Cutting Cost Shouldn’t Mean Cutting Service

Newsflash: Business Has Been Tough

Business has been tough for 12 to 18 months in the convenience store business. While Wall Street imploded just over a year ago, gasoline retailers and distributors had been riding a wild rise in supply cost caused by record high crude oil prices in July of 2008, only to followed by a very rapid drop in prices as the rest of the economy “fell off a cliff” to quote a pundit, reducing demand overnight. Volatility of supply costs pushed a lot of jobbers to the brink, and some went over the edge with the rest of the economy.

So, while our stores and chains were ahead of the curve in starting to feel the pain, we were right there with everyone else as consumer confidence shrank, and maintaining business became very, very tough. When the top-line revenues aren’t growing, but actually shrinking, but the expenses aren’t going down, the obvious place to look to get more benefit from the operation is to cut cost.

Cutting Cost Leads to Better Results

And, everybody looked to cut as much as they could and still stay in business as a viable competitor. Both stories underneath this, on Walgreens and Starbucks, are about cutting cost to keep the profits growing. Howard Schultz, the founder and CEO of Starbucks, was on CNBC this afternoon to tout the national rollout of the “Via” instant coffee product; but what he talked about the most was the cost cutting initiatives within the firm allowing them to keep profits near the levels that were expected. Walgreen Corp also attributed better than anticipated results to cutting cost.

“Abandoned Cart Syndrome”

That being said, about a week ago I read an interesting article on the supermarket sector, where they have been aggressive at reducing cost, as they compete in a very tight margin industry. There is more and more of what they are calling “Abandoned Cart Syndrome” where a customer who came in and shopped the store just leaves the full cart and walks out when they see the lines at the checkouts, lengthened by reduced labor allocations. So the question posed was, when does cutting cost become cutting service? And when does that impact your business negatively in the long run? Does that customer come back?

Well, in the case of a Convenience Store, we might not have abandoned carts, but we very well could have cut cost to the point that we have abandoned sites. Customers who came in, and you were out of stock on the need, or they had to wait in line 3-4 minutes to buy a single item. Take a good hard look as you pare those costs, and make sure it’s not service that’s suffering.

Walgreen’s Beats Forecast, Shares rise

Drugstore operator Walgreen Co. (NYSE: WAG) said prescription drug sales rose in the fiscal fourth quarter, pushing the company's results past Wall Street expectations and lifting shares to an annual high. Shares rose on trading today to close at $37.35, a $3.16 per share rise today, putting the stock price 9.24% higher.

Cost Cutting results in Profits

The Deerfield, Ill., company said its "Rewiring for Growth" expense savings plan started to pay off during the quarter, and also indicated the effects of the recession may be easing. Walgreen shares climbed to an annual high on the results.
For the quarter ended Aug. 31, Walgreen's profit fell 2 percent, to $436 million, or 44 cents per share, down from profit of $443 million, or 45 cents per share, a year prior. Revenue rose 8 percent to $15.7 billion from $14.6 billion.

These latest per-share results attribute 7 cents per share in savings from Rewiring for Growth, offset by 3 cents in costs. Analyst’s consensus forecast profit of 39 cents per share on revenue of $15.68 billion.

Walgreen’s said same-store sales, or sales at stores open for more than a year, rose 2.4 percent. Walgreen opened its 7,000th store in September and currently runs 7,042 drugstores, a few dozen more than main competitor CVS Caremark.

Same Store Sales Rise

Same-pharmacy sales rose 4.5 percent in stores open at least a year, while same-store sales of the "front end", or non-pharmacy items, fell 1.4 percent. The company filled 9 percent more prescriptions than it had a year ago. Even though consumers are actively looking for ways to save, Walgreen’s said fewer customers are skipping medications or stretching the terms of their prescriptions.

Walgreen’s also said that patients who receive 90-day orders of prescription drugs through the mail will now be able to pick up their orders at local Walgreen’s pharmacies, matching the features of the CVS program.

For the full reporting year, Walgreen’s earned $2 billion, or $2.02 per share, down from profit of $2.16 billion, or $2.17 per share, in 2008. Revenue rose to $63.34 billion from $59.03 billion. Walgreen’s expects store growth of 4.5 percent to 5 percent in fiscal 2010, which would give it more than 7,300 stores.

The company stated it is looking to save money by cutting back on store openings and carrying fewer products in inventory. They are going to boost sales by improving the layout of its stores in another new initiative.

Starbucks Rolling Out it’s Instant Coffee Nationwide Today

Eight months after Starbucks Corp. began selling its “Via” brand instant coffee, testing it in Seattle and Chicago, today Starbucks will begin a nationwide rollout, offering the instant coffee drink to the rest of the country and in its Canadian stores.

Starbuck’s is running company's first-ever television ads, and also distributing to roughly 1,500 sites outside its stores; this effort for the Via launch shows just how much Starbucks wants to own a stake in the $21 billion worldwide instant coffee market.

"Based on the success we've had, we feel strongly that we're sitting on a very big opportunity," said Starbucks CEO Howard Schultz said during a conference call with journalists. "What's going to sell Via at the end of the day is that (it) delivers in the cup. Most people will not be able to tell the difference."

Instant coffee is popular in Europe, and through the rest of the world — instant brands account for as much as 80 percent of coffee sales in the U.K., here in the US, instant coffee has not won over coffee drinking Americans. Instant is generally viewed as an inferior product here in the US, a knock-off of drip-brewed beverages.

Starbucks executives want that image to change. They are hoping, and betting on, with this high visibility rollout, that the skinny cylindrical 3-packs and 12-packs of coffee that dissolve in water will eventually be as popular with consumers as its packaged coffee is now. The coffee is available in two flavors now, and Starbucks expects to introduce more varieties in the future.

Starbucks is getting together diverse vendors like outdoors store chain REI and office supply chain Office Depot Inc., hoping it will help the company get the product in hands of new customers. Via also will be sold inside general retailers like Costco and Target. The effort to find new customers is also taking to the air, where passengers onboard certain United flights on Tuesday will be able to sample the drinks. United will sell Via packages onboard later in the year.

Next year, Via will appear on grocery store shelves, already a strong market for Starbucks pre-packaged conventional coffees. Introducing Via in such a high-profile way comes at a particularly tough time for Starbucks. Due to the recession and consumer spending cutbacks, Starbuck’s has seen its revenue slide for the last three consecutive quarters, and profits have fallen in five out of the past six quarters. It could use a big new hit product, maybe Via could provide that “Buzz” to get the chain rolling again.

“The Value Proposition – What it means in Convenience Retailing”

In the field of marketing, a customer value proposition consists of the total of benefits which a chain or store owner promises that a customer will receive in return for the customer's business (or other value-transfer- time, loyalty, brand allegiance).

Put simply, the value proposition is what the customer gets (or your store provides) for their money and time. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings. “in ten words or less, why should people be YOUR customer”
Accordingly, a customer can evaluate a company's value-proposition on two broad dimensions, with multiple subsets:

1. relative performance: what the customer gets from the vendor relative to a competitor's offering; How much better is your location than your competitors?

2. Price: which consists of the payment the customer makes to acquire the product or service, since most C-Store items aren’t unique to the location, this is a driver.

The company or Store’s marketing and sales efforts offer a customer value proposition; the Store’s delivery and customer-service processes then need to fulfill that value-proposition, in order to make the customer happy.

How to use developing a Value Proposition as a marketing tool

A value-proposition approach can assist in a firm's marketing strategy, and may guide a retailer to target a particular market segment. Typically, there are three elements that should always be in a value proposition: Convince (who’s our customer?), that (what you want them to believe), because (why they SHOULD believe it). This framework will structure your value proposition in a cohesive manner that makes sense internally and externally
A company should always have the value-proposition of increasing its market share and growing revenue by:
1. providing superior customer service – self explanatory
2. product differentiation – Colder coolers, cleaner store, fresher products
3. operational efficiency – making it look effortless
Strategic analysis and planning for value proposition marketing should contain at least five elements:
1. Your current situation (including problems, causes and effects – need to be honest)
2. target situation – what you would like to achieve
3. How long to reach the target situation – when do you need the new results
4. cost of reaching the target situation and opportunity cost analysis – need to be honest again – a plan you can’t afford doesn’t do you any good
5. the benefits of both the targeting and the achievement phases – what do you (and importantly your team) get for the all the planning and work?

Developing Your Value Proposition

It's important when developing your value proposition that it be clear and concise. It's best to start by brainstorming and focusing on what needs your target customer group have in common. This can be done by some simple market research in your stores. What does your current traffic want that your business can provide? What is important to them?

Once you've found the common denominating need, you can determine what it is that they are in search of in addition to your current lineup and develop your value proposition around that need. If you find a great unmet need, think about adding that product or service to your line-up, and letting people know about it.
Keep in mind that the purpose of your value proposition is to identify and satisfy an unmet or under-met need that your target market possesses.
Why is the development of your value proposition important?

The answer to that question is easy. Your value proposition can equip you with the following benefits to your business:

• Create a strong differential between you and your competitors
• Increase not only the quantity but the quality of your in-store traffic
• Gain market share in your targeted segments
• Assist you in merchandising and store layout that will increase business.
• Improve your operation efficiency

You can get started developing your store’s value proposition today. Just remember that an effective value proposition describes what you do in terms of tangible business results. It draws interest and shares a customer benefit within a few words.