assume that your store A has more profits than your store B, and the market is similar and they are selling exactly the same things. How can you increase the profits for store B?
How can you structure a case if you want to see the difference in 2 operations
- Firstly you need to identify the numerical driver of the lower profits of store B (the WHAT? question). --> Draw a driver tree to isolate the core of the problem (less customers? less revenue per customer? lower margin products sold? lower pricing? operational costs? etc.)
- Once the numerical problem driver is isolated, you need to understand the WHY? question. For this, the analysis depends on what the actual problem is. If it is a cost problem, you may want to go through the entire value chain to diagnose where the difference/disadvantage lies. If it is a revenue or sales mix problem, you may want to scrutinize strategic measures to adapt the offer 8or way of offering) of store B.
you can structure the process as follows:
- Understand what is creating the problem for store B:
- Identify how profits are segmented (eg product or customer)
- Identify which segment has the profitability issue compared to A
- Identify if for that segment you have a revenues or cost issue
- If it’s a revenues issue: understand if it’s a price or volume issue. If it is a cost issue: understand if it’s a fix or variable cost issue.
- Understand why you are having the problem in that bucket. You can analyse this dividing in internal and external reasons that could create the problem.
- Understand what could be the solution to increase profits. In general you could work on
- Revenue side
- Work on current product
- Work on new products
- Cost side
- Decrease cost per units of input
- Decrease number of units of input
- Revenue side
- Consider potential risks and next steps in the implementation
I would look at the following:
1) Average check
- Length of the check
- Product mix in the check
Key check drivers:store format (space and assortment / price / product quality), promo & discounts, personal sales (fashion, electronics), loyalty programs, merchandising, stock availability, etc.
2) Number of customers
- Conversion - important in fashion and consumer electronics. less relevant for grocery
Key customer drivers: Location, Time opened, brand awareness, store format (space and assortment / price / product quality), external factors (parking, signage, etc), in-store experience (queues, look and feel, etc)