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- Staff costs: Some variance, but a lot of the staff are on minimum wage anyway.
- Operational costs: e.g. theft, throwing away things that go out of date. Most
people will not think of this, but it can make a big difference.
OK. We ve identified that one of the major drivers of store performance is the number of
people who shop there. What I would like you to do now is to have a go at estimating
how many people might be regular customers of a typical supermarket, located in the
suburbs.
Specifics are not that important. If they are unsure, suggest using their neighbourhood
store. There are several different ways of solving this. Most people will either
a) try and work out the number of people in a given area, then work out how many of
them might be regular customers
b) work out how many people are in the store at a given moment, then estimate
average shopping time and use that estimate how many shopping visits are made
during a week, then estimate total regular customers.
The second one is a bit easier as it avoids trying to estimate population density.
If they get stuck on the population density bit, suggest thinking of population/area of
London.
Pit-falls:
Households versus individuals
There are bound to be at least some competitors
Regular customers not total number of visits by anyone. Typically people shop once a
week. However not everyone is a regular customer of a store. Some minority will have
no regular store or will not have regular shopping patterns at all.
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Trade-off between over-simplification and getting bogged down in details.
(Upon some sort of final answer being produced)
Good. You ve come up with xxxx regular customers, based on the assumptions and logic
you have outlined. Could you tell me firstly whether that seems OK is it too low, too
high, or about right. Secondly tell me that the most important assumptions you made
were in terms of their impact on the answer.
Looking for some common sense / business judgement. Anywhere from 2000-20000 can
be justified if it below or above that, challenge. On sensitivities, look for ability to
home in on 2-3 things that could vary by a lot (e.g. number of people in a household
doesn t really change that much)
OK. We have talked about the sorts of things that can make one supermarket more
profitable than another and seen one example where there can be a lot of variance
namely the number of regular customers, which as you have shown is subject to a number
of different factors. Now lets return to the original problem. Let me give you some
more information
The store in question is a mid-size store. By that I mean somewhere in between a
small convenience store and a massive out of town store. It is located in the suburbs of a
large city. It belongs to a national, premium chain, which sells high quality groceries at
relatively high prices (an example in the UK, if you are familiar with it, would be
Waitrose). The suburb it is located in is, on average, fairly poor.
Sales and profits in this store are good as good as any other store in the chain. Why do
you think it might be doing so well?
Should re-use some of earlier work about what makes one store do well versus others. As
both sales and profits are very high, solution is likely to be on revenue side not cost side.
Revenue is simply price * volume. As previously, if the store is outperforming others in
the chain, it is likely to be volume not price (which is roughly constant across a given
chain). So the store is attracting a lot of people. This appears counter-intuitive as the
store s range does not match local demographics. More obvious options
- it is the only store around
- people are coming from outside the local area
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- suburb is on average, fairly poor . Be careful of managing by averages. There
could be pockets of high income households.
(Additional info: given out in response to relevant points/question or volunteered if they
run out of steam)
- Only local competition is giant Asda Wal Mart 2 miles down the road, which sells
an enormous range of generally low quality goods at low prices.
- From customer surveys, you know most of the people who shop there live in the
local area
- Area is on average poor, but with pockets of rich people
Given all this, it looks like there is a nice niche market, selling mainly to the pockets of
rich people to whom Asda Wal Mart is not an attractive option. Strong candidate will
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