The Importance of Measuring, Monitoring & Reacting
NATIONAL REPORT — When it comes to the financial bottom line in convenience stores, there are so many pieces of the puzzle that make up the profit coming in and the expenses going out — and each one could mean the difference between making money or losing money.
With the c-store industry’s small operators often working with leaner budgets than the larger chains, staying on top of finances and key metrics is critically important. However, despite this, many operators still do not have formal metrics they use to manage their business.
This is something that needs to be put in place, cautioned Steven Montgomery, president of b2b Solutions LLC, based in Lake Forest, Ill. An operator should have a system in place to gather the information, and then be measuring and documenting the metrics they set up.
Gross margin, revenue, volume, labor, shrink, repair and maintenance, product pricing and professional fees are among the key metrics that should be reviewed and monitored closely to spot any changes or issues that might pop up — and any issues that do arise should be addressed right away.
“You can’t manage what you don’t measure, so set up key performance indicators (KPI) for each area of the business,” said John Matthews, president and CEO of Gray Cat Enterprises, a firm based in Raleigh, N.C., that works as consultants and interim executive managers for a variety of industries. “For example, with labor, you can look at wage rates, amount of overtime and amount of turnover, and then you can drill into why you might be overspending on labor.”
Once KPIs have been decided, c-store operators should monitor these key metrics either daily, weekly or monthly to gauge their individual store and chain performance, and make sure they are not losing money unnecessarily in one or more areas of the business.
“Sales and gallons are generally the first metrics all operators measure,” said Montgomery. “They should be measured both by day of the week and hour of the day. This information and the number of transactions for the same timeframes should be utilized to determine labor schedules.”
Labor, shrink, fuel pricing, and repair and maintenance should be looked at daily, and inventory on a weekly basis, added Doug Hecker, a consulting partner at b2b Solutions.
“Don’t wait for a monthly profit and loss. Look at some income and expense lines at least weekly, and payroll hours daily by store,” he advised.
Another crucial area to watch is the pricing of products to ensure each store and the overall chain is maintaining its gross margin percentage in each category. This means monitoring vendors and any price increases that may have slipped by, where the retailer may need to increase the price for customers, Matthews explained.
In addition to the main areas of the business, there are other places c-store retailers can monitor to find savings to boost their bottom line. Every six months, they should go line by line on their profit-and-loss statement and look at their expenses to see where they can extract savings, said Matthews.
“…Look at your telephone costs, utilities, rent, maintenance, insurance, bank charges, pest control, professional services, security and uniforms,” he said. “All of [these expenses] can run away from you if you don’t have someone looking at them. Go through line by line to see if you can save a couple percentages here and there.”
A few other areas to consider are trash services; remembering to turn off the canopy and perimeter lights during the day, which can add up to savings over time, he said; and also paying close attention to inventory. For instance, is there a lot of inventory on hand and sitting in the back room? Ideally, stores should be turning inventory once a month, rather than stockpiling it.