Thinking like your customers can help a lot of suppliers improve relationships and ultimately sell more. Retailers are always focused on average order or basket size. The size of the average consumer transaction tells them a lot about what is happening in their business. This year we are helping you define different industry terms. We share insights into the terms and how they are important to suppliers in the industry.
Average order or basket size is the total sales in a store divided by the total number of transactions. This metric is used to determine if the store is capitalizing on consumer traffic and leveraging the labour they have available. When basket size is growing it is a good indication the store is well merchandised and enticing consumers to buy more. They will discount any inflation built into pricing and really look for absolute growth. If they can sell more to the average consumer and keep their costs in line they should be more profitable.
Easy to talk about, tough to deliver
The average basket size in a traditional food store is probably +/- $40. We see the big baskets going through with hundreds of dollars but also people will run in for milk and bread. Retailers strive for efficiencies and one obvious win is to increase the average order. Their costs do not change hardly at all if people spend more. If you review retailer’s financial results, you will know a win for them is to grow comparable store sales more than inflation. In today’s competitive market they strive to report a growth in comparable store sales. Sobeys most recent quarter included a drop in comparable store sales. They pointed the finger at the pandemic and the re-emergence of food service but we need to watch this very carefully.
When I was at Loblaw growing average order was a major focus. We already had the consumer in the store and if we could just get them to buy one more product, we could deliver that all important sales increase. The average item price is probably approaching $4.00 now and if they can get consumers to buy one more product they will deliver a 10% growth in sales. They would be revered in the retail world if they achieved that.
As easy as it sounds, it is very difficult. They do have tactics in place like multi buy items, loyalty points, merchandising, demos and other strategies to get people to pick up one more item. Despite all of these things they still struggle to deliver the results. One of the biggest gaps seems to be to get staff engaged in this endeavour.
What this means for suppliers
Your customers are focused on delivering these results. If you bring ideas forward to help with this you might get some of your programs implemented. Use the language of growing average order and they will see you are trying to support their business.
Measure the results and ask them if they see the benefit as well.
This can also be an effective strategy within a supplier’s business. Our experience is some suppliers get focused on filling orders as opposed to proactively selling. Look at your own business and figure out how do you get customers to buy one more pallet or fill the truck. Use the language of growing average order with retailers but filling the truck might mean more internally. If you can reduce that freight cost per unit your profits should increase.
If you have any questions, you can always send me an email email@example.com or call me at (902) 489-2900.
Sobeys reports mixed results
Our major retailers are all publicly traded companies that report quarterly results. It is important to watch these results and look for any clues they might provide about future direction.
Sobeys are increasing dividends which investors always like. It is concerning same store sales are down 2.5%. No doubt consumers are looking to trade down within categories as inflation is impacting retails in almost every category. The key will be to compare Sobeys’ same store sales to other retailers to see if they are falling behind. That will impact their profits in upcoming quarters.
Loblaw portfolio of stores and brands delivers strong quarter
Loblaw’s business is complicated, but one benefit is they have formats and brands that appeal to consumers differently. A retailer such as Walmart is focused on discount and they operate a much simpler business. There are advantages but they lost some ground during the pandemic because consumers did not want to visit the larger stores.
As inflation is climbing consumers are shifting from traditional stores to discount and trading down in categories. Loblaw will benefit with more people shopping No Frills and Maxi and buying No Name.
In their most recent quarter they reported an increase in comparable store sales of 2.1%. This is a big difference from the Sobeys results we discussed earlier. We need to keep watching this number in upcoming financial updates. For suppliers you might experience sales declines at Sobeys which can be a problem.
When is Peter speaking?
Ontario Produce Marketing Association - Aug 11th
The food and beverage industry is a challenging industry to be successful in and many factors to consider to deliver the results you want.
There are a number of considerations such as logistics, food safety requirements, product specs and just finding the right fit. We will explore these considerations and others as we help you figure out how to find the right shelf.
During the pandemic we experienced huge shifts in where food was being purchased. You have choices!
You will be much happier in your job and your results should be better when you find the right shelf for your products.
Join us next week for the Webinar!
Learnsphere Supply chain 123- Sept. 28th
Alberta/Manitoba Consumers & Customers – Satisfying Both
Learnsphere Supply chain 123- Oct. 12th
Alberta/Manitoba Getting on the Shelf: Building Relationships with Customers
Learnsphere Supply chain 123- Oct. 26th
Alberta/Manitoba Getting off the Shelf: Consumer Marketing
FCC Peer groups in fall of 2022
It has been a real privilege to work with FCC in 2021/22 to launch the pilot program for their food and beverage industry peer groups. We had some incredible discussions with processors about our industry and they really did learn some very valuable insights from each other. We discussed so many topics from customers to ecommerce to distributors to co-packers and so much more.
We are excited to let you know FCC plan to continue with the program and if you are interested this could be a great program for you in the fall of 2022. Check out the details and if you have any questions just let me know!