Success at Retail   Is It More Than Just Location? (Part 1)

Many years ago, I overhead George Guy (Guy Distributing) ask Sam Katcef (Katcef Bros.), “Sam is there any advice you can give me about how to become more successful?”  Sam thought for a moment and then replied. “George, the only thing I can tell you to do is buy a building or a piece of land and hope it gets in the way of progress.”

Location is important to any type of business, but it is of particular importance to a beverage alcohol retailer.  If you wholeheartedly believe this particular aphorism about retail, then the mantra “location, location, location” is all you need to know.  But, there is more to the retail success story than just location.

Location Theory

Throughout the past several decades, economists and geographers have developed various ultimate truths about store location.  As early as 1929, Harold Hotelling developed the “Principle of Minimal Differentiation” that explains why similar kinds of stores tend to congregate in the same area such as markets and bazaars in the old world and the now current auto malls and fast food strips here in Maryland.  In 1953, one of the most important theories, known as the “Central Place Theory,” was developed by a German economist named Walter Christhaller.  His theory states people tend to purchase goods when and where they can be found close to where they live.  Another theory is the “Law of Retail Gravitation” by William Reilly which posits that cities and towns develop as people move closer to population centers in order to shop.  And, William Alonso’s 1960 “Bid Rent Theory” states simply that rents go up the closer a store is located to concentrations of population.  Each of these theories reinforces the idea that location is paramount to retail success.

Clearly traffic patterns, roadways, demographics, favorable licensing conditions and proximity to other types of shopping locations are important influences on a beverage alcohol retailer’s overall success and must be taken into account, if possible. However, unless you were fortunate enough to start your business from scratch and choose what you thought was an ideal location, you probably became a retailer by buying an already established business in an existing location that you may have considered then or now as less than ideal.  So, when faced with this common dilemma, what can you do? Do you accept fate and be satisfied with whatever business happens to walk through the front door, or do you take charge of the situation, and put a plan in place to become pro active and take control?

Have a Plan

You can’t run a railroad or a Little League team without a plan, and you can’t run a successful retail liquor business without one either.  Does your plan have to be prepared by a Harvard MBA?  No, of course it doesn’t, but a useful and practical plan needs to contain a few sections that address the guts of your business. Leading off, it should have a written list of expectations which academics often referred to as goals and objectives.  But from a real world vantage point, how else will you know if you are being successful or not if don’t have something to measure the actual results against?

A good plan also includes a brief “SWOT Analysis” (Strengths, Weaknesses, Opportunities and Threats).  This part of the plan compares various aspects of your business situation with that of your competitors.  By making this comparison, you will readily see any shortcomings that need to be addressed to put you in a better competitive situation.  It can also provide you with a clearer picture of your competitor’s position that will give you the opportunity to put in place tactics and strategies to take advantage of weaknesses and gain you new business.

An essential part of any business plan is a description of the store (or tavern), its location and physical layout.  It’s important to know exactly the size and kind of storage, display or seating capacity you have available to satisfy your customers.  It will likely point out any need to reconfigure the existing linear space or increase the need to use cubic space. You are paying rent for the vertical space even if you don’t use it. This is a good way to spot new opportunities or previously unrecognized problems.

Without people, you can’t operate a business, but you can eliminate a whole lot of problems if you plan for the kind of people you want as employees.  You can define how much you can afford to pay them, and you can develop specific personnel policies you might want to have in place to help guide their daily activities and ensure your peace of mind.

In the area of business finance, all thoughts about assets and liabilities should be listed directly after the comments about goals and objectives.  Cash flow planning for any new business is so important, as money problems can develop quickly and soon after a new business begins operations.  Despite your conscientious efforts to plan for financial matters, too often cash goes out quicker than it comes into the business.   A useful rule of thumb for a new business is to have a source of cash available that is three times what you expect you will need to operate.  Start up expenses are almost always understated and under anticipated.  Negative cash flow is the reason most new businesses fail.

Another vitally important part of the entire planning process should be the section on marketing.  This area of the business requires more attention and continuous tweaking and re-investment throughout the life of the business than any other area.  Without a sustained marketing effort, it is difficult to differentiate yourself from your competitors, and difficult to provide your customers with valid and sustainable reasons to buy from you rather than someone else.

Changing The “Life Cycle”

Most consumer brands and most businesses pass through a predictable series of life cycle stages. After formation, when a business first begins to sell its’ products, it is new and fresh and in the “Introductory stage” of its existence. During this period, recurring investment and slowly increasing sales are often accompanied by financial loss.  But as the business continues to grow and gains customers, a state of acceptable profitability is reached as a result of applying various marketing techniques such as promotion, tactical pricing and advertising. However, after several years of using the same old predictable marketing efforts only the same old predicable results will occur.  Typically, as a business ages, growth stagnates, profitability wanes and retail owners often lose interest.  Left unaddressed, the business will decline and could eventually die.  Its survival may depend on it being sold to new owners who will bring a new energy level and fresh ideas to the business and allow it to compete in the marketplace.

Relational Marketing

Whether or not customers become loyal valued regular customers for the most part is up to you. What most customers want is to be treated with respect and be treated as if their business mattered to you.  Experienced retailers know the importance of smiling, being polite, saying thank you and knowing their regular customers’ names.  Personal attention goes a long way to overcoming minor price differences between you and your competitor down the street.  Unfortunately, you can’t assume your employees will mimic your actions or your demeanor and treat your customers the way you want them to unless you provide some training and establish some clear behavioral expectations.  As we all know, today’s younger employees have little knowledge of business, and a limited awareness of how to interact with customers.  “Relational Marketing” is one of the big buzzwords in marketing today.  When examined closely, it is really about keeping customers loyal and happy by providing old fashioned customer service.

Knowing What to Sell?

Because beverage alcohol and beer in particular are “convenience goods,” that is, they are widely available, are relatively low priced, and are typically purchased by local customers, it is important to have a clear picture of your customer base.  At this point, it becomes a matter of matching your initial product offerings to the wants and needs of the anticipated clientele.  A good way to get a handle on your initial inventory needs or even on the inventory of an existing business is to do some “guerilla marketing.”  Make some clandestine visits to several area stores to get an idea of what products seem to work for them and what products are obviously missing from the cooler or from displays.  Ask a few innocent questions about the popularity of a new brand or two.  If you are unknown to the people in the store, they will likely tell you what you want to know.  Thirty packs of premium brands may be the hottest ticket in the area whereas there may be little need to carry more than one or two brands of malt liquor.  And, you should also seek the advice and recommendations of your wholesaler sales representatives.  They will have a good idea about what kinds of products tend to sell or not sell in your area.

The products you sell, for the most part, should be priced competitively and consistently.  Charging a little more than your closest competitor is probably an acceptable practice as long as your customer feels he is receiving value and is not being charged unfairly.  Even so, consumers want to be assured there will be some level of price consistency from one visit to the next. Most customers, because of time constraints and the price of gas, will not shop price for convenience items such as a six pack or a couple of 22 oz bottles.  For larger scale purchases and for more expensive items price becomes more of an issue.

Noted feminist Gloria Steinem in a recent issue of “Oprah Magazine” shared an interesting story she learned in college about life.  While on a geology field trip, Steinem discovered a large snapping turtle had crawled a long distance up an embankment and close to a major highway.  She proceeded to pick up the turtle and return it to the water’s edge, feeling she had done a good deed.  Upon discovering what she had done, her professor admonished her by saying, “Do you realize it probably took that turtle a month to climb the bank so it could lay its eggs?”  Chastened by this experience, Steinem learned an important lesson about politics (and business).  That is, always ask the turtle (customers) about what is important to them.