An interesting question was posed by Alison Smith of the FT in her report on the Office of Fair Trading’s criticism of the way prices are set for hotel rooms.
“Who is the seller?”
She says there are at least two answers. One is that you are buying from the hotel, which used the travel agent to display and distribute its products – ” just as newspaper groups still use newsagents. It owns the rooms so it can decide the prices.
The other is the travel agent which has bought the booking rights from the hotel and therefore can decide what price to sell the room for.
As Ms Smith has demonstrated with the example of newspapers, there are obvious parallels with the way prices are set in the channel. It is useful to substitute a different question to think about the issue, which is “what is the buyer buying?”
Again, there is more than one answer, and this is where the power of brands becomes important. Brands assure shoppers of consistent quality and make choosing what to buy easier and quicker.
This trust factor exists in the choice of hotel room, of a newspaper, of a chocolate bar, of a soft drink. But maybe not in the choice of a sandwich, of a pint of milk, of a cheese.
As and independent retailer you are in business to serve a local area and to grow your sales from that area. Unlike Skoosh.com, you do not have a scalable advantage if you can persuade people who want to buy a newspaper to switch brands. This is because Skoosh, through the internet, can be local to millions of people. It can deliver on the Walmart promise of big brands at lower prices.
For a local retailer, persuading five Guardian readers to switch to the Times may be personally satisfying but tis not a route to wealth.
You may be unhappy at how brands decide to price their products for you to resell, especially if their national objectives do not match those of local shoppers. But remember what the shopper is buying and work out the areas where you can take control – such as with local eggs and bacon or local sandwiches or quirky greeting card ranges.
While your core offering may be dominated by categories like tobacco and news where you have little control over margin or prices, work out how much of your product mix you can flex.
Look for lines that have attractive margins (and pay attention to stock turn).
I practice your business needs to combine two parts: areas where you are the seller, and areas where you are more of an agent. The more that you can be a seller, the higher your overall margin is likely to be.
But for many local retailers I suspect there is an even more fundamental step to be taken. You need to know how many linear feet of shelf space you have and how much profit you are generating from each major category. You need to measure this weekly and then set yourself forward targets on growing profitability.
Armed with this sort of information, you will be able to have better conversations with suppliers and make better decisions on which products you want to be an agent for. Hard work on the numbers is the fasted way for.