Everyone in retail knows that there’s always a balance between good service and operating costs. When recessionary times hit, many businesses look to cost-cutting measures to survive. But sometimes cutting back on benefits staff or customers previously enjoyed can negatively affect customer interactions, causing further sales decline. Improving current operations to achieve cost savings can be a better strategic approach. That way, operators can maintain that critical balance between efficient operations and exceptional service without having to make drastic changes that impair the workplace dynamic or shopping experience.
Food cooperators have stated commitments to staff and customers about benefits, service quality, and concern for community, so the need to be excellent operators is ever more critical. Within a professed culture of caring about people and the environment, and a not-business-as-usual approach to those relationships, how do food co-ops maintain those commitments and keep the loyalty of customers in the face of rising costs and lower sales?
Mel Braverman, operational and financial improvement consultant, said that the current recession has certainly motivated more food co-ops to take a critical look at their operations. He advocates a back-to-basics approach, evaluating inventory, margin and labor systems, and using some of the benchmarking tools already available to co-op retailers: Common Cooperative Financial Statement Program (CoCoFiSt) and SPINS data for retail buying decisions. “You can drive down expenses through efficiency,” he said.
“The economy may have changed,” Braverman said, “but the tools are still the same. You may find you have to apply them more often or keep better track. These are the basic tools for good management.” He said that one of the operational issues he encounters a lot is that the information that could help an organization mature or improve its systems “gets stuck at the top.” This can happen when other staff don’t have access to technology or don’t know how to use it, training is lacking, or management is overwhelmed. “It’s important to figure out how this data can be shared with everyone in the store who needs to use it. Otherwise you’re missing a key component to running a dynamic business,” Braverman said.
There are many places to look for improvement, but Braverman noted that improved inventory systems often yield dramatic results, and can be achieved when applying information from the available data programs to store operations. “It’s easy to get caught up in having more SKUs than you need,” Braverman said. Food co-ops often feel like they need to carry a wide range of products. But the risk in that is that those products may not turn quickly, taking up valuable shelf space and co-op cash. “Better operators give our members more of what they want. You make the shopping experience more pleasant by meeting the needs of our marketplace. Keep the three SKUs that sell, don’t pay for SKUs that don’t. That way you can make more money. Really push those top sellers in your store.”
Molly Langley, general manager of East Dakota Natural Foods Co-op in Sioux Falls, South Dakota, followed Braverman’s advice. For years the co-op had kept a product line rigorously geared to a hard-core natural food customer—lots of bulk and too many SKUs of slow-selling special foods. After a reset that included new shelving and larger produce coolers, a slimming of the product line, and reduction in backstock, East Dakota’s sales went up 18 percent and put more money in the bank.
As part of their work improving inventory systems, Braverman coached Langley on how to empower staff to make better buying decisions. “Part of our sales increase is also related to my delegating more and having department managers do more. My job is a lot less crazy,” she said. Last year the co-op also made a substantial profit, and this has done a lot to change the co-op’s culture as well. “The place is cleaner, less cluttered, organized. People see things differently now,” Langley said. “Now it’s a jewel in the heart of Sioux Falls.” All this because East Dakota focused on one thing: better inventory management.
On the other end of the spectrum, there are also stores that have just expanded and sales are going pretty well, economy notwithstanding. Even stores that are currently doing well need to seize opportunities to make improvements. “Getting by is not the answer,” Braverman said. “It’s always an appropriate time to look at your systems and see what opportunities you may still be missing. Getting new people in to your store is expensive and you’d rather not lose the one you have.” In these situations, Braverman advises adopting aggressive pricing strategies and studying what the competition is doing. “You’ve got to be looking not only at prices, but merchandising, and what they are doing for their customers.”
Valley Natural Foods in Burnsville, Minn., did an expansion of 3,300 square feet, and half of that was devoted to improving the workspaces of those who work in perishable departments. The rest of the space was used to grow the produce, dairy, and meat departments and add more to their deli seating area. According to general manager Susan McGaughey, this change was all about improving stocking and delivery systems to better meet customer needs.
“We were doing regular price comparisons with our competitors and decided to take it further,” McGaughey said. After an analysis of their pricing, margins, and product mix, McGaughey determined their targeted growth area was in perishables, specifically local foods. Not only that, Valley Natural’s competition was also improving their fresh department offerings. They developed a strategy to act.
The deli management toured a number of competitors and determined a good price point for a meal for a family of four in order to meet the budgetary needs of people hit by the recession. For $24.99 a family can have a variety of healthy meals: fish, pork, beef or a vegetarian option. “It’s been very popular,” McGaughey said. In addition, it’s served as a successful promotional tool for showing customers that good food doesn’t have to be expensive. “We’ve been using it to reach out to the community, tell our stories about the food, and push local.”
Although the co-op has been seeing double-digit sales growth, McGaughey doesn’t take it for granted. Valley Natural’s management team has been developing contingency plans for what the co-op would do if sales don’t materialize. “Inventory and labor are two of the most controllable expenses. We keep track of that most closely,” she said.
McGaughey is a firm believer that having adequate systems in place and giving her team the right tools allows her to set and make Valley Natural’s goals. “I can’t say enough about CoCoFiSt. It’s been a tool I’ve used since the beginning. The benchmarks are so helpful for the managers. They can see the data, see what’s possible, and call the co-ops reaching those goals. Without that we wouldn’t have come so far.” McGaughey also knows how operational efficiency is closely tied to owner satisfaction. “Members get patronage refunds and see how their investment is working for them.”