4 common obstacles for supermarkets looking to increase profitability

Store managers everywhere have good reason to think constantly about increasing supermarket profitability. There’s little room for error in the industry – just to break even, supermarkets need to sell a high percentage of their inventory at exactly the right price points, all without letting their goods fall victim to spoilage or loss.

“Many supermarkets struggle to keep the shrink problem under control.”

A recent paper published by SSA and Company notes that preserving inventory is important in the supermarket industry precisely because it’s so difficult to continually make a profit. Because margins typically hover between 1 and 2 percent for these organizations, reducing shrink and improving the bottom line should be a constant area of focus.

Unfortunately though, many supermarkets struggle to keep the shrink problem under control.

“While most retailers have tried a variety of tactics to reduce shrink’s monthly toll on profitability, for many it remains a frustrating game of trial and error,” the report stated. “Some efforts reduce shrink at the cost of losing margin, while other techniques compromise sales. After failing to tackle the problem, many managers conclude, wrongly, that high shrink and concealed losses are simply a cost of doing business.”

In fact, supermarket companies do have the potential to reduce shrink and thus increase the profitability of the enterprise. There are however four reasons that they often struggle.

A lack of discipline

Increasing supermarket profitability requires a focused approach that examines all the angles and addresses the right problems. Too many managers fail to tackle the shrink problem because they aren’t willing to invest the time and money needed to take it seriously.

Misunderstanding the problem

Sometimes, store managers fail to identify what their real problems are. For example, what happens if a supermarket puts a great deal of energy into preventing theft, when spoiled produce is the actual culprit? Reducing shrink requires first understanding what the relevant issues are.

Failing to grasp the facts

In order to know what your problems are and how to address them, you need factual proof. In other words, you need data. How much of each product is being sold, and how does each affect the profitability of the enterprise? Educated guesses aren’t enough – hard evidence is required.

An unsustainable strategy

Finally, it’s important that supermarkets address their profitability concerns by putting into effect sustainable plans. They should focus on educating their staff members on how to continually keep shrink down and profits up. A good plan is one that can work again and again.

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