inching toward $80 million-$100 million, lottery foot traffic can rise significantly. What better way to get an uninformed customer into the store than by a lighted lottery sign advertising million-dollar drawings?
When customers come in for unanticipated lottery purchases, they will often pick up that additional beverage or snack item—all from a hanging message board that electronically manages itself.
Bill Nolan is a partner with the Business Accelerator Team. Contact him at email@example.com.