Going Under the Microscope

By  Mark Lotstein, President, Retail Optimization Group LLC

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Below is a true story and one that I believe is happening in our industry, all across the country, in all sizes of business. To paraphrase what was said on “Dragnet”: The story you are about to read is true. Only the names have been left out to protect the innocent.
 
This past year my company was working with a midsized company that has a wholesale fuel division, dealers and retail company-operated sites. After we built a mutual level of comfort and understanding, the CFO thanked me for our work, then said, “I am really very concerned because with all of the areas of potential improvement you have identified, I feel like we have only seen the tip of the iceberg. I’m scared what else we might find.” Then he made a comment that was even more surprising. He said, “Sometimes we make money in spite of ourselves.” 
 
These were, without a doubt, the most honest comments I’ve ever heard from a client, and the fact that he had the confidence to say them increased my respect for him. 
 
Since hearing those comments, I have looked back over the past few years and realized that we have come across similar situations with other clients. In those cases, however, the client did not realize it on a conscious level or were too uncomfortable with the idea to voice it to us. With the client who did voice this concern, something interesting happened: We completed the initial project for this happy client, but none of the other offshoot projects we discussed have been addressed. 
 
This was something that really bothered me for a time, and only after a follow-up conversation with the client did I understand why:
  • The company is doing well; it is making good margins on the fuel side of things and it does not want to rock the boat.
  • We might uncover additional issues; how would ownership react?
  • The management team of this company, like so many of our clients, is very lean and already works long hours to deal with existing issues. So the concept of adding potential headaches to their workload is more than they can deal with.

Look Closer

  • Some of the different issues we identified with various clients, but who may or may not have wanted to address them, include:
  • Lack of central purchasing control. If you have multiple stores, it is imperative that one person is in charge of all purchasing. We recently worked with a 10-store chain that allowed each manager to choose what products to carry, what promotions to run and how to allocate shelf space. We found many areas where the company was losing money. Some stores did not carry some necessary items, while others were overstocked with slow-moving items.
  • Lack of monitoring of contracts and rebates. How are you tracking pricing contracts and rebates? While reviewing a client’s contracts with various suppliers, we found numerous products that were being delivered at higher-than-agreed-to costs, along with promised rebates that were either not being paid or were being paid at a lower-than-agreed-to dollar amount. 
  • Bonus programs that were written 20 years ago and are based on bad math. Bonuses should be based on increasing profitability, such as better margins, increased sales or lower employee turnover, not things that aren’t putting more money in your pocket, such as increased gross dollars because you added a new store. Bonuses are meant to be a reward for going above and beyond one’s basic job description, not just for showing up every day.
  • Poor onboarding and training programs leading to less-than-stellar employees. Many clients just don’t understand the costs involved with employee turnover, such as higher unemployment costs, more overtime, other work needed to be done but isn’t because people are covering shifts, interviewing and training, and unhappy customers. This is an area that is woefully neglected by most companies in this industry.
My concern and caution is that, like many things, gas margins are cyclical. When they go down, other issues may become exposed. It’s best to address the issues now, when there’s more cash on hand. Please remember: Just because you have always done it this way, and right now things are good, does not mean you have no hidden issues. I believe most of us can always do better.

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