Originally printed in the September 2018 issue of Produce Business.
In our ever-changing marketplace, retailers are constantly reviewing their strategies to compete with Internet sales. While many of these Internet retailers have invaded the space formerly occupied by traditional retailers, especially grocers, brick-and-mortar retailers have been searching for methods and strategies to compete with the convenience of using the Internet to buy food and groceries.
Retail management across the country has instituted new programs designed to help combat the convenience offered by the Internet. These would include Internet shopping and ordering, delivery services, self-checkout and handheld device shopping and checkout. All of this is designed and advertised as a convenience for customers, and management supports this strategy wholeheartedly with promotional activity to inform consumers of the services. Management is so preoccupied with these convenient strategies that they overlook some of the drawbacks to this course of action, especially how it affects individual departments. Management’s overlooking of the possible impacts proves once again that “they just don’t get it.”
Although management’s claim to consumers that all these programs are instituted for their “convenience” is true, there is also an ulterior motive, which may prove to be more important to management than the simple offer of convenient ways to buy products. In addition to providing consumers with different ways to buy products, these programs also provide retailers with big benefits in terms of control of their most expensive cost — labor.
From observation of the items going through the self-checkout or being selected for delivery or store pickup, Produce’s percentage of sales is close to half or in the best-case scenarios two thirds of the normal rate when the average shoppers work their way through stores.
The one thing all these convenience programs have in common is the fact they use lower-paid employees to deliver the services. For example, many retailers now offer Internet shopping where consumers can order products and then drive to the store and have them delivered to their cars. The key point of this is they do not need to go through the checkout lines in the store or travel and spend more time in the store than necessary. The benefit to the retailers is they can use their lowest-priced labor to select the items and deliver them to the consumers’ cars, bypassing the higher-paid clerks and cashiers at the front of the store. These savings can become quite substantial in terms of reducing labor costs. The same labor cost savings are also very evident in the self-checkout line, where the consumers do the checkout instead of the store having to pay for the higher hourly wages of regular clerks and cashiers. Although all of these savings are good for the store, overall, they may be counterbalanced or even outweighed by some of the losses that can be occurred because of these new convenient options.
The danger to the individual departments, especially Produce, by these new strategies involves the degradation of sales inherent in these new programs. By observing these programs in operation at store level, we repeatedly have seen Internet and self-checkout orders, along with other convenience options, contain less produce than the normal market basket purchase.
In most cases across the industry, Produce amounts to 10 to 12 percent of total store sales and in some cases even higher. From observation of the items going through the self-checkout or being selected for delivery or store pickup, Produce’s percentage of sales is close to half or in the best-case scenarios two thirds of the normal rate when the average shoppers work their way through stores. Given the razor-thin profit margins most grocery retailers report, the loss of anywhere from 5 to 6 percent of sales in Produce can have a very adverse effect on the bottom line. This could also well offset the savings in labor from these “convenience” options. With nearly all retailers searching for ways to be more “convenient” for consumers, the risk to sales in Produce and other perishable departments has not been given the proper consideration. An analysis as to the effects of the use of these programs is indeed, necessary. Given that Produce is one of the most profitable departments in the store, the erosion of sales should be a major concern for management. At the very least, strategies for “convenience” should be weighed against the risk of negatively affecting sales of the most profitable areas of the store.
This threat to Produce and other perishable departments should be examined very closely. Due to the fact that lack of information on sales and percent of total sales generated by individual departments are proprietary numbers, an independent examination should be done to determine the actual effects of the strategies. With management’s current mindset of controlling costs so prevalent in most of the industry, it is possible a great deal of damage could be done to the percentage of total sales generated by the perimeter departments, especially Produce, before any corrective action can be taken. Innovative retailers should examine and run analysis on this potential sales loss to ensure that the adoption of “convenience” strategies will not adversely affect Produce sales.
Don Harris is a 41-year veteran of the produce industry, with most of that time spent in retail. He worked in every aspect of the industry, from “field-to-fork” in both the conventional and organic arenas. Harris is presently consulting. Comments can be directed to [email protected]