Invested in Saving

Retailers alter the cost of doing business to become more efficient.

By
Linda Abu-Shalback Zid, Senior Editor

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If you ask Stan Sheetz about “costcutting” measures at the more than 360 Sheetz Inc. stores, you might detect a slight cringe. “I actually dislike the term ‘cost-cutting’; I have an issue with it,” he’ll tell you. “You should always just be finding better ways to do business.”

One of those “better ways” is the Altoona, Pa.-based chain making deliveries of self-distributed items, which account for roughly 95% of its SKUs, in the evening. Aside from freeing up much-valued parking space for customers, Sheetz says, “There’s probably a cost savings involved from the standpoint that you’re running on the road millions of miles a year, and the roads are less crowded late at night. So I’ve got to assume that it makes our drivers a little more efficient.” Being efficient and doing more with what you have continues to increase in importance. NACS reports that the number of c-stores has decreased 0.2% to 144,541—largely due to retailers not being able to keep up with expenses tied to fluctuating gas prices and interchange fees.

So the Sheetz chain, along with many other retailers, continues to investigate opportunities to become leaner and more efficient. Among the moves:

  • Acquisitions: Some are eyeing struggling companies at lower multiples and then generating additional savings through streamlining.
  • Technology: From improved inventory controls to better communication with vendors, retailers are reducing dust collectors and producing higher inventory turns.
  • Employee Tools: From software to labor deployments, maximizing time efficiency and reducing turnover are critical, especially during a recession.
  • Greening a Store:You don’t have to be a tree hugger to know that shav-ing utility costs and improving your carbon footprint is smart business, especially if done affordably.
  • Saving Money: Improved cashhandling techniques are reducing the number of hands touching cash flow, thereby reducing theft.

STARTING OFF RIGHT

It begins with having the right facility in place, says Jim Fisher, CEO of Houston- based IMST Corp., a retail location analysis firm. A recent trend he sees is retailers purchasing larger properties. Better deals can be found, and larger properties invite multiuse developments— for example, adding the synergies of a hotel and a casual restaurant to a c-store with fuel.

“There’s cost savings in the short term during the development,” he says, “because of savings of land and savings of construction, but there’s also longterm benefits in terms of multiple profit centers.”

Likewise, there’s also the savings-bygrowing mentality. “Acquisition, in many cases, leads to savings, as opposed to new facility development, just because of the time involved,” Fisher says.

So, while the world of M&A has been relatively quiet since 2008, Fisher likens 2010 to the early 2000s: “When companies are aggressively pursuing new growth opportunities, we’re the first to fuel that. … And they weren’t in 2008 and 2009, but this is an opportunistic time.”

STREAMLINE SUPPLIES

Many retailers also are stepping up efforts to negotiate with suppliers— although it’s important to maintain a realistic view. “One thing as far as costcutting, and what we continue to look at, is vendor and supplier costs,” says Jere Matthews, vice president of store personnel and operations for York, Pa.- based Rutter’s Farms Stores. “And we make sure that if they are going up, we’re not accepting more than what it is going up in the industry.”

Computer-assisted ordering (CAO) is another way to cut inventory costs while increasing productivity. In 2005, Waycross, Ga.-based Flash Foods Inc. began using a CAO component of the Pinnacle Corp. backoffice system it’s had in place since 1997. CIO Jenny Bullard estimates such a system would cost about $350,000 from scratch, but the company pays only a $25-per-store software maintenance fee. And that investment has led to an initial inventory investment reduction of about $3 million.

The company uses CAO for items it self-distributes—about 45% of the roughly 1,500 SKUs each store carries. Additional benefits include reducing labor hours dedicated to ordering each month from 12 to two. And going to item-level inventory to enable CAO has had another benefit. “We have the right items in the right stores, based on sales at that individual store,” Bullard says. “And we have a lot fewer out-of-stocks.”

Flash Foods rolled out CAO with beer wholesalers and soft drink bottlers earlier this year, which led to additional inventory reduction. And the company plans to roll it out to other DSD partners this year.

Another advantage of the CAO system is that invoices are created when orders are made, so the manager has to verify only what’s come in instead of keying in or scanning everything. That has meant greater accuracy as well, because keying in a 10- or 11-digit UPC code can leave a lot of room for error, Bullard says.

LOVE OF LABOR

In an economy in which unemployment hews close to 10%, one savings isn’t seen as often in stats: employee retention. Stan Sheetz estimates his company’s turnover is less than 50%.

“The best thing you can do is treat your people the right way, and retain them,” he says. “That way you don’t have to replace them and retrain everyone else. That’s just good business.”

And companies are learning to work the most efficiently with the staffing they have. Susser Holdings, which runs Stripes, a chain of more than 520 stores based in Corpus Christi, Texas, is maximizing an information-technology investment last year that provides time-stamped, detailed sales data from every store.

“That will allow us to better manage our employee work schedules to those periods when we experience the most customer traffic,” says Steve DeSutter, president and CEO of the company’s retail division. “We can use this to help our store managers develop better schedules and get the most leverage out of their labor hours—and to improve our customer experience.”

Stripes also is working to improve controls and daily accounting, with an aggressive goal of reducing the time store managers spend on administrative duties by an additional 15% in 2010. “This has allowed us to pursue personnel-related administrative cost-saving initiatives, such as the slight increase in number of stores per supervisor, and streamlining processes that take advantage of our technology investments to reduce headcount where it made sense,” he says. Savings from such administrative changes are in the range of $2 million annualized, according to the company. Retailers also are turning to productivity solutions to help with the bottom line. Red Prairie, Waukesha, Wis., offers several, with ROI often achieved within one year, according to Jon Lawrence, vice president of product marketing. (At press time, RedPrairie announced it had been acquired by New York-based New Mountain Capital LLC.)

One component is optimized scheduling, which automates the scheduling process to control overtime and ensure parttimers stay part-time—also increasing productivity of store managers, who no longer have to remember all the details.

A time and attendance solution can also help control costs at the clock level. Employees who clock in a few minutes early or clock out late can add up, Lawrence says: “That’s a viable hard-cost savings.”

GO FOR GREEN

Sheetz, Susser, Kum & Go, Rutter’s and QuikTrip are among a swelling rank of operators pursuing greener options.

 “I can’t tell you how much we saved, but I can tell you we wouldn’t be going there if there wasn’t a benefit,” says Quik- Trip spokesman Mike Thornbrugh. LED and temperature control are one part of Tulsa, Okla.-based QuikTrip’s solutions.

“I really think it’s taking advantage of the better equipment,” he says. “It may be more expensive up front, but we don’t worry about things up front—we look at the long term. And then you get your mutual benefit: It doesn’t really change anything for the customer; it saves QuikTrip money; and then, obviously, if you use less energy, it’s better for the environment.”

Jon Lazarow, director of foodservice marketing for Emerson Climate Technologies Inc.’s refrigeration division, says one large c-store energy expense comes from walk-in refrigeration coolers, especially as beer vaults continue to gain popularity. Emerson’s Copeland Scroll Outdoor Condensing Unit was launched last year to help address that. While initial equipment costs can be 5% to 10% higher than traditional unit options, he says, “Customers are seeing average monthly energy savings of $25 to $30 or more for each unit they install, so the payback to upgrade is typically less than one year, and in some cases less than six months.” LED lighting can also reduce costs in refrigeration cases, according to Sidney Hinton, CEO of Wake Forest, N.C.- based PowerSecure Inc.

LED lighting means no shadows on products and reduced glare, he says; however, “It’s obviously much easier to justify on the hard savings associated with the energy vs. the softer benefits associated with improving merchandising.”

He estimates retailers can see a return on that investment within 2.5 years, not counting the rebates offered by government and utilities that help offset such costs.

As an example of such rebates, Stripes recently was slated to collect up to $175,000 from the TXU Energy Efficiency Rebate Program. The company’s efforts include upgrading HVAC controls, retrofitting fluorescent- lighting fixtures and implementing LED technology inside freezers and under exterior canopies, which also leads to direct cost savings.

(DON’T) SHOW ME THE MONEY

Another part of being proficient is cutting time dedicated to non-revenueproducing tasks.

Sheetz is beta-testing new safes in its stores that count money as it is inserted, meaning the money is touched only once. That could translate into a huge time/cost savings, with Stan Sheetz estimating his company spends $3 million annually in time dedicated to counting money. “I think most retailers have their store manager ultimately responsible for the cash,” he says. “What you end up with, then, is you have the highestpaid employee in the store spending a significant amount of time every day counting money.”

QuikTrip recently implemented its own money-related solution, Balance Innovations’ vbEPIX for back-office check conversion, which eliminates physical bank deposits by converting paper checks into electronic transactions. The company’s goals were to reduce costs and float, automate manual procedures and improve check returns. Thornbrugh estimates it saves the company about $100,000 per year.

“I know there’s tremendous savings to QuikTrip, but think about the back side of it, too,” he says. “It’s automatic deposit, so you don’t have to worry about not having payout on time or the possibility of it getting lost. If we can figure out a way [to] make what we do more efficient, more proficient and save money, that’s the ultimate tool.”

And Stan Sheetz seconds that emotion. As he reiterates, “I hate ‘cost-cutting.’ But doing things more efficiently and effectively, I think, is a great idea.”   


Tips to Grow On

  • Take advantage of good acquisition deals now.
  • Look at how your labor can be more efficiently managed.
  • Green efforts can save money, help the environment and solidify corporate reputations.
  • Determine if your store managers spend too much time counting cash. 

Solutions for Saving

Ed Grondahl, executive vice president of global sales and marketing for Carrollton, Texas-based cash-management solutions provider Tidel Engineering LP, outlined some of the savings associated with cash automation. Retailers often see a return on their $6,000 to $15,000 investment (depending on the solution’s features) in less than one year, he says, and often within four to six months.

One cost reduction will come from store managers not having to count the average 200 safe drops per c-store (with three registers), saving two hours and 45 minutes per day.

Automated safes’ built-in bill validators can help eliminate counterfeit bills. And with larger bills being deposited immediately, a cashier can hand counterfeits immediately back to the customer, while real bills are placed out of sight of potential thieves.

Fewer armored-car pickups are also required, which can add up to about $25 per pickup. Retailers often schedule pickups because they need access to cash, but intelligent safes can send a record to the bank—which Grondahl says can count as a deposit, no matter when the actual money pickup occurs.

 According to Grondahl, Tidel’s larger retailer customers with cash automation have even seen sales increases of 1.5% to 2%. “When a store manager gets back three hours a day or 21 hours a week, store sales will increase by that manager being out in the retail area of the store—as opposed to being locked up in the office. He’s greeting customers, he’s solving problems, he’s opening a second POS for 15 to 20 minutes until the lines get down, cleaning up spilled Slurpees and getting stock.”

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