The traditional retail industry is infamous for its low rates of profitability. According to The Food Industry Association, Net Profit After Taxes for Food retailers was 2.3% last year and has been declining for the last two years. Of course, it is still much higher than pre-pandemic levels, fluctuating between 1% and 2%, but hardly any grocery executive is missing these "good old days".
Given the complexity of the retail business and the corresponding number of key performance indicators (KPI) measuring its performance, which one is most promising to improve net profits? I decided to pose this question on LinkedIn's Grocery Executive Network, which has 14,115 members.
Almost half (48%) of the retail grocery executives who responded said that increasing the size of the shopper's basket will have the most impact on the financial performance of their retail business. By focusing on increasing the average amount spent per customer transaction, retailers can directly impact their net profits. This KPI measures the effectiveness of upselling techniques, cross-selling strategies, and the overall customer experience, all of which contribute to higher sales per customer transaction. The second-most critical performance indicator voted for is Weekly Foot Traffic (31%), and the third is Sales per Square Foot at 21%.
The first practical follow-up action is to review and analyze your existing and upcoming upselling and cross-selling strategies, what resources they consume, and what returns you can measure. There is no shortage of tools and technologies available for sale that promise fantastic advances in operational efficiency and growth potential. We live in a time of abundance of tools and a shortage of skills required to use them. The real success is often decided not by what you do but by how well it is done. Fewer initiatives executed expertly will generate better returns in a shorter time. Take the advice of this technologist: A shiny new thing that can leapfrog your business over your competitors is a very rare exception to the rule.
The second step would be to benchmark this KPI against the best performers in the business and learn the best practices they employ. We have done some of the research and published the results in the e-book Power of In-Store Engagement, which you can download free of charge by clicking on this link. This e-book shows how retailers who focus on offering an engaging shopping experience are able to differentiate themselves from price-focused competitors, achieve higher sales per square foot, and improve their operational profit rates.
In this e-book we suggest a proven customer engagement and upsell strategy that has been successfully employed by some of the industry leaders for years to generate exceptional financial results, while most competitors did not pay attention. They still don't, which still presents a great opportunity before it becomes common knowledge. Additionally, this strategy has the advantage of being technology-enhanced while requiring no investment and utilizing the skills and resources of your current partners, making it simple to put into practice in a short amount of time.
