Owning or running a business such as a supermarket or convenience store can get quite hectic. There are lots of things to consider each day, and with numbers moving all the time, it can be difficult to understand where or how to improve. Yes there are reports your point of sales system has available, but the difficulty lies in understanding the most relevant information in the time you have available to manage your future operations.
In Part 3 of this blog series, we outline the final four key KPIs for owners of supermarkets or grocery businesses to track. By spending a little time on calculating these metrics each month, they can assist immeasurably in understanding and guiding where you need to improve your business.
7. Stock Turn Ratio (STR)
Stock turn ratio is the rate at which your stock held in the business is sold to a customer. Having a higher stock turn means you are selling products quicker within a given time period.
The formula for the STR is: Cost of Goods Sold / ( [Opening Inventory + Closing Inventory] / 2)
To give you an example, let’s say you are a chocolatier and are looking to find your stock turn for the month of December. With an opening stock of 35,000 and closing stock of 25,000, you have an average stock of 30,000 for the period. Using this figure, you can divide it against the cost of goods sold for the month (120,000) and find your STR.
120,000 / ([35,000 + 25,000] / 2) = 4.0
This provides a stock turn of 4.0 which means you have sold out of the stock four times during the month of December.
This information is very important to both your stock, as well as cash flow management. By knowing how quickly your stock moves, you can better handle the stock as well as making smarter and more informed purchasing decisions. You could also start making decisions on which product lines work best for your business and satisfy customers demands. Lastly, you could compare how you are faring against others by comparing your STR against the data from industry benchmarks released by the ATO or accountants.
8. Product Returns
The tracking of product returns is calculated by dividing the number of returns by the number of items sold.
A high product return rate can provide useful insights to the merchandise quality, customer service and the marketing of what you are selling.
For example, product being returned by a customer due to quality control fault, this leave the product inedible. This is obviously a big issue, not just for the manufacturer of the product, but also the reputation and customer satisfaction level of your own supermarket.
By viewing this data regularly (ie. on a weekly basis), you should be able to gain awareness of the trends and issues in regards to stocks as well as getting some knowledge of specific products that are causing issue with customers. You could also potentially reduce the rate of returns in your business.
9. Sell Through Percentage
In some instances, stock can be provided to your business on consignment from the supplier. This means you are generally under no obligation to pay the supplier for the goods until they are sold. In other instances, stock can be purchased from a supplier upfront, with a rebate provided for returns when stock is not sold.
The question though is how to view the performance of these products, if you should apply for that rebate by returning the stock, or whether the stock is worth being stocked on the shelves at all. You can do this with the sell through percentage metric.
The formula is number of units sold / beginning inventory of item = Sell Through Percentage
10. Gross Margin Return on Investment (GMROI)
A metric that is highly important in a retail business such as a grocery store, the GMROI details the amount of money you have received for each dollar spent on inventory.
The formula for GMROI is: Gross margin / Average inventory cost = GMROI
To provide an example, a supermarket has a gross margin of $145,000 and an average inventory cost of $100,000 for the same period. This gives an GMROI of 1.45, meaning the store earns $1.45 for each dollar invested in its inventory.
This metric provides a great indication of how your business is doing as a whole. It can be viewed on a smaller level with specific products or departments and manage their performance if something is not working out as you expected.
We are now at the end of the blog series on KPIs for businesses within the grocery and supermarket industry. While not all of these KPIs may be useful in your specific business circumstances, we hope the knowledge and application of them can provide useful insights in to the inner workings of your business.
It is important to note that just running a bunch of KPIs at the end of a period may not be enough. In order for you to make the decision on if a corrective action is required, you need to view those results within the correct context. Using gross margin as an example, you may find a department gives you a GP% of 5%, while another offers you a much larger margin of 25%. What the numbers may not explain however is that almost all your customers purchase a product from the department that has the lower GP%, meaning it is a key draw factor of customers to your store.
Being able to apply the information gained from running metrics across a time period in association with other knowledge of how the business runs can in combination help you align the operation of your business to the goals you wish to achieve.
If you have any questions or would like to learn other tactics to gain a deeper understanding of your business, please contact us today.