What’s it all about, Alfie?
Our story today goes back a few years when fully-staffed salad bars were beginning to emerge in some of our company’s produce departments. The salad bar design was a box-shaped kiosk that contained a prep area, juice and cut-fruit bar. As supervisors, we knew we had a challenge on our hands.
The kiosks took up a chunk of the produce department’s already limited space, and with our tight pricing and high labor the kiosks consistently turned in negative gross and net profit margins.
All of them, that is, except for one. The produce manager overseeing this kiosk, “Larry,” spoke in excited tones about his operation. “Our salad bar sales and profits are outstanding! Everything is going great!”
It didn’t take much detective work to find out how Larry’s was making money while the others were struggling: He wasn’t accounting for much of the fresh produce that got chopped up or juiced. Neither was there any evidence of in-store purchases of the high-priced deli meats and cheeses.
Ah-ha. Anyone can show a profit if there’s no accounting for cost of goods.
Someone must pay for product, supplies or labor, and unfortunately there are a few “Larrys” who try to let another department absorb costs, simply to make themselves look good on paper.
In retrospect, Larry was trying to give the company the results he thought we wanted. The salad bars were a new concept and he was trying to force something (however unscrupulous) to appear better than it actually was.
Eventually our company concluded the concept was a bust and the kiosks were removed. The produce departments gained back valuable space.
Sometimes a company must decide if something is featured to make a profit or offered as a service to draw in customers.
I’m OK with either path. There are plenty of goods or services in a grocery operation that return very little (or negative) profit. Grocery profit percentages are often in the single-digits. Any good store manager will point out other profit-drainers within their operation. Yet they wouldn’t give most of these up either, as each serves a purpose to draw in customers, who also buy higher-profit goods.
Labor and other operating costs for pickup or grocery-delivery services often negate any profits, for another example. Any store manager will attest to this (unless he’s a “Larry” too).
Grocery stores are a blend of profitable and not-so-profitable categories and services. Just so this is out in the open. Incidentally, the produce department is one of the most (if not the most) profitable and biggest draw of all. Food for thought.
Armand Lobato works for the Idaho Potato Commission. His 40 years’ experience in the produce business span a range of foodservice and retail positions. E-mail him at firstname.lastname@example.org.