Part 2: Small steps to better margin
Last time, I talked about how we are judged by margin in our departments and how you could improve your margin by paying attention to specific areas (training, quality control, and accountability) during your everyday department work. In this column I will continue the conversation and offer more suggestions on margin-makers and savers.
Let's continue with accounting. Do you know when your store's fiscal period ends? Monthly? Quarterly? Are all of your invoices being attributed to the correct department?
Anyone can make mistakes, and often the bookkeeper may not be aware of interdepartmental interactions unless you make them absolutely clear. If you sell the grocery department's tofu in your produce department and are being inappropriately charged, it would adversely affect your department's cost of goods.
Another area where margin slips away is interdepartmental transfer. Are transfers between your department and other departments being recorded correctly? I once worked with a produce department that had taken many steps to improve its margin but was still off by a couple points. When we looked at the produce that the deli took from the department on a daily basis, we found that the transfer log kept in the kitchen was far shy of the actual amount that the produce department saw leave the department everyday. It wasn't that the deli folks were intentionally neglecting to write down the produce they took; it was more likely that they got distracted by a customer on the way back to the kitchen and forgot to finish the process.
We changed the transfer process to one in which the deli workers had to write down everything they took and have it initialed by a produce worker before they left the department; this made up some of the missing margin. We also used the information from the new system to work with the deli so it could adjust its produce ordering and thus save steps as well.
Another thing to remember about this process is that product needed by the deli shouldn't be pulled from the stand-that is, product that you have already put labor into through prepping, stocking, and maintaining and that you will have to work to replace. The deli should always take produce that hasn't been prepped unless advised otherwise.
Speaking of costs of goods, look for ways to improve your margin in this area too!
Reduce base product cost while still honoring the price needed by farmers and distributors to do business. For example, if you buy six cases of bananas five times a week, negotiate with your supplier on the discounted price for buying 30 cases a week rather than the daily amounts.
Let farmers know what your price point is for what they offer. Ask if they would be willing to work with you on price in order to sell more of their product. Most times the answer is yes. On the other hand, remember that for most customers the difference between $1.59/lb. and $1.39/lb. is not what drives their buying a product. Use this to your advantage when you can, and the increased margin may help your goals. This is not to suggest that you can just raise prices to make up margin; rather, it is one of many areas to bring together the whole margin equation.
Another strategy is to stock up on a product just before the discount ends-when normal price kicks back in you gain margin from buying in at end of "sale" period. This can only be done if you have a solid inventory and ordering program in place. Your ordering system should include accurate inventories from the stand, walk-in, and back stock, par or build to numbers that tell you how much you sell between orders, and unit of measure numbers that clearly state the size and weight of what you regularly buy.
Review your display and product mix. I often hear department managers say, "Oh, that doesn't sell here," only to find that when we review when we try to sell it or change the display to better show the product, it starts to sell. If you tried selling rutabagas for the first time in August, then perhaps you should try again in the fall or winter when they are at their peak and are part of your customers shopping thoughts.
Moving product from the front to the back of the department or stand can also make a difference in it selling. Ask yourself, is it easy to buy? Does the product show well? Is the display big enough? Remember people buy with their eyes first.
There are many areas in your department in which to make or lose money, and these are just a few. I suggest you think like Sherlock Holmes: look for clues and do some detective work. You're sure to find answers to your margin mysteries.
Part 1 appeared in the July/August 2003 issue.