APT SVP Jonathan Marek recently wrote an article for QSR Magazine about 5 things for restaurants to watch in the coming year. The issues facing restaurants are often similar to the issues facing typical retailers, including pricing pressure and mobile and in-store technologies. Here is a link to the article: http://www.qsrmagazine.com/outside-insights/5-things-watch-2013
In order to prevent margin loss, today’s leading retailers are using sophisticated analytics to remain profitable. They are analyzing attached sales, follow-on sales, and tie-ins with online deals to determine the extent to which they can discount while also maintaining profitability. These analytics are helping retailers make sure they maintain profitability.
As retailers continue to offer deeper discounts, executives must be asking how low they can go before a promotion negatively impacts total profit. Many retailers use transaction-level data to analyze “attached sales,” or the likelihood that one item is purchased in the same transaction as another product. (more…)
A recent article in the Guardian suggested that retailers need to test their new business ideas in order to innovate and maintain profitability. Leading grocers are testing their new and innovative business ideas before rolling them out across their chain. Here are the top 6 initiatives these grocers are testing:
Now is when investors begin wondering what exactly happened over the holidays. Some retailers had strong comp sales growth while others struggled despite practically giving merchandise away. The profit impact will be even more varied when fourth quarter earnings are released.
Women’s Wear Daily reported that December was difficult with strong headwinds due to concern over the fiscal cliff and bad storms that kept shopper away. To salvage the season, retailers turned to even higher markdowns “often as high as 60 to 80 percent off sweeping across a broad spectrum of merchandise.”
While many discounted heavily, effectiveness will vary widely. What separates the winners from the losers is how retailers planned for and managed two key risks with heavy promotions: reduced profit margins and the reality that traffic does not necessary translate to sales.
The first risk is obvious but the second is thought about less often. Around Black Friday we predicted that sales would be bigger than ever and that the biggest winners would not necessarily be the most crowded stores. Steep discounts draw a customer into a store, but the retailer may not convert that customer into a sale or the customer could cherry-pick only the most deeply discounted items. The Director of Consumer Research at Thomson Reuters highlighted in WWD that “‘even though traffic was strong over the last two weeks, shoppers really restrained themselves.’” In other words, the markdowns got people into the store but they did not buy much.
There were three key differentiating factors for retailers who were more successful with holiday promotions and markdowns:
- Smarter not Bigger Promotions
Big promotions help draw in customers, but those customers may not end up buying anything or may just buy a few heavily discounted items. The problem with big sweeping promotions (e.g. 50% off the store) is that there is no call to action, and customers do not have an incentive to shop different parts of the store or increase their basket size.
It is far better to focus on big discounts for specifics products that resonate with customers and tend to drive purchase of other products. Promotions can also be crafted to encouraging trading up and broader shopping of the store – think tiered spend, minimum spend, and bundled promotions. The risk is that more specific promotions may not drive as many customers into the store, so retailers need to walk a fine line to both encourage profitable transactions while also driving traffic.
- Know Your Customer
Walking that line requires knowing your customer well. Which popular products tend to promote more attached sales and more profitable transactions? For example, discounting designer jeans might bring in customers who shop the store and buy high margin products while customers simply cherry pick lower priced jeans when they are discounted.
Similarly, we find that some promotions bring in customers who were just waiting to buy that product on a discount. Knowing which products tend to appeal to new customers can help improve the promotion’s ability to convert new customers. For example, bras might be purchased only by existing customers waiting for a discount while promoting casual tops tends to bring in and convert entirely new customers.
The key here is to leverage basket and customer level data to understand your customer better. Use this information to craft markdowns and promotions that will still be enticing to customers and drive traffic but will also bring in the right customers and avoid cherry-picking.
- Unplanned Promotions were not Unplanned
Women’s Wear Daily quoted Deborah Weinswig from Citi saying that “retailers turned to unplanned promotions.” When faced with headwinds, retailers need to adapt and find ways to draw in customers. However, throwing out promotions when the environment is tough without prior planning is like spinning a roulette wheel and hoping for the best. You have no idea if the promotion will be a winner or if it will destroy margin without attracting any new customers.
The most successful retailers constantly test different promotions and markdown and rigorously evaluate the impact. They build their arsenal of promotions that work and discard those that fail. When the environment is challenging, they can select the “unplanned promotion” from the library of winners.
The retailers that will report the best performance over the holidays built smart promotions, knew their customer well, and leveraged previously tested promotions to respond more intelligently to changes in the environment. These tactics will also be critical in the coming weeks as retailers look to clear out excess inventory, and they will continue to determine which retailers are most successful with ongoing promotions and markdowns throughout the year.
In a recent article in Retail Leader, Marek Polonski, Vice President at Applied Predictive Technologies, discusses how top retailers are leveraging scientific testing to improve efficiency and accuracy in inventory management. Three key points that he touches on are:
• Managing shrink
• Accounting for seasonality
• Optimizing ordering procedures
Click here to read the article.
APT SVP Jonathan Marek recently wrote a byline in QSR Magazine, which outlines the following five trends for restaurant executives to watch in 2013:
-QSRs taking steps to compete with Fast Casual
-Understanding how to optimize labor given recent legislation
-Determining optimal pricing given increasing commodity and labor costs coupled with continuing consumer pressures
-Using mobile more effectively
-Investing in in-restaurant technologies
Click here to read this article.
Millennials will reshape the face of retail in the coming years. Retailers are already coming to terms with what this means for the industry. As consumers age, some brands are aging with them, and losing sales in the process.
This generation is more tech-savvy, more value-driven, and more mobile than any prior cohort. Retailers need to come up with new ideas to get them to buy, and are testing some of the following ideas to appeal to this generation: (more…)
Retailers are worried about what recent changes to Payroll Taxes will mean for consumer spending. In the aftermath of the fiscal cliff negotiations, politicians let the temporary cut in social security withholdings expire. That means that in 2013, Social Security taxes will increase from 4.2% to 6.2%. This tax hike is likely have significant impacts for consumer-facing companies.
As a result of the increase, many consumer groups are expecting Americans to eat out less and shift to lower-priced brands. In an article from the Wall Street Journal, economist Roberton Williams, said that the “payroll-tax cut will leave the average American household with $18 to $20 less to spend each week, or $900 to $1,000 each year. That is a decline of $120 billion from last year,” or 0.8% of U.S. GDP.
Given this reduction in discretionary income, retailers who have been considering increasing prices may need to rethink their strategies. As tax increases impact consumers differently, and as the economic recovery varies by region, now is a great time to experiment with location-based price tiers. In fact, it is likely that some retail locations can support a small price increase to some items, while others will gain incremental profits by strategically lowering prices on some items. In-market scientific testing is the best way to isolate the cause-and-effect relationship between changing prices and profits, as well as to determine location-based factors which drive the success of price changes.
Taco Bell has recently begun testing the “$1 Cravings Menu” to replace their “Why Pay More” value menu. According to USA Today, the new menu lists nine items and three new offerings. Despite the value message, the “Cravings” menu is actually a slight price increase over the current “Why Pay More” menu, which includes items at 89 and 99 cents. To measure success of the program, simply looking at order incidence of the new menu items will paint an incomplete picture. For example, it is possible that price-sensitive guests who generally ordered the 89 and 99 cent offerings may visit less frequently. However, existing guests could be trading down from higher-margin offerings, showing order incidence as either flat or even positive.
In order to understand the total restaurant incremental impact of this new menu relative to restaurants that have the “Why Pay More” menu, Taco Bell executives will need to isolate the impact to both total number of guest visits and average check size. Because of the small extent of the price change, it is possible that this new menu will have minimal impact. However, to be most profitable, Taco Bell’s new value menu will need to either have no impact on existing value menu guests (who will then be paying more) or attract incremental guests who will then be drawn to higher-margin purchases, thus increasing check size and guest visits. Alternatively, Taco Bell will find the program to be unprofitable if messaging surrounding the “$1 Cravings Menu” causes too many trade-downs.