Saturday, April 2, 2011

Advantages of Cloud Computing– Part XXVI –Mobility & Flexibility

The convenience store industry is an anomaly. It’s the perfect example of an industry devoted to the principle, “build it and they will come”. Their mantra was ‘location, location, location.’ If you took their advice, you generally did very well. If you were smarter, or had more money to invest, you may have grown.

Those days are over… dead, buried and gone forever. Oh, it’s not the market that’s changed. The customers are still there, and so are most of the profits. The change is this: just like the gasoline business, the profits are going elsewhere, and as in Geoffrey A. Moore’s book, ‘Crossing the Chasm’,  as you struggle to survive, you’re like Tarzan hanging on a stationary vine, twitching and jerking to gain the momentum to move forward, while the other animals are peering up at you, wondering when you’ll fall.

Day by day, I watch the industry fragment, even as the market continues to grow. Reducing expenses may have had a small effect on profits for a time; however, at some point, cost-cutting becomes a zero-sum game. You weaken the quality and number of employees, and the customers respond by staying away in droves. You cut back on maintenance and your image starts to decline. You discontinue a popular brand because ‘it costs too much’ and customers go somewhere else to find it. While the industry continues to focus on marketing and cutting expenses, they’re paying no attention whatsoever to profits.

Different retailers define their markets in different ways. You may perceive your market as sales activity over your entire enterprise, or by geographical location, or by store, or even by category.

If you owned a plant and had three thousand little machines producing profits, how many would you allow to be broken before you fixed or replaced them? I suppose it would boil down to the math. If it cost more to repair one than the profit it produced, the choice is obvious.

When you think of the products in your stores as being thousands of tiny machines, whose purpose is to generate money, you begin to see things in a different light. As I look at categories in stores, I see seven broken machines out of every ten. That’s right. Seventy percent of your categories are dead, weak, or working furiously to burn up whatever profits the rest of them are working their little hearts out to produce.

There is only one way to find out when a product is performing. You have to be able to see it. Knowing what the category is doing gives you an indication of how the category is performing as a whole. Replacing items in a category to affect its profitability is a haphazard way of going about increasing the profits in your stores. Items that appear not to be turning may be making a better overall profit in the long run than those little devils that are selling like mad at a loss. 

The convenience store industry has been in the need of reinvention for some time now. Some of you may think you are doing well, because the last quarter appeared great… or at least acceptable. But something horrendous is about to occur. Something you’re probably not prepared for. No, it’s not the end of the world, but it may be the end of your world if you continue to run your stores in the same way.

In the next article, we are going to talk about what that terrible thing might be, and how you may be able to turn it into an opportunity, like none you’ve encountered before.


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