Pick «Quick PANTRY

A MODEL DESIGNED 1‘6 WW A DAIRY STORE
To COMPETE 1N TObAY‘S MARKETPLACE

"That‘s for flue Dawn of M; 8.. A.
MICHiGAN STATE UNIVERSITY
Thomas F. Barnum B. A.
Harris P. Byrd B. A.
.1. fiouglass 'jones "B; 5.. ~
Kenneth J. Wright 8. A.
19.63

LIBRARY

Michigan State
University

 

 

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Pick—Quick PANTRY
A MODEL DESIGNED TO ALLOW A DAIRY STORE

TO COMPETE IN TODAY'S MARKETPLACE

BY

Thomas F. Barnum B.A.
Harris P. Byrd B.A.
J. Douglass Jones B.S.
Kenneth J. Wright B.A.

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF BUSINESS ADMINISTRATION

Department of Marketing and Transportation Administration

June, 1963

Approved by:

 

Edward M. Barnett, Advisor

To

Our wives, for their understanding devotion

and constant help, with all our love.

 

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PREFACE

This thesis is the result of an investigation into
the small dairy processing industry. The foundation has
been supplied by examining the general problems of the
industry through a study of a specific firm.

This paper is an enlargement of an earlier study
made by the authors in December, 1962, referred to in the
body of this paper as "Operation Opportunity." It was
through this vehicle that the inspiration to explore the
problem in depth was conceived.

It has been admitted by industry leaders and con-
firmed by statistical evidence that the future outlook for
the small dairy processor in the field of retailing is
questionable. It is the purpose of the authors to develop
an awareness in the minds of management of the drastic
environmental changes going on about them, and the role they
must assume if they wish to be successful.

This study serves a dual purpose. It is, first and
foremost, a report of an actual model that was set up and
tested using the techniques and methods outlined in the
study. Secondly, it serves as a critical analysis of a

typical firm in the industry, its past, present, and future

prospects.

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The study has one basic limitation. It is hoped
that the readers will not become so engrossed with the
mechanics and techniques of processing milk products that
the real purpose of the paper will be lost. The problem
being dealt with is one of marketing and application of
sound business principles,--not milk bottling.

This study was not accomplished easily, or without
difficulty. There were many who participated in one
function or another who should be recognized as primary
contributors to this effort.

Special appreciation is expressed to Dr. E. M.
Barnet, Director of the Food Marketing Program, and to
Harry E. Thompson for their inspiration and faith in our
ability to solve this challenging problem. We also extend
our thanks to Dr. E. A. Brand, and the members of the Mass
Marketing Program at Michigan State University, who supplied
us with many helpful suggestions, comments, and on several
occasions their physical support as well.

Much of the technical information regarding the
milk processing data and plant study was furnished by Dr.
T. I. HEddrick, Mr. A. L. Rippin, and Dr. Glynn Mcbride
of the Michigan State University Dairy and Food Science

Department. Their assistance in this project was invaluable.

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Several ladies also played a major part in the
production of this study. Mrs. Janice Cooper and Mrs.

Edie Starr, our typists, and Mrs. Jane Bacus, our artist,
contributed in excess of their primary obligation.

The Central Advertising Company of Lansing was also
responsible for supplying technical assistance and advice
in the sign development program, far beyond business
considerations.

This study would not have appeared at all were it
not for the substantial contribution of the Scott Paper
Company, The H. J. Heinz Company and The Kroger Company.
Their confidence and financial backing made it possible.

Final acknowledgment and appreciation is extended
to our wives; Sonnie Barnum, Carol Byrd, Mary Lee Jones,
and Mary Wright. The hundreds of man hours spent in this
project could not have been accomplished had it not been
for the encouragement and understanding of these people and
their realization of the potential contribution of this

study.

The Authors

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TABLE OF CONTENTS

Chapter Page
I. INTRODUCTION . . . . . . . . . . . . . . . . . 1
Industry Problem Analysis 1
Objectives 1
The Problem Area 1
Total Implications 1
Statistical Evidence 2
Future Outlook 6
Area of Concern 7
Dairy Stores 8
Market Characteristics 9
Dairy Store Characteristics 10
Specific Firm Problem Analysis ll
Test Company ll
Management 13
Problem Summary 14
II. PROPOSED SOLUTIONS AND STUDY METHODOLOGY . . . 16
Statement of Suggested Solution 16
Scope of the Study 17
History of Drive-in Convenience Store 20
How Drive—ins Fill Consumer Needs and
Wants 22
Appearance 25
Personnel 28
Size 28
Products Sold 29
Pricing 32
Sales 33

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Chapter Page

Profits 34
Investment Needed 35

Types of Organization 36

Future Prospects and Conclusions 37
Approach to the Study 40
III. LOCATION ANALYSIS . . . . . . . . . . . . . . 42
Plant Location 42
Sources of Information 45
Cost Comparisons 46
Transfer Costs 48
Gathering Information 48
working the Problem . 52
Summary 54
Store Location 57
General Considerations 58
Saturation Effect 59

The Customer 61
Evaluating Store Sites 63
Sources of Information 67
Operating Considerations 67

The Model Location 68
Summary 69

IV. DEVELOPING A CONSUMER IMAGE . . . . . . . . . 71
Philosophy of Consumer Image Development 71
Specifics of Consumer Image Development 76
Store Location 76
Store Sign 77
Store Name 80
Store HOurs 83
Store Layout 83
Product-Pricing Mix 86
Store Decor 87
Personnel Attitudes and Appearance 92
Cleanliness and Orderliness 94
Advertising 98
In-Store Promotion 107

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V. MERCHANDISING METHODOLOGY . . . . . . . . . . 112
Philosophy of Selling 112
Application to the Dairy Stores 114

Brand Selection and Limitations 115
Purchasing and Distribution 118
RaCk Jobbers and vendors 118

The Advantages of Using Rack

Jobbers and vendors 119

Other Sources 120

Private Label Bread 122

Procedures and Inventory Control 122

Placing the Order 124
Distribution of Goods from

Warehouse 125

Inventory Control and Space

Allocation 126
Lines Handled 128
Private Label vs. National Brand 128
Pricing Policy 130
In-Store Product Location 132
Summary 133

VI. FINANCIAL MANAGEMENT AND PLANNING . . . . . . 135

Esadquarters Level 135
Philosophy of Management 135
Marketing Mix 136
Transfer Pricing and Plant Analysis 143
Retail Financial Analysis 146

Sales Analysis 146
Breakdown Analysis 148
Sales Forecast 155
Summary 158

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Store Records and Control 159
Cash Register 159
Records 161
Pilferage Control 166
vendor Control 168
Inventory Control 170
Summary 172

VII. PERSONNEL MANAGEMENT . . . . . . . . . . . . . 173

Introduction 173
Retail Operations Manager 173
Functions 174
Duties 175
Store Personnel 177
Duties 178
Hours 180
Wages 182
Bonus Plans 185
Customer Relations 187
Summary 189

VIII. SUMMARY AND CONCLUSIONS . . . . . . . . . . . 190
BIBLIOGRAPHY.....................193

APPENDIX.......................197

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LIST OF EXHIBITS

Exhibit Page
1. Total fluid milk forms and types of owner-

ship in Michigan . . . . . . . . . . . . . 3

2. Michigan fluid milk receipts and ownership . . 4

3. Number of milk plants and percentage change
by monthly volume handled, Ohio.

1952—1962 . . . . . . . . . . . . . . . . 5

4. Exterior before . . . . . . . . . . . . . . . 79

5. Exterior after . . . ... . . . . . . . . . . . 79

6. Store sign . . . . . . . . . . . . . . . . . . 79

7. Interior before . . . . . . . . . . . . . . . 88

8. Interior after . . . . . . . . . . . . . . . . 88

9. Interior before . . . . . . . . . . . . . . . 89

10. Interior after . . . . . . . . . . . . . . . . 89
11. Interior before . . . . . . . . . . . . . . . 90
12. Interior after . . . . . . . . . . . . . . . . 90
13. Interior before . . . . . . . . . . . . . . . 91
14- Interior after . . . . . . . . . . . . . . . . 91
15- Full store after . . . . . . . . . . . . . . . 96

16- Opening month's ad . . . . . . . . . . . . . 101
17- Introductory circular . . . . . . . . . . . . 103

18- Ad worksheet . . . . . . . . . . . . . . . . . 105

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Exhibit

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20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

Display barrels . . . . . . . .
Promotional spotter . . . . . .
Honor system bottle return . . .
Private label packages . . . . .

Interaction of customer-prospect
product-service mix . .

Manufacturing cost analysis . .
1961-1962 sales trend . . . . .

Monthly breakeven analysis . . .

Projected profit and loss statement

Pick-Quick PANTRY sales . . . .
Pick—Quick PANTRY sales trend
Whekly sales and cash report
Refund and error sheet . . .

Programmed duties by shift . . .

xi

Page
108
108

108

111

141
144
149
151
152
154
156
163
165

183

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CHAPTER I
INTRODUCTION

Industry Problem Analysis
Objectives

Small dairy processors are disappearing from the
rational market place at an alarming rate. The objective
cf this paper is to answer some of the questions as to why
Ufis amazing decrease, and more important to attempt to
cmange the retailing concept from a dairy store to a modern
mnwenience store by establishing a workable model of

operations.
The Problem Area

Total Implications

This paper is concerned with the dairy industry.
and more specifically with the small local dairy processor.
It is felt, however, that the overriding implications
Chscribed can be transmitted to the small business com-
nmnity of almost any industry. Small business has always

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een a strong soc1o-econom1c force in our democratic env1ron—

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an; and, contrary to the pOSition of many, can and

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should remain so.

Two generalizations seem to be popular in explain-
ing the decline of the small dairy processor; "the rapidly
changing market place" and "economies of scale." No
doubt these are vital factors in the decline, but all too
often they are used as excuses to cover up the reality.

It is the position of the writers that "the rapidly changing
nmrket place“ can be an advantage rather than a disadvantage,
and that "economies of scale" is unwarranted since all

scales have economies.

Statistical Evidence

Cold statistics are the best indicator of the
dairy industries position.1 In 1958 there was a total of
5,817 fluid milk plants in operation in the United States,
2&13%.decrease from 1954.2 The American Dairy Association
estimates that at the present rate there will be 22% fewer

fluid milk plants in 1967.3 Indications and projection of

 

 

. For a complete statistical breakdown of dairy facts

1n Michigan, see Glen McBride, Strpgtur§1_ghange§_in Michigan's
IEE£X_lndustry and Their Impligatiqn, Department of Agri- '“~
cultural Economics, Michigan State University, East Lansing.
April, 1962, p. 3. For a detailed national statistical

review'see Dairy Statistics through_l960, U.S. Department
Of Agricul ture .

A . 2For YOur Infqpmation, American Dairy Association,
Prll. 1963, p. 1.

3Ibid., p. 2.

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the type stem from such statistics as those below on the

state of Michigan.

Exhibit 1. Total number of fluid milk firms and type of
ownership, Michigan.

 

 

1950 1960

 

. 1 P r e Tot 1 Per ent
Type of Ownership Tota e centag a c age

 

 

Number of Total Number of Total
Single Plant 542 96.4 241 89.6
Cooperative 11 2.0 13 4.8
Multi-Plant 6 1.1 5 1.9
Other 3 0.5 10 3.7
Ebtal 562 100.0 269 100.0

 

$nuce: Glen McBride, Structural Changes in Michigan's Dairy
IndUstry and Their Implication, Department of Agri-
cultural Economics, Michigan State University,
East Lansing, April, 1962, p. 3.

 

 

As indicated in Exhibit 1, the decrease in the
rmmber of single plant operators from 1954 to 1960 was
approximately 55%.

In correlation with the significant drop in the number
0f Single plant firms, the percentage of the total amount of
Hulk received by firms in this grouping also dropped

Significantly from 65%.to about 54% as is indicated in
Exhibit 2?
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Exhibit 2. Amount of milk received by fluid milk firms and
type of ownership, Michigan.

 

 

 

 

 

1950 1960
Type of Ownership Total Percentage Milk Percentage
Received of Total Received of Total
Single Plant 1,793.7 64.7 1,782.7 54.5
Cooperative 357.1 9.3 654.6 20.0
Multi—Plant 711.4 25.7 806.0 24.6
Other 8.2 0.3 29.9 0.9
Total 2,770.4 100.0 3,273.2 100.0

 

Source: Glen McBride, Structural Changes in Michigan's Dairy
Industry and Their Implication, Department of Agri—
cultural Economics, Michigan State University,

East Lansing, April, 1962, p. 3.

In order to show that these trends are not limited
tobfichigan alone, Dr. E. F. Baumer of The Ohio State
Ikdversity points out some interesting statistics from that

5 .

state. During the past ten years thate has been a 14.1 per

cent decrease in total processing plants. The greatest

decrease, as indicated in Exhibit 3, occurred among plants

WhiCh were processing less than 800,000 pounds of milk per

nmnth. If past patterns continue, the state of Ohio can

empect a reduction in plant number of approximately 75%

\

Imtw 5Elmer F. Baumer, "Some Economics of Bargaining
"mntEGn.Producers and Handlers of Dairy Products,” The Depart-
Ekat Of Agriculture Economics and Rural Sociology, The Ohio

e University .

 

 

 

 

 

before an equilibrium point is reached. By 1972 a 30 per

cent reduction is expected.

Exhibit 3. Number of milk plants and percentage change by
monthly volume handled, Ohio 1952-1962.

 

 

Plant Size

 

Less 30,000 120,000 450,000
than to to to Over
Year 30,000 120,000 45,000 800,000 800,000 Total
lb./mo. lbs./mo. 1bs./mo. lbs./mo. lbs./mo.

 

1952 71 158 171 70 124 594
1962 22 38 109 36 145 350

% -69.0%. —75.9% -36.3%’ -48.6% +16.9% -41.4%
Change

 

Many factors have contributed to the trends indicated
lanxhibits 1, 2, and 3. Dr. Baumer points out those which
seem most important.

1. New and lower cost transportation facilities.

2. Our improved highway system.

3. Less stringent local health regulations.

4. The ever-increasing sale of milk through chain stores.
New innovations in processing and packaging result—
ing in significant savings to larger firms.

There is little doubt of the validity of these five factors.
The cOntention of the writers', however, is that they need

“Qt have such a devastating effect on the small processor in

 

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6

the future as they have had in the past.
One further statistic should be added at this point.

Total consumption of fluid whole milk was up only 1% from
1961 to 19626 while population growth was increasing at a
rate of 1.7%.7 These figures can lead to only one conclusion,
per capita milk consumption is decreasing. President Kennedy
has verified this position with the following statement:

Last year (1961) we consumed . . . about 125

billion pounds of dairy products. But in the

year before, we consumed between 2 and 3 billion

pounds more . . . (while milk production) increased

1-1/2 per cent . . . milk consumption decreased 2‘1/2
per cent.

Future Outlook

The American Dairy Association has unequivocally
stated that, "If current trends continue without change
through the mid-1960's dairy processors, like the rest of the
industry, will be fewer in number with greater volume per
plant.9

Predictions on the future are qualified by a number

0f assumptions in addition to the indications of the statistics

x

6For Your Infogmation, American Dairy Association,
February 20, 1963.

 

7Demographic Yearbook, 1962.

8J. F. Kennedy, Speech at Milk and NUtrition Con-
ference, Washington, D.C., January, 1962 (unpublished).

9For Your Information, Op. cit., April, 1963, p. 6.

 

 

 

 

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above. The assumptions in this case are as follows:
1. Present levels of price support remain in effect.
2. Technological advances will continue in the industry.
3. The country will continue on a schedule of economic
growth.
4. The small processor will remain unaware of his actual
competitive position and advantage.
5. The small processor will remain unaware of his total
cost position.
It should be noted that the five assumptions above
aflong with the previously mentioned "rapidly changing market
gflace' and "economies of scale" are not only indications of

the future, but are also the causes of the past.

The Area of Concern

 

This paper deals primarily Wifll the last two assumptions
above. Concern has been generated based on the obvious con-
Clusion that the decline in dairy processing plants is due
to loss of the small local processor. Extinction is not
far in the future if an effort is not made to counteract
the economic forces which are presently taking their toll.

The reader is no doubt thinking that it is usually
the Small operator who travels the road to liquidation,

nergery or acquisition, and that small dairy companies are

 

 

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no exception. The writers are the first to agree with this
deduction, and are in favor of merger and acquisition, and
sometimes liquidation. The problem, however, arises not

from the action itself, but from the circumstances that
initiate the action. Usually, merger, acquisition, and liquid-
ation take place out of economic necessity rather than out

of social desire on the part of the owner or owners. The
tmlance of the thesis attempts to describe the establishment

of a convenience store operation, which is one alternative

mfijon for avoiding this negative economic position.

. 10
Dairy Stores

 

Since very little research has been done on the dairy
store this section has been developed from information gained
from interviews, observation, with owners and operators of
these establishments.

Developed as additional outlets for dairy products,
the dairy store ranges in size anywhere from 500 to 1600
square feet of selling space. The smallest of these outlets
usufilly sell only dairy products, with the larger adding

grocery items, housewares, and occasionally some soft goods.
X
10 . . . . .

The ba81c data and history found in this section has
he?“ provided by another presentation of Dr. Baumer, "Are
DalFY Stores the Answer for Independents,“ Department of
AgFlcultural Economics and Rural Sociology, The Ohio State
n1V9rsity, Columbus, Ohio.

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For the most part, these stores are located in
residential areas and are owned outright or franchiesed out

by the dairy firm.

Market Characteristics

The last decade has seen many changes take place in
the market place which have influenced the distribution of
dairy products.

Many local independents who had previously relied on
home delivery felt the squeeze of sales and profits as the
neans of distribution declined. Dr. Baumer has stated,
"Hmse sales trends vary from market to market, but evidence
Fmints to the fact that while more than 80 per cent of all
IMJk sales were home delivered in 1945, many markets have
experienced almost a complete reversal of the store-home
delivery share of sales.

The supermarket thus emerged as the dominant distri-
bution of milk to the ultimate consumer. This emergence
Presented two major problems for the small processor:

(1) supermarkets tended to rely on one or two large suppliers,
and (2) supermarkets began lowering prices on milk as a
Customer draw.

As the supermarket became dominant, the small
\

11
Ibid., p. 2.

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10

independent retailer began to fade away. Most of those who

have weathered the storm have affiliated with large, central

buying voluntaries or co-operatives.

These trends, needless to say, are working to the

disadvantage of the small processor.

Dairy Store Characteristics

With the wide variance in types of dairy stores which

sue in existence today, it would be naive to attempt to

characterize these stores in absolutes. The following,

therefore, are meant to be general rules of thumb for the

reader.

In most cases store hours are longer than those of

the conventional supermarkets, and are open almost every

day of the year. Cost figures are in the range of $12,000

1
to $18,000 per store. 2 Dollar volume is generally between

$31000 and $16,000 per month. Each store is run by a manager

Who Can be aided by one or two full or part-time helpers.

comPensation to manager varies with each organization. Many

are (In a flat salary, while others are on a commission basis.

One htichigan chain, for example, pays its managers eight per

Fluid milk sales are between 200

gallCDns to 400 gallons per day.13

L“‘~‘B

c
ent; of gross sales.

 

12 13
Ibid., p. 4 Ibid.

 

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Many dairy stores have now added grocery items to
further diversify their product line. Many problems have
evolved from this in that management is usually not familiar
with grocery operation.

The dairy store has been a significant factor in the
life of the small processor. Successes have been many in
<xmmarison to failures, but the market place continues to
hecome more competitive. Weaknesses inherent in the dairy
store are now becoming evident, where they once were covered

by high sales and profits. A discussion of these inherent

weaknesses follows in the next section.

Specific Firm Problem Analysis

The Test Company 1

Many of the writers' conclusions and theories were
Catalyzed by the findings of a study done on the "Michigan
Dairy Company"14 a small Michigan dairy processor. "Michigan
Dairy Company" operates five company-owned retail outlets
SRalializing in dairy products. The outlets are very small
in Size ranging from 200 to 1,500 square feet of selling I
Space, Fifteen other non-company owned small retail stores 1

arealso serviced. Although the quality of the dairy i
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12

products is good, the primary drawing point is low price.
The five corporate controlled dairy stores are
typical of many across the country in many ways:
1. They were established simply as additional outlets
for the processor's milk and related dairy products.
2. They were established by people who had little if
any knowledge of retailing, therefore, had none of
the basic rules of retailing built in.
3. They sold dairy products almost entirely on the
bases of price.
4. They were managed at all levels of unqualified per-
sonnel.
5. Grocery products were added with little knowledge
or concern for balanced selling.
6. Locations were chosen with no statistical rationale.
Even though sales had been declining since 1961.
these dairy stores continued to make a profit. It was not
until the first quarter of 1963 that the red ink splashed
across the page. Inefficient as they were, these outlets
had had regularly high sales and good profits until 1961.
The limitations of the dairy store which have aided in its
downfall are the very things we are trying to overcome by
attemPting to establish a convenience store philosophy. The

fi . . . . . . .
vePrimary internal limitations were mentioned earlier

 

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13

under the establishment of the dairy store. The external

forces leading to decline were as follows:

1.

The dairy store lost its significant price advantage
as chain stores began to lower their milk prices.

A large segment of the market was turning to new
total convenience store outlets.

Regular customers were not being supplemented by
new ones due to poor advertising techniques.

Glass milk containers were becoming increasingly
less popular as cartoned milk was reduced in price.
With the loss of the regular milk customer, the
stores had no other competitive advantages on which
to work.

"Michigan Dairy Company" has been in business since

the early 1900's, and has made a profit every year. This

in itself is quite an accomplishment. Sales in the last two

years,

however, have been declining at a rate exceeding 8%,

although the ledger showed black ink in both 1961 and 1962.

Management

By working with the management and personnel of

"Michigan Dairy Company“ and through interviews with other

dairy processors who admittedly were faced with similarly

declining sales and profits, we were able to uncover five

14

common problems prominent in management.

1.

some of
today,

decline

Defensism and defeatism had replaced initiative and
innovation.

There was little knowledge of proper accounting and
costing procedures.

Management control over employees and operations was
lacking.

Management was completely unfamiliar with retailing
techniques.

Probably most significant of all was management's
inability to understand and reluctance to act on
their advantages as small dairy processors and

distributors.

Problem Summapy

 

Section I has attempted to acquaint the reader with
the problems facing the small dairy processor of
One of the industry's greatest problems has been the

in number of individual retail outlets through which

the Small processor could sell his products. Because of

this phenomena, the company-owned dairy store found its way

into the market place to partially stem the tide of declining

sales and profits. Recently, however, the limitations of the

d ' . .
airy store have been eVidenced as a new form of retail

15

outlet begins to dominate the scene.

Section I has been primarily negative in nature.

The balance of the thesis, however, is a positive alternative

approach to greater total sales and profits. This positive

alternative is based on changing the retailing concept from

a dairy store to a modern convenience store.
Before any action can be taken by the small processor
1m must first become totally aware of his actual competitive

pmsition and advantages, and become more familiar with his

total cost structure.

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CHAPTER II
PROPOSED SOLUTIONS AND STUDY METHODOLOGY

Statement of Suggested Solution

With the above as a background into the problems of
the small dairy producer, let us now state specifically how

we propose to solve these problems.

Change the retailing concept from a dairy store to
a modern drive-in convenience food store.

Since the limited product mix makes the dairy
operator extremely vulnerable to price cutting by the
supermarkets, we propose that a completely revised retailing
concept be tested--that of the drive-in convenience store.

We suggest that this test be undertaken initially in one
Store, and then enlarged to include all of the Michigan Dairy
Company stores in Lansing, Michigan. We suggest utilizing

a Systems approach in the establishment of the test store

30 that the entire wholesale and retail system is working in
harmony toward the new goals. We suggest that adequate pre—
test sales audits be obtained, and that the test be run at
least six months and preferably nine months before any

flHal conclusions are drawn. We firmly believe that one of

16

 

 

 

17

the basic underlying causes of the dairy industry's problem

is a corporate myopia by the dairy operators that does not
allow them to see that their business is retailing as well

as dairy manufacturing. This myopia makes it imperative

that the programs tested in the model store be complete,

clear, and easy to maintain. The inexperience of the operators
will not allow us to leave any area uncovered or demand very

nmch initiative and creativity from the future operators.

chpe of the Study

This study will be limited to include our suggestions
for a model that the dairy industry might follow. However,
these suggestions must be examined within the confines of the

local marketing area, and while we believe the principles

 

to be sound and based on available documentary evidence,

the Specific procedures will differ as the market differs

 

from area to area.

Other limiting factors were available time and
money'with which to effect the change. Since we were not
able to apply all of our time to the project, some areas
Were not as completely studied as they might have been.
Whererthis is applicable it will be noted in the report.
flue problem of money was also a handicap since we were

not financing the study and had to use restraint in some of

 

 

 

 

18

our more ambitious projects in order that the resulting
expenditures would not raise our costs to an unreasonable
figure.

Another limiting factor was the unavailability of
qualified employees to run the operation. This demanded a
sufiflification in many areas, but particularly in the account-
ing areas where the present accountant was neither qualified
rum'willing to institute any of our suggested changes.

We faced many of the same problems that others would
face in the areas of limited product availability and media
mix. These limitations were somewhat restricting, but not
nearly as bad as they might have been.

Finally, the study was further limited by the physical
size of the store that could not be changed. The store
Contained only 702 square feet of selling area, with an
additional 100 square feet walk-in milk cooler, and an 80
Square foot back room with four doors entering into it.

There was also a 270 square foot open shed attached to
Uma:rear for empty bottle storage and a 450 square foot
basement for the heater, compressors and washroom facilities.

Since we have previously examined the recent history
051316 small dairy industry, let us now examine how the small
driVEP—in convenience food store has grown and prospered in

o .
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19

In the supermarket industry of today are many kinds
of small stores. It is our aim in this section to study the
development of one of these types of stores. Because the
naming of these types of stores is not always uniform, it
is not enough for us to say that we will explore the growth

and methods of operation of the drive—in stores, but that we

 

define a drive—in grocery store as a predominantly suburban
store, under 4,000 square feet in size, featuring quick,
full-line grocery shopping for the motoring public. In this
definition, we do not include small—sized urban walk-in
supermarkets, old-line service stores, or stores offering
only specialty products such as milk, farm products or snacks
and beverages. The stores we will seek to describe are a
new phenomenon in the dynamic food industry. They have
prospered because they meet a consumer need; a need born out
of the fantastic success of the supermarket method of
merchandising. It is ironic that out of the very success

of the supermarket should develop weaknesses that allow
COmpetition to become stronger. But we proceed too quickly,
for‘We must first see where and how this new method of food
marketing came into being. To do this adequately, it was
neCeSsary to do extensive research in trade journals, since
this subject is too new to be included in books and local

conditions did not allow personal interviews. Personal

20

knowledge has also been included where applicable.

History of Drive-in Convenience Stores

At the same time that supermarkets were developing
in the thirties, the availability of automotive transportation
brought into being small roadside stands. These stands sold
guedominantly ice and beer, but as the economy improved they
added snacks and then food lines. These stores had their
greatest growth in the southern states, and particularly
in the southwest where oil money and great distances provided
the means and the need for automobiles.

During the second world war, drive-ins were hurt by
gasoline rationing, and so they showed little growth until
the early 1950's when the embryo of our modern-day drive-in
food mart began to develop. Since the southwest was still
ideal for this type of store, they began to collect around
the nwjor population centers until by 1955 there were several
hundred stores.2 By this time, at least four good—sized
Chains were in operation in Texas alone'.3 From this point on,

they Spread to other areas of the south in rapid succession.

 

 

l"Drive-In, Quick—Shop Stores Showing Growth,"
££23£§§Sive Grocer, August, 1956, p. 204+.

n

2Lewis Milkovics, "A Report on Drive-In Food Markets,
Rflflfl§i§§ive Grocer, January, 1960, p. 73+.

3 . . .
"Drive-In, Quick-Shop, . . ." op. Cit.

21

Their main requirements were, plenty of people to sell (major
population centers), and a warm climate. With these criteria,
they moved quickly into Florida and Southern California. In
early 1957, two groups, Speedee Marts and Min—it Market, both
nmved into the Los Angeles area and gave out predictions that
they*would have several hundred stores there in a very few
years.4 By August, 1959, a survey done by Progressive Grocer
showed that there were 2,410 drive—in supermarkets in the
[hated States.5 Almost half of these were in Texas, accord-
ing to another survey by Super Market Merchandising in
Nbvember, 1956.6 The drive—ins then began an expansion pro-
gram into the northern states, and as would be expected they
went first into the areas of high suburban population in
Chicago, New Ybrk, Philadelphia and Washington. By 1960,
"TrEleven“ stores had opened 60 stores in Washington, D.C.,
Baltimore, Maryland, area and were planning another 60 for

the Philadelphia area. Convenience Food Mart opened in

Chncago and promised 2,000 stores in every state of the

h¥

 

4Lewis Milkovics, “Min-It Market Drive-In Stores
EXPaIuiing in California," Progressive Grocer, October, 1958,
p. 548% “Speedee Marts Squeeze Supermarket Lines into 2,200

Sq- Foot Selling Area," Progressive Grocer, February, 1958,
P-l72+.

 

5 . . . .
NulkOVics, "A Report on Drive-In, . . . op. Cit.

6 .
M "The Truth about Bantams, Drive-Ins, Etc.,' Super
ar

~—¥k§fl;pMerchandising, Nbvember, 1959, pp. 44-66.

 

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22

country by 1965.7 Minit Markets opened in Northern New

Jersey and were so successful that Lewis Milkovics, Progressive

 

Grocer Editor, stated that drive-in's had now been "proven
successful in virtually every place they have been opened."8
By now, an idea that was born in the southwest during the
depression had matured to become a nationwide complex of
stores selling approximately one-half billion dollars worth
of grocery products a year! Quite a record for small stores

that were supposed to be dyingli

How Drive-ins Fill Consumer Needs and Wants

Because supermarkets have become fully integrated
one—stop food centers offering great variety and selection
of products, the average store size is in the neighborhood
of 20,000 square feet. Since a store of this size takes many
customers to support it, it must also have a large parking
lot to handle their cars. Now let's take the problem
Confronting Mrs. Consumer as she tries to buy a quart of
milk, a loaf of bread, a package of cigarettes and a bottle
0f quinine water for some guests that are dropping by that

nith. Where can she go on the way home from shopping for

\—
7Milkovics, "A Report on Drive-In, . . ." op. cit.

8 . . . . . . .
LeWis MilkOVics, ”Minit Market Makes Hit With New
Jersey Shoppers,’ Progressive Grocer, January 1961: P- 61-

 

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23

clothes, with three tired and hungry children that are in

no mood to trudge around for fifteen minutes in a 20,000
square foot supermarket? The answer, of course, is the
drive-in right on her way home. She can leave the children
in the car and see them at all times, quickly pick out her
{noducts in the limited area of the store, and check-out in
the time it would have taken her just to get them dressed,
out of the car, guided across the mammoth parking lot and
into the large supermarket. It is no wonder the stores are
growing. So what if she pays two cents more for each of her
four items; her time is more valuable to her than this minor
additional cost. So again we see that she is willing to
Spend much more to receive convenience and to save her time.
The first generalization we can make concerning the reason
the drive-ins exist is that they exist to complement super-
Imnfl<ets in an area in which the supermarket cannot compete:
i.e.., convenience purchase of small orders. Another way
the)? seek to complement supermarkets is by being open when
‘Um: supermarket is closed. For example, most drive-ins
today are open from seven o‘clock in the morning, until
elEVen o'clock at night, seven days a week. A study of their
tralffic movement shows that they do the vast majority of the

\mflinne when the supermarkets are closed.10 This leads us
\_

9"Drive-In, Quick-Shop, . . ." op. cit.

loibid.

24

to another generalization about drive—ins; that they exist
{nimarily because of their location. The importance of this
ihctor cannot be overstressed. Min-it Markets in Los
Zugeles has set the following criteria for their stores to
use in location analysis.

1. Store must be near large concentration of
dwellings (at least 500 families).

2. Store should be located just off the main
artery, on a good "going home" street.

3. Aerial photography and traffic counts should be
used to accurately predict the best locations.

Location is vital to a drive-in, because they
I! ' I! II ' N12

attract the buying dollar not the shopping dollar.
If this is true, the store's location must place it where a
large volume of customers are going to see it and pull in
for something they might have forgotten or will need before
their next trip to the supermarket. This means that the
entire store must give the impression of being able to serve

the customer needs better, and one vital area in the field

13 appearance .

ll . . . .
MilkOVics, AMin-It Market Drive-In, . . ." op. cit.

2u . , w . .

. Drive-In, Quick-Shop, . . . 22;_Ei£:3 LeWis
erkovics, “Convenient Food Markets 2000 Drive—Ins Goal by
1965," progressive Grocer, December, 1959.

 

 

 

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25

Appearance

The ultimate in ease of shopping would be not to have
maleave your car, but the next best way is to park next to
aismall store with no doors, make your selection and pay for
it. As we discussed before, this is how drive-ins began in
vmrm climates, but this is not feasible in cold climates.
Therefore, the drive-ins must give the impression of the
same ease of shopping by having its front side be the long
side of the building, and having it glassed in, rather than
walled. Perhaps the main benefits of an arrangement of this
nature is the advertising value of showing how easy it is to
Shop the store. The constant exposure that the customer is
presented with as she drives past these stores on her many
trips around town, acts as a catalysis to her memory and
can say to her "have you forgotten anything you will need
tonight?" Very few people can resist this type of reminder.
50 now that the store has caught her attention with its
appearance and attractive sign, it must make it easy for her
to get in, too. Most stores of this kind now provide
Parking for between ten and twenty cars. Remember, she
deeSrUt want to walk a quarter-mile across a huge lot to

13 .
get to the store. Convenience is the key.
\

 

Mi 13"Drive-— In, Quick- Shop, . . ." op. cit.; Lewis
1k*Dvics, "Drive— Ins Gain Popularity in Northern States,"

%sive Grocer, July, 1958, p. 70+

 

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Now that we have determined the over—all exterior
appearance of the store and parking area, we must state
several advantages that accrue to the multi-unit operator.

If a group, owned or franchised, can present a uniform
appearance of its member stores, all stores benefit from the
multiplier effect that this repetition has on the advertising
of these stores.14 If a customer knows that she can shop

in any one of many stores and always find the same products
in the same place, she will be more likely to shop there.

A personal experience of one of our team might illustrate
this statement. "My wife needed a few items as we were
returning from Lansing last week, and I suggested we stop

in a store directly on our way home, but unknown to my wife.
She refused,.and was willing to go out of her way to go to a
Share where she knew the location of the products rather
than: have to hunt for them in the new store. A.drive-in
that; showed her the products, visually, even before she

got :in the store, that allowed her to park near it, and that
Offered fast check out, would undoubtedly have been accept-
able to my wife." Women like to feel "at home" in a store,
ami if all the stores of a chain are identical, once she

kmMNS one, she knows them all.15 No supermarket can approach

\

5
"Speedee Marts Squeeze, . . . op. cit.

27

the standardization possible in a small drive—in mart. This
image that the drive-in operator can build gives him many
advantages that heretofore were only available to the chains.1
Such things as building type, sign, exterior layout, color
and lighting all combine to work powerfully in enhancing the
image the customer has of the store, but other areas are even
more important.

Four areas are mentioned by almost every drive-in
operator as main contributors to his success. They are
cleanliness, courtesy, service, and friendliness. Since
many housewives associate small stores with old-line, dark,
dirty stores that they might have known in their youth, the
drive-in operator must stress cleanliness and lighting to
give the whole store a bright, Clean look.l7 Courtesy,
service and friendliness are a direct responsibility of the
persons running the store and probably determine to a large
extent the success or failure of a store. In a small store
the manager can get to know a large percentage of his
customers since they will probably be coming in more often
for smaller purchases, he will be checking them out, and

there will be fewer customers per week than in a supermarket.

x

16 . . . .
MilkOVics, "Convenient Food, . . ." op. Cit.

l . . . . .
7MilkOVics, "Min-It Market Drive-In, . . " op. Cit.

28

Because of the frienships formed, one drive-in operator
dhflned that 20% of his volume came from people doing their
Enimary weekly shopping in his store'.18 An excellent
illustration of the potential value of courtesy, service

and friendliness.

Personnel

 

NOW we must know how many people it takes to run a
drive-in. As expected, there is no hard and fast rule, but
most operators run on 1-2 full—time employees, and 1-3 part-
time employees.19 The pay varies from $480 a month to about
$600 per month with a portion of almost all salaries coming
fronlprofit sharing.20 This provides the carrot in front of
the horse to get him to Egg: to work harder, not be pushed

into working harder.

Size

 

Drive-ins are like supermarkets. There are large
drive—ins and small drive-ins. However, we can say that

theY‘vary in selling space from 1,000 square feet to 3,000

 

l I O I
8Milkov1cs, "A Report on Drive-Ins, . . ." op. Cit.
9 . . .
"Drive-In, Quick—Shop, . . ." op. Cit.
20 I I i O
”The Truth, . . ." op. Cit.; MilkOVics, "Min-It

Market Drive-In, . . ." op. Cit.

29

square feet,21 and that perhaps the most popular size to
date is the store 60' by 40', with a 200 square foot back—
room, leaving 2,200 square feet of selling space.22 They
ans generally free standing units with the main exception
being U-Tot'm Stores who seek to build a small "centerette"
of six small convenience stores to attract the customers.
Their "centerettes" have a grocery, a laundry, barber shop,
beautician, shoe repair and liquor store. What more could
you want! They are housed in a long narrow building with
parking for 30 cars directly in front of the stores. To
date they have been very successful and have paid out in

five years.

Products Sold

Now that we know the size of the store, we must
examine what is inside. Most stores sell a complete, though
limited variety, of grocery lines. They sell pre-packaged
Fmoduce, but their biggest problem is with their meats.

(me universal feeling among drive—in operators is that they
nmst sell national brands, and only the fastest moving items

ina product line. If two brands of napkins do 60% of the

\

lebid.
22"Speedee Marts Squeeze, . . ." op. Cit.
23

"The Truth, . . . op. cit.

30

market and they are of different price and quality, the
operator will only stock those two. Except for certain
items, like beer and Cigarettes, only the fastest moving
items in the various price ranges are stocked. This is a
must since the turnover in an average drive-in crocepy
department is only 14 turns a year versus the 21 turns a
year average of the supermarket operator. However, adding
the dairy and bakery departments, the turnover increases to
25 turns a year.
. . . 2
The number of items stocked varies from 1,800 items
. 26 . .
to 3,100 items, With a mean of around 2,500 items per
store. This is to be compared with the over 6,000 items in
27 . .
an average supermarket. One Chain of stores studied
showed that almost one—half of all of the stores' dollar
Volume came from only five categories; Cigarettes, 14%;
. 28
Milk, 10%; Bread, 8%; Beverages, 7%; Ice Cream, 5%.
This helps explain why the dry grocery sections are only

turning over 14 times a year. Another study gives the

—_—.

24 .
Brown, op. Cit.
25

Milkovics, "A Report on Drive—Ins, . . ." op. Cit.
2 . . . . .
6MilkOVics, WMin—It Market Drive-Ins,. . ." op. Cit.

2 . . . . .

7LeWis MilkOVics, "Min-It Market Drive-In Stores
ExPanding in California,“ Part II, Progressive Grocer,
November, 1958, p. 64+.

28

 

Milkovics, ”Drive—Ins Gain, . . . op. cit.

31

following break-down of the sales dollar: Grocery and Pro-
duce, 60%; Dairy, 27%; Frozen Food, 11%; Miscellaneous, 2%..29

One thing is universal, though; drive-ins have almost
1x>back room storage space, which means that they have little
money tied up in dead inventory and need regular deliveries
often.30 The drive-ins also rely heavily on rack jobbers
and salesmen to provide stocking and inventory assistance.
This materially cuts down their need for store personnel to
stock and maintain the shelf stock. For those interested in
a complete drive-in stock inventory suggestions, see this
footnoted reference.

Drive-ins rarely sell fresh meats. If they do the
meat is pre-packaged by another operator,32 or by a full-
sized store also owned by the drive-in's owner.33 The most
Common practice is to sell frozen meats, and one operator

. . 34
has even set up his own meat freeZing plant. Frozen

meat has many disadvantages, such as appearance, cost, and

_

2 . . . . .
9Milkov1cs, “Min-It Market Makes Hit, . . ." op. Cit.
0

"Speedee Marts Squeeze, . . ." op. Cit.

, 31Lewis Milkovics, ”What It Takes to Stock a New
Ikive-In Market," Progressive Grocer, February, 1960, p. 68+.

32 "

 

Nulkovics, ”Drive-Ins Gain, . . . op. cit.
33 . . . .
MilkOVics, "A Report on Drive—Ins, . . .” op. Cit.
34 n

”The Truth, . . ., op. Cit.

 

I '-
.-: ~-
... :_l~ -
'7’- . 5
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.-3 4....

 

..;.:.-«= 1

-.----0‘

 

«...-..-

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. _ _
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....-.

'~-....

 

n.

I
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.
._ _: -.‘
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32

flavor, but it will do in a pinch if nothing else is avail-
able and it is easy to handle and store. Breakthroughs in
the methods of meat storage may soon provide the drive-

ins with meat of comparable cost and quality as is now
available to the supermarket operator. Until then, most

operators feel they can get along without fresh meats.

Pricing

If there is one area that shows the greatest
variance among drive—in operators today, it is in the area
Oflpricing. Many operators claim that they are completely
competitive with chain store prices;36 others claim that
they' are competitive on known price items,37 and still
otheirs claim that price is not why consumers shop their
Storras so they are not forced to compete with the chains.
It ii! our opinion that the store that is competitive where
it has to be, such as milk and bread, and in areas where
the nuark—up is good, need not compete with the supermarkets
in true rest of the store. Five to ten cents more cost is

1mmatmerial to a shopper when her time is saved. Also, very

\

35 .
Brown, op. Cit.

36 . . .
MilkOVics, ’Convenient Food, . . . op. cit.

37 . . . .
Milkov1cs, ”Min-It Market Drive-Ins, . . . op. cit.

8 . . .
"Drive—In, Quick-Shop, . . ." op. Cit.

33

few drive-ins use advertising extensively that allows price
comparison. If they do advertise, it is introductory adver-
tising or image building advertising stressing aconvenience,

not price.

Sales

Now we begin to get to the pay-off part of the
repcut. What can an operator expect in sales in a drive—in?
Most:estimates range from $2,000 per week to $6,000 per week.
witfln the mean being approximately $4,000 per week.40 One
study showed that in nine stores examined, the break-even
POiJit was $3,500 and four stores were grossing under that
fignire, and five stores grossing above it. One generali-
Zatidon can be made. Whatever the specific break-even
Poirit is determined to be, sales beyond that point increase
PrOiiits at an increasing rate, and expenses increase at a
declining rate. Thus a store with a break-even point of
$3. 500 might net out $200 profit on $4, 000 sales, but $600
PrOfELt on $4,500 sales. Thus sales volume is even more
critxical than in a large supermarket, because it is

Eiiéuiizgly easier to increase your sales from $4,000 per
-\

39 . . . .
"Small Units in Comeback in Guise of Bantams,"

E35¥i_flfiu§§§§, January, 1961, p. 16+.

40 .
Brown, op. Clt.

34

Mmek to $4,500 per week than it is to increase your sales

from $40,000 per week to $45,000 per week. For with the
average drive-in handling 4,000 customers per week with an
average purchase of $1.00 per trip, if he can increase her
purchases $.12 per trip or get 500 new customers, he will
have gotten the needed increase; while the supermarket
operator with 8,000 customers a week with an average purchase

of $5.00 a trip, must either increase her purchases $.63

a trip or get 1,000 new customers.

Profits

Sales are a wonderful thing to have, but all of your
efforfl: is wasted if profits are not forthcoming. This is
one area in which drive-ins really shine. Again, it is
diffixzult to give exact figures, but gross profit percentage
fiwxres range from 21%41 to 29%.42 Since it is management's
POLhiy concerning competitive pricing that to a great
examnt determines the mark-up, an average figure is not as
relevant in this case. Management is interested in dollar
profit, so if they have lower profit mark-up they expect
faster"turnover, and with higher profit mark-up they can

li ' . .
ve‘Nltfli a slower turnover. One generalization can be made:
.__‘_____‘p

41Ibid.

 

‘42"Sma11 Units, . . ." op. cit.

'll

 

 

 

 

,.. nAv
pg 4
.. rd“
v-no. .«w
o

-‘-Vo~\.U-

 

35

mark-ups are generally higher in drive-ins than they are in

 

supermarkets. Our opinion is that drive-in operators can
be significantly higher in their grocery, meat and produce
department, but should be in line on milk and bread.

Where drive-ins can really murder the chains is if
the)? can keep their expenses low, and thus end up with a
ver§7 high net profit. As mentioned before, net profits
imsirease very rapidly after the break—even point, so some
opeirators are averaging 9.1% net profit before taxes!
A fsar cry from the chain stores 2%. Let us now look at

what: it costs to open the average drive—in.

Inve stment Needed

For the average drive-in, 60' by 40', selling 2,500
itenus, the cost needed to open a new store can be estimated

as follows : 44

 

Average High
Inventory Stock $ 6,000 to $ 8,000
Equipment and Sign 9,000 to 25,000
Land and Building 35,000 to 45,000
Estimated Total: $50,000 to $78,000

Using the average figures of $4,000 per week sales,

Muth,;i net profit of 6% before taxes, and average investment
__~_~Ԥ_ .

43

44 . . . .
Ibid.; "Drive—In, Quick—Shop, . . ." op. Cit.

Milkovics, ”Min-It Market Drive—Ins, . . ." o . cit.

36

of $50,000, an operator realizes a 25%Ireturn on his invest-
ment the first year. This percentage will increase rapidly
as sales increase, and one operator, Convenience Foods,

:hxxmporated, of Chicago, Claims a 103% return on investment

. 4 . .
for its storesl 5 Quite an accomplishment.

Types of Organization

Since the high cost of many fixed expenses would put
the independent in a less favorable position, many groups
have been formed to reduce these costs. Three types are:
(1) corporate Chain, (2) franchised stores, and (3) whole-
sale affiliate. The corporate Chain offers quantity buying
of merchandise and equipment, bargaining power for union,
leasing, and credit negotiations, and many economics in
advertising, management and bookkeeping control. They offer
major benefits in price buying if they have at least 15
Stores, and then another price break at 50 stores. Above
that number, there appears to be no benefit in price buying.
The franchised store group offers the same advantages of
Chain store operation with the added benefit of private
ownership of stores. For their services, they must Charge

a.fee that averages about 2% of sales. Convenient Food

X

45 . . . .
MilkOVics, ”Convenient Food, . . ." op. Cit.

46
Brown, op. Cit.

F

37

Marts in Chicago offer the following services for their

franchised stores:

Supervision Merchandising

Cost Accounting Bookkeeping

Volume Buying Monthly Financial Statement
Personnel Training Inventories

Banking Competitive Price Checks
Auditing Business Analysis

Tax Returns Promotion

With these types of services offered, a franchised
. . . . 47
arrangement would be very deSirable for some indiViduals.
The Wholesale affiliate can have the same benefits as a
franchised operator, but has the facilities of a warehouse
at his disposal. Generally, wholesalers do not offer the
sanmadegree of control or services that a franchised

operator offers. The present trends today appear to be in

the direction of franchised stores or Chain expansions.

.Egture Prospects and Conclusions

Several years ago, as drive-in markets began their
exDansion northward, it was predicted that they would sweep
the: country and every mom and pop store would be put out
Of lausiness over night. Almost every chain or franchised

oPerator predicted growth corresponding to the "2000 stores

 

137L1955- prediction of Convenient Foods, Incorporated.48
\
47. . ,, . .
MilkOVics, Convenient Food. . . ." op. Cit.
48

Milkovics, "A Report on Drive-Ins, . . ." op. cit.

38

Emveral factors have combined to slow down the immediate
(fisappearance of mom and pop stores. The prime reasons are
that the old stores are fully depreciated and cost little
to operate, and the operators of those stores are often
vdlling to operate on less return than the owner of a new
store would be willing to do. His needs might not be as
great and he perhaps is in semi-retirement. Also, his
customers are friendly with him and are in the habit of
shopping at his store. All these factors have limited the
drive—in's growth.

We believe another factor limiting the drive-ins'
rapid growth is a misunderstanding by prospective owners
Concerning the reasons customers shop these stores. If
you enter the drive-in business believing that all you need
is a small-sized supermarket, you will probably not succeed.
The key to success seems to be the establishing of a strong
image of convenience in the consumer's mind. This is not
dOneesimply with small size or by saying it in your ad—
vertisements, but must encompass every operation in the store.
Evensuccessful drive-in operators do not seem to fully
graspthe market of the drive-ins, as shown by the quotation

fronm the President of Speedee Markets, Henry A. Boney, "I
.i“p_‘

9 .
Brown, QE;_Clt.

39

would do some serious thinking about opening a small, complete
. . . . "50

store in direct competition to a super._ If all the other
conditions are right, this might be a perfect place!

Supermarket operators don't view drive-ins as any
threat to their business, but how can they answer this:
In Dallas, where 7—Eleven Stores are doing $10 million a
year in sales, do they really think that all this business

51 .
comes from mom and pop stores? We doubt it. Supermarkets
are more threatened by an invasion by drive-in stores for
the many reasons stated above. Why then don‘t supermarket
operators enter this field? Primarily because it is an
entirely new method of operation that is unknown to them.
If we were a supermarket Chain operator, we would seriously
mmasider opening a Chain of drive-ins under a different
name, but serviced by our operation staff. In this way,
mm Vvould appeal to both shopping methods, quick stop or
conqxlete shopping. For, if we were in this business, we
WOUJJS not have to force our present stores to stay open
latein cm'any other methods that supermarket operators are
usin t f. h h. . . 52 .
g’ 0 lg t t is competition. In fact, if we made more

Prefit in the smaller stores, we might want to limit our
-~.._,

50F'Small Units, . . .” op. Cit.
51" .

,The Truth, . . .” op. Cit.
52

Ibid.

4O

tug store hours to cut costs and allow the customers more
time to shop our drive-ins.

Three other areas must be mentioned that work against
the growth of the drive-ins. They are high costs through
inefficient operation or too few stores to effect the economy
of buying, over storing of drive-ins (a problem in the south—
west), and Sunday Blue Laws limiting the purchases legal on
Sunday. All of these factors must be considered by the
prospective drive-in operator before rushing into the
business. However, if he adequately surveys his market,
studies the factors needed to operate a successful drive-in
and has adequate financial backing, he has an excellent
Cmportunity to do well in a very rewarding area of food
IEtaiJing. The one fact he must keep in mind is that
drrve—ins exist to satisfy the consumers' need for convenience.
Iflme remembers this, he would never say, as an unnamed
Supelnnarket executive is quoted in Sgper Market Merchandising,
"What: do we need with bantams? Super markets are getting

I"

so Clxase together, there will be one on every corner.

Approach to the Study

With this, then, as a background for the drive-in

m°""&1ment in the United States today: we can begin to 100k
\

53Ibid.

41

at the model we propose testing for Michigan Dairy Company.
In examining the problems that exist, utilizing a
systems approach, we will cover the following areas in this

order. Chapter III will examine the problems and suggested

model for store, plant and warehouse location. Since this

study was not able to determine its own locations, the

principles that should be considered will be stressed in

this Chapter. Chapter IV is concerned with consumer image

development for the model store, including all areas that bear

<31 the problem. The merchandising methodology that we

Suggest be implemented is covered in Chapter V and is a

criiiical area for the success of the model. Chapter VI is

an ainalysis of the financial management problems and our

SolLitions of them. All areas concerned with personnel manage—

ment; are covered in Chapter VII. It was in this area that
we ILad the least control and most difficult problems.

A anart summary and conclusion are then given in Chapter VIII.
ACCnnprehensive bibliography completes our study and is

fouhd following Chapter VIII. To facilitate more rapid read-

1“9 of the report, the more detailed exhibits have been grouped

togflather in the Appendix, which appears immediately following

the Bibliography.

CHAPTER III
LOCATION ANALYSIS

Plant Location

The decision to add a short section on plant location
to this paper was based on the conclusion that many small
dairy processors are finding that present locations and

facilities are rapidly becoming obsolete. Few small processors

ans aware of the theories of spatial economies which play so
heavily on the total profit picture of the firm. A Change
hllglant location is costly in terms of both time and money,
mxi is not by any means recommended unless management feels
that 'the benefits of the long run will bring greater sales,
Proquts, and lower total operation costs. This section is
°bVi£>usly designed for the most progressive management who
thin}: in terms of tomorrow as well as today.

A brief example of the theory of spatial economies
shoulxa help clarify the picture. The test company, "Michigan
Dair3, Company" has had its plant and office facilities in
the Same location for approximately thirty years. This is

i c . u
n ltself certainly not bad. However, this land has now

42

43

become a very valuable piece of property for a retail outlet.
The increase in the value of the land has done nothing to
increase the value of the plant. In other words, has done
nothing to increase the value added by manufacturing. Offers
to buy the land have proven that the dollars gained from the
sale of this property would be twice the cost of building a
new modern plant on land that would increase the value added
by manufacturing. This would also provide money for new
retail locations.

SpecifiCally then, the dollars gained from the sale
CE one location would equal the dollar expenditure needed
forcmne new plant and three new retail outlets.

Since the science of plant location is quite precise
and leangthy in nature, it is the purpose of this section to
merely touch on some of the most important considerations
in this area.

Because small dairy processors usually distribute
prmdufirts directly to retail outlets, it is imperative that
distribution costs be included in our analysis of plant
location.

Management has long been aware of the potential for
greatefir efficiency and cost savings that exist in the area of
physical distribution. However, it has been only in recent

Years . . . .
tflaat buSinessmen have expressed an increaSing interest

44

hithe integrated viewpoint which would recognize the inter-
relationships of marketing with the physical supply functions,
transportation and storage.

Unfortunately, however, very few scientific advances
can be Claimed in the determination of where new distribution
facilities should be built. Too often decisions are reached
with little regard for the sound economic principles that
are so highly prized in literally every phase of the retail
industry.

Expansion and relocation have been necessitated be-
cause of shifting markets, increasing freight costs, the
need for new labor supply, the desire to operate in cost
Conmmnities, and the requirements for new straight-line
Production facilities.2

In terms of geography, it is not generally realized
that.the total cost factors involved can be regionally
Variable. The area of total cost includes product, inbound
mus outbound freight, wage, rates, fuel, power, gas, water,
local and state taxes, and even workmen's compensation and
insurance rates. It is an unavoidable fact, therefore, that

geographic location becomes as important to the distributor

\._

1
Leonard C. Yareen, Plant Location (New York:
American Research Council, 1956), p. 7.

2Ibid.

45

0f goods as sound management, modern plant structure, and
astute merchandising policies.

A production and distribution facility can no longer
be located by intuition or on the bases of insufficient data
or analysis. The vital issue, therefore, that faces any
organization dealing with the production and distribution of
a product or products is -- WHERE?

On the bases of this assumption, it is evident that
a definite plan based on analysis, and sound business
Principles must be followed. The first step for any indi—
Vfliual calculating a production point is to cast out any
Personal prejudices and honestly determine the point on
the loases of professional measuring devices.

It must be remembered that a facility built today
must; continue to operate with the same optimum efficiencies
in tile future. Thus, it is advisable that a Chronological
Plarl of growth be prepared for any company wishing to under—

take a venture of this type-

Sources of Information

The following sources are available for a more

detailed explanation of plant location.
ei~“~‘_

3Ibid., p. 8.

46

1. Donald J. Bowersox, "An Analytical Approach to

Warehouse Location," Handling and Shipping,

 

February, 1962, p. 17.

2. Melvin L. Greenhut, Plant Location in Theory and

 

Practice, University of North Caroline Press, Chapel

 

Hill, 1956.

3. Walter Isard, Location and Space Economics,

 

Technology Press, 1956.

4. A. Losch, The Economics of Location, Yale University

 

Press, New Haven, Conn., 1954.

55. Smykay, Bowersox and Mossman, Physical Distribution

 

Management, Macmillan Company, New YCrk, 1961,
pp. 116-228.

6-. Leonard Yaseen, Plant Location, American Research

 

Council, New York, 1956.

Cost Comparisons

In order to arrive at an accurate valuation of the
Varicnls factors involved, it is advisable for the individual
investigating to Chart existing costs in relation to the
cost (If a new distribution center. A suggested guide for
Compari son follows : 4
\

Ibid., see p. 10 for a similar guide.

"DIRECT & INDIRECT
TRANSPORTATION COSTS

LABOR

OVERHEAD

UTILITIES

SUHATE FACTORS

MISCELLANEOUS

47

 

Inbound products . . . $
Outbound products . . $
Inventory . . . $

TOTAL $
Direct productive . $
Non—productive . . . $

TOTAL $

Rent or carrying costs,
excluding taxes . . . $
Real estate taxes . . $
Personal property and
other locally assessed

taxes . . . . . . . . $
Fuel for heating
purposes only . . . . $
TOTAL $
Power . . . . . . . . $
Gas . . . . . . . $
Water . . . . . . . . $
Sewage disposal, etc . $

TOTAL $

State taxes . . . . . $
Workmen's compensation
and other insurance . $

TOTAL $

Other costs inherent
or peculiar to your
present location . . $

TOTAL $
GRAND TOTAL $

48

Similar cost guides should be drawn up for both
existing and proposed locations so as to elicit the

nest complete cost comparison.

Transfer Costs

The feasibility of a new plant for the small dairy

processor is heavily contingent on the effects of transfer

costs. Although only one of a number of considerations in

dairy plant location transfer costs are a dominant category,
and since transfer cost can be measured quantitatively, they
are: an excellent starting point for location consideration.

{Hue calculation of purchase points and quantities shipped,

retaii.outlets and volumes sold, and weight loss or gain

in gxroduction is imperative in analyzing both established

and {prospective dairy plants. The point of minimum total

transfer costs will force the new location towards the least

COSt center.

Gathering Information

Since our new location must meet the demands of
produCtion and distribution to retail outlets, Choosing a
Site on the value of only one would be naive. The following
method of Choosing a distribution center does not take into

so - . . . .
nslc3eration production costs that may shift the pOint to

49

an even more advantageous total cost position. Using the
principles of Donald J. Bowersox,5 we will now construct an
example that will demonstrate how to choose a location that
will allow all stores to receive prompt shipment, vital since
we are working with a perishable product, at the lowest
possible delivery cost. The procedure is as follows:

1. Assume we have four dairy stores to be converted
into convenience stores and we are to build one new
store. These stores will be represented as A, B,

C, and D.

:2. On a map of the trading area, mark the location of
these stores.

3. Place a piece of transparent plastic over the map
and draw vertical and horizontal lines similar to
those on the sample grid. Care should be taken so
that the crossing lines are close enough together
so as to give a degree of point accuracy, yet not
so Close together so as to induce unnecessary
complexities. Vertical and horizontal delineations

should all be equal.

 

4° Number the Y axis (vertical) and X axis (horizontal)
equally.
\_
5

See D. J. Bowersox, "An Analytic Approach to Ware-

h . .
Ouse Inocation," Handling and Shipping, Feb., 1962, PP. 17—20.

 

50

5. Calculate each store's location on the grid (i.e.,
(AY 10, AW 20).

6. Since dairy processors use private trucking, Volume
is the number of trucks annually to each store.
(Small processors will usually send the same number
of trucks to each store, but for the sake of showing
variances in deliveries, we will use the Bowersox
figures).6

7. Determine total number of minutes it takes each
truckload to reach each store from the assumed plant
site (WX 50, WY 50).

We now have all the necessary information to apply

the formula :

 

 

 

gXifi gYifi

i=1Ml i=1 Ml
“DC = n WY'= n

i=1Ml i=1Ml

This formula picks the point on the X axis and Y
axis Mniere delivery costs will be lowest. When the values of

bOth‘arxs combined the result is the total least cost point.

Ibid.

51

 

 

nHmo
moomm oooom amen masses
mmme oomm mam mm. , no one Hm mm on m
oooo omen one mm. em mm we ow mm a
omeo ooome oam mm. mm oo owe om oo o
oemo oemo new om. om ooa we om om m
omen oomm mos em. om owe om on om a
“so loo Ape Ame Awe Axe lee
Ms\nvw Az\mox =\m u\o ooomumeo wane excuse moans moam> ooou
outeooeoo sno>fifioq Hmzcem mowumooq :oflumooq muoum
o a m m n o 3.5 p.30 oocmwcgcoo
m e m m H

WZOHBANHDUJHNU g WHUANN ZEHU

52

The symbol interpretations:

W = The initially assumed distribution point.

A - E = Convenience store location.

f = Number of trucks to each store per year.

t = Time in minutes between W and each store.

d = Distance from W to each store.

M = Speed at which each truck moves from W to each store

expressed in miles per minute or Distance divided

by Time. (d/t).

Working the Problem

As has previously been mentioned this technique
requires the use of an assumed distribution point.
(W): 50, WY 50).

Since we have Chosen an assumed point of distribution
(W) ‘we are using a trial and error system to reach a point
Whelme the difference between the last two sets of values is
zerc> or within an accepted plus or minus tolerance, three

miles. for example.

 

 

n
z _X_i._f_i. n Yi fi
1 = =
I- WX = or WY = l l
n . n
z E 2 ii.
i = 1 M1 1 = 1 Mi

 

 

 

 

 

 

A A + a B + MC C+ D + E E
_ MA B c MD ME
II' WX ‘ f f f f f
e+e+£+2+£
MA MB MC MD ME
20(56) 30(78) 40(120) 25(48) 10(81)
+ + + +
I WX _ .34 .36 .38 .32 .28
H' " i6. + 2.8. + 1.20. + .433. + 8.1..
.34 .36 .38 .32 .28
29090
IV' wx ‘ 1137

V. wx = 25.67 (26)

28695

V . =
I ‘WY 1137

VII- WY: 25.94 (26)

This first Computation shows the distribution point
t0 hue located at X 25.67 and Y 25.44 on the grid. The
difference between the assumed point WX 50 and WY 50 and our
new points of X 25.67 and Y 25.94 does not fall within the
tolerance limit. Therefore, the formula must be worked at
leasst.once more. The optimum location point will be reached
Wherl the difference between the formula answer and the formula

Vallaea is three (the tolerance) or below.

 

 

Initial assumed values wx 50 WY 50
New Values (lst computation) WX 26 WX 26
Difference WX 24 WY 24

Therefore, the formula must be worked again with

WK 25.67 and WY 25.94 as assumed values.

54

This formula takes into consideration only trucks
outbound from the processing plant, but may be worked in a
similar method from the points of milk production. Following

this the two points can be averaged, considering any cost

differential, to reach the least cost point of inbound and

outbound shipments.

No mathematical technique can make the final location
decision. It can, however, make the analysts job much easier

byiiaxrowing the probable area. The specific site location

Can lae Chosen from within the area delineated by the calcu—

lation,

Summary

We have now outlined some of the basic considerations

in cfnaosing a new plant site for the small local dairy

PrOCessor. In conclusion, a plant location check list is

lsuPplied for management. Field analysis considerations

have ‘heen eliminated on the basis that small processors would

reMain within the same geographic area.

7
PLANT LOCATION CHECK LIST

I- Plant Analysis

.A. Distribution Analysis

\

 

7 . .
D ‘7 For a more extenSive Check list, see E. W. Smykay,
° ‘ Bowersox, and F. H. Mossman, Physical Distribgtion

Ma
.iEEEaszmggp (New York: The Macmillan Company, 1961), pp. 172-175.

55

Distribution System Analysis

a. Current Production Points

b. Current Retail Locations

Long Term Expansion Plans and Policies
Primary Transfer Requirements

Modes of Transportation Capable of Satisfying
Transfer Demands

a. Raw Material Movement

b. Finished Product Movement

Production Analysis

1.

Raw Material Requirements

a. Present Point of Purchase

b. Quantity Purchased

C. Alternate Purchase Points

General Charactersitics of Production Process
8. Special Factors Dependent upon Location
Labor Requirements

a. Number of Skilled and Unskilled

b. Power and Utility Requirements

Market Analysis

1.

2.

Geographical Location of Major Market Segments
Competition Analysis

a. Production Locations

b. Major Markets Serviced and Relative Strength

in each

56

Managerial Location Preferences

Location Specifications for New Plant

1, Distribution Requirements

2. Production Requirements

3. Market Requirements

4. Managerial Preferences

Cost Analysis at Present Manufacturing Location
1. Transportation

2. Production

II. Auea Analysis

1L

Ii

Community Analysis
1. General Description of Community(s)
2. Population and Growth Patterns
3. Industrial Climate
a. Existing Industry
b. Local Laws
C. Labor Situation
d. Community Attitude
4. Supporting Facilities and Services
a. Transportation Facilities
b. Utilities
C. Municipal Services
Site Analysis

1. Geographical Considerations

57

a. Size
b. Soil Content
c. Drainage
2. Utility Availability
3. Availability of Required Transportation
Facilities
4. Costs
a. Procurement
b. Landscaping, etc.
5. Selection of a Site(s) based upon Location
Specifications
III. Final Location Selection
A. Proposed Costs at Alternative Sites
1. Continuing Production and Distribution Costs
2. Initial Establishment Costs
B. Comparative Analysis of Proposed Costs with Costs
Experienced at Current Location
C. Final Selection of New Location Based Upon Least-

Cost Comparison

Store Location

 

This section is based on the theory that many
progressive dairy processors who would consider transforming

old dairy stores into convenience stores will also be

58

interested in establishing new modern outlets for their

products .

General Considerations

In 1960, 62% of the new supermarkets opened were

below their forecasted sales volumes for that year, 44% of

which were more than 10% below their forecasted level.
There can be little doubt that a poor job of forecasting was
done in many of these cases.

Convenience store locations cannot by any means be
measured with the same rationale as that of the supermarkets.
MémY lessons can be learned, however, from the tendency of
suPermarket operators to saturate a market with stores.

The first basic rule for building a single convenience

Store or for establishing a network of them, is that of

proper location analysis. The word convenience itself indi—

Gates that to be successful the location must be at an
c’ptirflum accessibility point to the greatest number of potential
CustcDrners. In this sense a dichotomy exists between super-
Super-

mar .
ket operators and convenience store operators.

m
arkets are not dependent, although it admittedly helps, on

hav‘ .
ing the most convenient location. Other advantages of

\

 

8"Facts About Supermarkets in 1961," Super Market

Mer
W, February, 1962, p. 61.

59

the supermarket outweigh the disadvantage of size which many

times prevents these stores from being located at the point

of optimum convenience. The convenience store, on the other

hand, thrives on its ability to take advantage of smallness

and secure the most advantageous position of optimum accessi-

bility to the greatest number of potential customers.

The Saturation Effect

We must realize that a particular market area can be

saturated with convenience outlets just as easily as it can

be saturated with supermarkets. However, this does not

necessarily mean that a saturation of one equals a saturation
0f the other. Both types of outlets can and do operate

complementary to each other in many market areas.

If the convenience outlets within an area are not
gaining a proper return on their investment, it is a fairly
Valid assumption that the area has reached the point of
Saturation. Saturation often comes about because many
It is

Operators tend to underestimate their competition.

“Qt Sound judgment to enter a particular trading area on the
bases that competition is not very capable. The point here
i . . . .

s that five indiVidual operators cannot each get 25% of

t
he GOllars available. The potential dollar is usually

re -
lathely constant in established trading areas. On this

60

bases the addition of each new store merely decreases the
amount of sales for each by the percentage the new store adds
to the total. A rather simple arithmetic formula helps to
to Clarify this position:
K = Total potential dollars available in the trading
area.
V = Variable number of retail outlets in the area

S = % of potential sales dollars to each outlet

Example #1 K
S ='§

100

S‘4

S = 25

Example # 2 - With one new outlet added

10
8‘5
s = 20%

The formula obviously is based on the assumption that
all outlets will be equal in physical and emotional drawing
Power. Granted, this is never the case, but the formula
hOlds true nevertheless on the basis that no outlet will
lose 100% of its percentage share of the trading area.

The point remains that in an established trading area the
dollar potential seldom increases any significant amount.

Therefore, if the breakeven point of four outlets requires

61

aisales volume equal to 25% of the total, the addition of one

more store will put all stores in a rather precarious financial

position. Four points should be remembered when reviewing a

trading area:

1.

sites,

Determine the total dollar convenience store potential
a. Calculate the average dollar expenditures made
in the particular socio-economic trading area
being studied.
b. Multiply the average expenditure by the number of
families in the trading area affected.
This figure will not be entirely accurate because a
well located convenience store will draw many
customers who do not live within the trading area
but pass the store regularly. The figure will be a
reasonable approximation, however. A much more
accurate means of calculation is the traffic count
method using a destination analysis.
Count number of competitive outlets.
Determine land costs.

Estimate an approximate breakeven point.

The Customer

Before proceeding to an evaluation of Specific store

we should once again establish just who the convenience

62

store customer is. We must remember that very few people
patronizing a particular outlet to do the weekly shopping.
Three people in the family actually use this type of outlet
regularly.

Mother, will shop regularly for items she has for—
mfl:ten.on her regular trip to the supermarket, plus replenish—
ing lier supply of bread and milk. She is not interested in
figTrting the large supermarket parking lot, and taking a lot
0f tLime in a 20,000 square foot store.

When mother does not feel like going to the store

herEself, she sends one of the children to pick up an item or

 

tWC>- “men Junior is there, incidentally, he usually picks
up something for himself. Women and Children will be
Pridmarily daytime customers.

Father usually gets the assignment of picking up
Inilik and other assorted items on his way home from work.
Merchandising principals must also cater to men. In a
cu"-Eitomer survey of the dairy store which ultimately became
true model this paper is based upon, it was found that out of
alJL adult shoppers 50% were male, 50% female.

All three family members shop at this type of retail
CNJtlet for two basic reasons:

1. It is quick and easy.

2. It satisfied their merchandise needs.

63

Now that we have determined who shops in our store,
ami why they shop there, we can do a better job of evaluating

specific store Sites.

Evaluating Store Sites

Major considerations in this evaluation are:
1. Accessibility
2. Population
3. Competition
Although we have talked about accessibility earlier
undefir General Considerations we will now study the
SPeCzifiC effects. It is very difficult to establish accurate

qUEJItitative measurements of accessibility. "A site that

 

has good accessibility is one that can be easily reached by

cuStomers and employees."10 Of course, to get the most out

of iaccessibility you must be more accessible than competition.
One of the elements of accessibility is road surface

c0I'lditions. Roads pitted with pot holes, or continuously

ice: covered in winter are examples of unfavorable conditions.
One element that can be measured quantitatively is
9Many of the recommendations in these areas are based

("1 analysis of Saul B. Cohen and William Applebaum, "Evaluating

Store Sites and Determining Store Rents," Store Location and

Development Studies, Clark University, Worcester, Mass.,
USA, Jan., 1961, p. 61.

lerid.

time—<3istance. An unfavorable ratio between time—distance
to the ultimate destination route usually means disaster
for the convenience store.

Traffic flow is a measurement that must be made before

 

a particular site is Chosen. Traffic should be measured in
teITnss of numbers, velocity, peak periods, and destination.
TraiEEiC flow must fit the following specifications if it is
to Ive advantageous to a convenience store site.
1. Traffic must be equivalent to a main artery.
2. Traffic must be traveling at a rate of speed that
would allow pulling from the highway on impulse.
3. Traffic cannot be so heavy as to hinder pulling
from the street or highway.
4. The majority of vehicles should have an ultimate
destination point of not more than 30 minutes.
(Distance for the potential automobile customer is
irrelevant if the other positive factors are present.)
Convenience stores can do much to maximize their
effectiveness if traffic flow is carefully analyzed. Father
on his way home from work, for instance, will stop if it is
easy for him to do so. If it is not, he will stop at some
other outlet or not stop at all. For this reason it is most

advantageous to locate on the ”going home side of the street.

Another source of traffic other than work traffic

65

is scflnool traffic, particularly that from grade Schools.
Mbthears frequently pick up their Children when school is out.
This, is also only a few hours before dinner time so if she
needs something, she will not hesitate to stop if it is

6383? for her. Many other advantages come from locating near
schu3c>ls, not the least of which is that families are usually
y0uruger, larger, and more conducive to buying convenience
and. snack items. The dairy processor will be the first to
realize that these families also consume high amounts of
Ini13< and are looking for a low price.

Pilferage is always a problem, however, where there
iJB heavy Child traffic. This problem can easily be solved
With properly trained employees, and proper merchandising
Etna layout techniques.(:?Pe present model store, for
1Instance, has a high ratéfiofgtraffic from Children, and the
‘Pilferage rate is near zero.)

The obvious advantage of Choosing a site that is
Visible from all directions is of distinct importance.

Corner locations tend to maximize store visibility. The
longer the store is viewable to the potential customer, the
greater the Chance of his stopping.

Pppulation of the trading area around the proposed

Site is of vital significance to the store's success. Con-

venience stores should usually be directly accessible to

66

from 400 to 500 families. Market potential can be measured
with a great deal of accuracy if population number, composition,
density, growth, income, expenditures and buying habits

are taken into consideration. Such information can usually

be obtained from the Chamber of Commerce or City Planning
Agencies. One of the most important criteria here is

whether or not the proposed location is in the path of
projected growth movements.

"Competition is the aggregate of all retailing
facilities which together share the total market potential.
Thus, the competition of a retail enterprise comprises all
retail facilities which sell the same type of products."11
The puoduct of convenience store is not milk, bread or
Canned vegetables, but the store itself. And this is the
Preduct we are trying to sell to the public. With this as
a Criteria, it is evident that convenience stores are not
in Competition with supermarkets in that they offer two
COHEXLetely different types of services. In evaluating the
nunfixar and quality of competition that would affect a specific
locirtion, it should be done on the basis of those stores
Sellding the same goods and services as the new store would

havfi. An overlay map of competitive outlets and their

drawing areas can be of great value in evaluating a site.
.iyg‘__

1
1Ibid., p. 71.

67

The number of sites that might be used by competition in the

future should also be noted.

should

site.

of aid

1.

Sources of Information

We have now outlined the various considerations that

be made when considering a trading area and a specific
There are numerous sources of information that can be

to the location analysis.

I
I

Retail Sales figures published by the U.S. Department
of Commerce.

"Survey of Buying Power,’ Sales Management, Published
yearly by Sales Management Magazine in May or June.
U.S. Department of Labor-Bureau of Labor Statistics.
City Planning Guides - usually run on twenty year
forecasts by City, State and Regional Planning
Commissions.

Bureau of Census.

State and City Police Departments — for traffic

information and aerial photographs.

Operating Considerations

Operating considerations must also be analyzed in

slte’ evaluation simply because they are directly related to

\

"Ne“, Fro

Feb

‘0

12A more complete list of sources can be found in
ntiers in Store Location," Supermarket Merchandiser,

 

1963, p. 110.

68

profit potential. Some of the most important considerations

are as follows: (1) Labor, (2) Distance from plant,

(3) Taxation, (4) Regulations affecting Store hours. Factors
which determine real estate costs whether or not it is owned

or rented are as follows: "(1) Land and building costs;

(2) debt service Charges: (3) operating costs such as real

estate taxes, insurance repairs and maintenance; (4) and

. . 13
last but not least negotiation."
Eur) The Model Location
Q 1 *e‘
s/

The location of the model store is not ideal, but
itcioes meet many of the location requirements. For the
sake: of expediency and financial restrictions, we accepted
the location of an already established "Michigan Dairy
Company" store instead of Choosing the site on which a new
Store would be built.

The positive location factors of the model store are:

1. It is easily accessible to approximately 2,500
families.

2. It is located on a corner.

3. It is located near complementary retail facilities.

4. There is very little competition (convenience store).

13Ibid., p. 91.

69

The trading area is economically stable, and contains
many young families.

The time distance ratio to primary arteries is
excellent.

The location disadvantages are as follows:

It is not on the "going home side of the street."
The secondary street crossing the main artery

dead—ends.

Visibility is below average.

Summary

Choosing a proper location for a convenience store

iS‘without a doubt the most important step in building a

Pr0fitable operation. Management cannot afford to treat the

mflqject of location lightly. Thorough quantitative as well

as qualitative measuring techniques should be used. Whether

ornot a particular organization has the personnel qualified

tomake such a thorough location analysis must be the honest

decision of management. Management should be familiar with

the (organizations and people in its area who are trained in

lociition analysis, and be willing to invest in their services.

Cohen and Applebaum supply the author's conclusions.

The profit potential of a store site must be

related to return on capital investment. This in-
‘vestment comprises equity in land and building, if

70

any, in store equipment and merchandise, plus any
back-up merchandise and facilities that may be needed
to service the store.

Return on investment involves short— and long-range
considerations, and a Choice of methods for calcu-
lating return usually figured on a pretax basis.

To pioneer too soon or too large in a newly develop—
ing area may not be a wise investment. If a store

at a given site is not likely to achieve its full
sales and profit potentials until several years after
opening, perhaps another location should be found
where a satisfactory return on investment can be
achieved sooner. In the latter case the earnings,

as they become available, can be promptly reinvested.

From the presentation which has just been made,
it follows that a store site evaluation is really
not complete without a detailed analysis covering
estimated sales, operating expenses, profits from
sales, capital investment requirements, and return
oninvestment.l4

. 4Saul B. Cohen and William Applebaum, “Evaluating Store
Sites and Determining Store Rents," figrgpLgcit‘ipm
~2¥SéLppment Studies, Clark University, Worcester, Mass.,

USA" Jan., 1961, p. 91.

CHAPTER IV

DEVELOPING A CONSUMER IMAGE

Philosophy of Consumer Image Development

 

[_A corporate image is the spontaneous image that your
store invokes in the minds of its various publics. This
image is present whether or not you desire it to be, or
build it. It is a stereotyped oversimplification of your
total company policies and actions as they appear to be to
all the various people exposed to all your different messages.
Because it is an emotional feeling rather than a logical
fact, it is very hard to Change once it is established.1
Therefore, it is very much to your benefit to promote the
image you would like to have, rather than Change an
unfavorable image. Since the building of a corporate
image is so very important, it would be advisable to use
the services of professionals, if at all possible;ij In

our case, however, the severe limitations that had to be

‘l

l . . .
L. H. Briston, Jr., peyelppgng the Corporate

Image (New Yerk: C. Scribner and Sons, 1960).
2"Art of Building A Corporate Identity," Publig
Relations Journal, 19:16-20, January, 1962.

 

7l

[iii

 

[Ht .,....lrfl-

72

:flaced on expenditures eliminated this possibility. Since
the small dairy industry will prObably have the same monetary
limitations, we will now elaborate just what we did and why.
Mfizso that the industry can copy our approach directly, but
so that the basic principles can be established that will
gnovide a do—it-yourself image kit.

[VA corporate image is made up of many parts that appeal
to the various publics that affect the operation of the

business. In this study we will try to describe a model

 

that can be used to develop a strong consumer image, since
this is more consistent with the retail side of the business.
Developing a complete corporate philosophy to influence all
of our publics (i.e., stockholders and the financial
community, employees, distributors, suppliers, the com—
nmnity in general and government in particular) will be left
to the corporation.3 This does not mean that it is not
important for our future growth; only that it will not be
covered in this report.

Why do we need this strong, co-ordinated consumer
image? Because your customers g9 judge a book by its cover.
The symbols your store uses to describe itself are as

important as the actual facts concerning your operation.

\—

3Bristol, op. cit.

“Art of Building, . . ." op. Cit.

73

It is.a proven fact that the more you know about a company,
the more you like that company. Having good policies is not
enough. In a survey of 48 Cities in the U.S.A., it was
determined that the companies who actively worked on building
their image in the community were far better than those who
did little or nothing to build their image.5 The easiest
way to build this strong, co-ordinated image is to make

your store unique. You simply cannot be all things to all
people. You mggp segment your market and decide who you

want to sell, and then build a program that will make your
store unique in their eyes. Being unique is almost as
important as picking the "right" image for your stores. For
if you develop an undifferentiated image you will not inspire
much loyalty among your customers. The greater the similarity
that:exists between your stores and your competition, the
Less loyalty you will be able to develop among your
cuStomers. Loyalty is paramount in generating profits, be-
cause the expense of getting new customers must be spread
Over'nmny repurchase trips, or the costs will outrun the
revemue received. Thus you must develop a Clear, distinct
image in the consumer's mind so that she thinks of your store

\

When she is thinking of the services you offer.)

I
/

x 5 F7

Bristol, op. Cit.

 

74

As a small retail operator, how can we best deter—
nune who we want to sell? We must first examine what business
Mm are in and who uses the majority of our services. As
previously described, we have Chosen to put Michigan Dairy
Company in the drive—in convenience food store business.

Since our model store in East Lansing already has a well
developed milk and dairy foods image, this will change our
typical customer slightly. We will have, therefore, two
basic customers shopping our store: (1) customers who
regularly shop (three times a week) for milk and dairy

foods; and (2) customers who infrequently shop (once a week
or less) for convenience goods and fill—in orders. In

this respect we are fortunate, because our steady milk
(Histomers give us a strong base upon which to add the new
corwenience customers. The degree to which we can drastically
cfliange the store and still hold their business will determine
to a large extent the success of our model. Now that we
know £119. we must Sell, let us examine Iggy we should best
approach these two groups.

Since the milk customers are already going out of
their way to buy milk in relatively heavy, hard-to—manage
bottles that demand a deposit and must be returned, we have
to deduce that they are being drawn to the store almost

exClusively by price. This fact was demonstrably shown when

75

the supermarkets dropped their milk prices to $.37, our
normal price, and we lost half of our milk business in one
week. As soon as we reduced our price to $.35, and re—
established our two cent differential, the business
immediately returned. Therefore, we can generalize that our
ndlk price is critical in holding our milk customers and
almost nothing else is of any great importance.

The approach that we must take to bring in the
convenience store buyer is diametrically opposite of the
Hulk buyer. The convenience customer is concerned with
twing able to quickly pick up a wide variety of grocery
Products anmj particularly impulse purchases and party snacks.
This customer demands that you be open every day late into
the eveniqmg and have a wide selection of well-known brands
in the most popular sizes with which she can supplement her
reqular gfirocery purchases. It is this customer who is the
most demanding, and to whom our image development is most
difficult. 1Now that we know who we must sell, and what she
is looking; for, let us specifically describe the methods we
have used .in developing our consumer image in the model
Store. ESince a consumer image is made up of the aggregate
of many<flifferent parts that bear on the determination of
that image, we must examine each part in order that none

are overlooked. Since store location is one of the initial

76

determinants of your image, it will be covered first.
Specifics of Consumer Image Development

Store Location

To appeal to both types of customers that we have
previously defined, the stores must be located on, or just
off of, major "going-home" routes. They must be near large
concentrations of household residences and provide parti—
cularly easy entrance and exit. They should be located on
the "going-home" side of the street, and probably on the
cmrner.for easy entry, exit and recognition. The location
Should immediately say to the customer, "This is a very easy
and convenient place for me to shop. I wonder what kind of
Products it sells?" Location can work to create a favorable
store image whether there is one store or several, but the
nmltipliexr:fiactor that sets in when several stores are well
placed in an area, greatly aids your consumer image. Since
we are dealing with an individual store as our model, we
Cannotzhmnediately take advantage of this multiplier effect,
b“ Perhaps this will work for us in the future. We were
fortunate in that our model was located on a good going home
Street, bUt it was not on the going home side of the street.

This disadvantage is more than made up for by its excellent

77

location on a corner with over 2,500 homes located within
five minutes driving time, and only one major supermarket
and no convenience stores within a mile. Since almost all
of these residences are located on the same side of the
street as our store, the availability of walk—in trade is of
greater importance than the "going—home" side of the street,
and so our location must be considered to be a very good one——
one that certainly aids our consumer image of convenience.
The store is set back along the side of the corner
lot that maximizes its impact on the shopper as she heads
lmmw, and the parking is well paved and ample. Approximately
ten cars can easily park in the lot, and three different
entrances aid traffic flow.
Ema additional benefit to us is a laundry located next
t0<mnrlxat at the rear, which provided an added reason for
the customer to shop our store. Laundries and convenience

driveflhi food stores make a very fine combination.

Store Sign

5km” that the customer sees our store, the next thing
that comes to mind is ,"What is being sold in the store?"
To learn this she turns to the store sign. Here is the first
chance you have to visually interpret your image to your

c 0 ' ' .
uStomer_ Since first impreSSions are often as far as some

fi.ll§i%“‘l’fl
4.

IA

78

people will ever get, you must begin to make your store

unique through the sign you develop. Most cities today have
Some sort of convenience outlets in them, and you must make
your store appear different from the normal and, therefore,
more memorable. If, when a customer needs to purchase a

few items, your store is the one that first comes to mind,

you will get her business. It has been proven that people
tend to *humanize" companies.6 Therefore, if your sign allows
them to draw easily associated descriptions about your company
you will be off to a good start. Since we are already talking
about graphics, it might be well to mention that of prime
imP’Ortance is that you portray the same image everywhere.

In owrlnodel we chose an Early American theme because all

of our convenience and dairy store competition, and all of

the Supermarkets, had chosen a modern decor. We simply
couhjrugt have been unique had we also gone the same route,
and so MK? chose the exact opposite. In Exhibit 5, you can

see how vne interpreted an Early American feeling into the
dGSign of? the entire sign. An old—fashioned lantern was
built1x> rotate so that we could create interest and also
remind the customer of our most prominent feature, milk.

The lantern is internally lit at night and visually shows the

‘

 

6"Basic Dimensions of the Corporate Image," Journal
W, 25:47-51, October, 1961. —'—‘—

Exhibit # 4. Exterior View before change.

 

 

 

 

 

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80

customer that the store is open for business. We felt that
this design was so striking that we have picked up the lantern

symbol as our trade—mark and have even incorporated it in

our selling slogan, "Look for the lantern -- save time and
moneya" The next impression you will make will be with your
name.

Store Name

Names can be of four basic types.
1. Descriptive.
2. Personal or Corporate.
3. Initials.
4. Fabricated or coined.

To give quick identification and strong recall,
deScriptive names have proven to be the most successful for
the drive-in convenience food store. Such names as 7—11,
QUick-Check, Speedy Mart and Minit Markets have been used
in every area of the country. In Lansing, Michigan, there
are two convenience store operators, Min-a-Mart and
Quality Dairy. To differentiate our store from our
competition, we felt that we wanted a descriptive name that

waswell adapted to use with the Early American decor. This

 

 

7 .
W. P. Marguiles, "How to Select a New Corporate Name,"

Public Relations Journal, 19:12, Feb., 1962.

 

8l

meant that the name had to be warm and rustic but still tell
our convenience story. Since we had decided to use the sign
as our trademark, the name also had to have the following
characteristics:

1. Memorability.

2. Recognition.

3. Appropriateness.

4. Uniqueness.

To achieve these ends we chose the name "Pick -

Quick PANTRY.” As you can see from Exhibit 6, the word
Pantry was played up on our sign to increase the recognition
and memorability. We felt that "pantry" fit well into our
Early American motif and emphasized the grocery additions
that had been made within the store. The "Pick — Quick"
was believed to be well suited since "Pickwick Papers" by
Dickens carries much of the same flavor as Early Americana.
It was also felt the Pick—Quick implied convenience shopping
while not becoming too closely assoCiated with the name our
competition had established, Min-a-Mart. To give a balance
between hig quality and low price, the name was rendered in
modified Old English type on two of the four panels, and the

current half gallon milk price was placed on the opposite

 

8 . . . . . .
Lippincott and Marguiles, "Visual Schitzophrenia,"
Management Methods, 18:49-51, Aug., 1960.

82

two faces. With the sign rotating, the customer would be
shown a simple, attractively rendered sign, with the

name and decor implying quality, and the price of milk
establishing that this quality is available at a low price.
We felt that our customers had to be convinced that our

milk and dairy foods were the highest quality possible, be-
cause our price, and the former store appearance, worked
against this quality image. we were fully aware that a

high quality image builds a high price image in the consumer's
mind, and we have, therefore, attempted to build a balanced
image.9 Follow-up surveys should be able to ascertain how
successful we have been. We feel that this new name answers
all the requirements for a good trademark; memorability,
recognition, appropriateness, and uniqueness. Many other
names would have been just as satisfactory and could have
been chosen for our model, but this one just worked out well
for us. To be even more sure that the chosen name said

what you desired, at least a small pilot study should

be run. By asking customers what comes to mind when they
read certain names, it is possible to quickly weed out the
undesirable names and arrive at a satisfactory one --

one that tells the story you want told, clearly and memorably.

 

9V‘Latest Fad Among the Brass," Business Week, March
28, 1959, p. 103+.

 

83
Store Hours

To be considered a convenience store, you must be
open hours when the supermarkets are closed. In many areas
this means 7 A.M. to 11 P.M. It was our experience that in
our location, the stores did very little business until mid-
morning and did quite a lot of business at closing. There—
fore, we recommended opening at 8 A.M. as usual but closing
at 11 P.M. Since this added additional costs, we felt that
it should be watched to see if it paid for itself. A cut-
off volume was set at $10.00 between 9 P.M. and 11 P.M.
and the results were checked for the first several weeks.
Only on the first night was the volume even close to our
breakeven point, and it climbed steadily as the test
continued. (The reader is referred to the financial section
for the detailed figures.) The store hours were prominently
displayed on lighted strip signs running the full length
and across the front of the building. There seems to be no
question that store hours are a very important contributor

to our model's Fconvenience? image.

Store Layout

While the specifics of the store layout will be
described in detail in the next chapter, it must be briefly

discussed because of the effect it has on the image

84

determination. Since we are dealing with a dairy store
converted to a convenience food store, we have two major
store layout problems; (1) we must facilitate quick and

easy milk purchases for our old customers who are accustomed
to being waited on by a clerk who would get their milk order
for them; and (2) we must provide full store shopping for
all customers to allow for impulse purchases and ease of
shopping for pick-up purchases. If we accomplish these
ends, we greatly increase our image of convenience in our
customers' minds, and we will keep our present customers
happy with the new store.

To accomplish this, we installed an honor system
bottle return at the entrance door, forced the customer
through the entire store to the self-service milk cooler in
the rear, and then brought her to a new checkout counter at
the exit door. By placing our ice cream and frozen food
freezers in the center of the store, the entering customer
can see the entire store at one glance and quickly and
easily pick out the products she needs. Since she sees the
whole product mix and physically walks within two feet of
every product, her opportunity for impulse purchasing is
greatly improved. By leaving her empty milk and soft drink
bottles at the entrance and giving her small new carts to

carry her purchases, we have made it much easier for her to

85

shop, and in this way increase our image of convenience in her
eyes.

The new store layout has another benefit.
Convenience store customers, as well as our present milk

customers, are now visually showed that we sell a complete

 

line of grocery products. A customer does not want to waste
her time going into a store to pick up a few items only to
find that the store does not sell even the most common item.
If this happens once, you will have lost a customer forever.
After only one trip through the model store, the customer
will know that she can be assured of finding all the items
she might need to pick up at the “Pick-Quick PANTRY."

The question of whether or not the present customers
would dislike self-service milk came up for great discussion.
It was our position that the increased speed of purchase
would more than make up for the added effort on the customer's
part. We have been proven completely justified in this
belief, as customer after customer comments on how much
easier and quicker the store is to shop. This is parti—
CUlarly true around the lunch and dinner rush periods, when
the customers used to be lined up five and six deep waiting
for the service milk, and now they can serve themselves
through three self-service doors and only have to wait for

Checekout. Every moment we can save of our customer‘s time

86

increases her opinion of the convenience of our model stores

and increases her willingness to shop there often.

Product-Pricing Mix

Although it is true that the convenience store shopper
represents the "buying" dollar, not the "shopping" dollar,
there are certain products that she expects you to be com-
petitive on. These demand items we have defined as being
milk, regular white bread, coffee, sugar, cigarettes,
candy and magazines. On these items we believe that we
should be in line with the prevailing chain prices in our
local area. Since milk is our featured product, we will
attempt to remain $.02 under chain prices at all times.
Barring a price war, this is not much of a problem, due to
the supermarketis heavy reliance on the expensive—to-
produce paper carton instead of glass bottles for the milk
packaging. We have found that we are able to average approxi-
mately 25% mark—up on the rest of our grocery line and not
be too far out of line with the prevailing supermarket
prices. These prices, along with ten specials that we run
every two weeks, provide us with a favorable product-price
mix that satisfies our regular milk customers as well as
our new convenience store shoppers. Several customers

mentioned that with all of the changes and improvements,

87

they expected our prices to go up, but that actually our
prices have come down.
With this kind of acceptance we felt that a proper

product-price mix had been achieved that would help to build

a favorable consumer image.

Store Decor

As is apparent from Exhibits #4, #7, #9, #11 and #13
the original store boasted of no distinctive decor whatso—
everx It was simply an old-fashioned service milk store
that had been dragged, kicking and screaming, into some
semblance of modernity through the addition of new grocery
Slmalving down the center of the store. This shelving effective-
J-Y'.blocked off 70% of the store from easy customer purchasing
and! forced the customer immediately to the milk counter
to IJnload her bottles. The excessive use of hand—made
Signns, inside and outside the store, was the only visual tool
enmiloyed to provide memorability and distinctiveness to the
StCfire. To overcome these problems, we transformed the
in$ide of the store into a small Early American Shop,
Complete with barrels for display and our own indoor creamery
builfit into the rear wall. As you can see, in Exhibits
#5' ‘#8, #10, #12, and #14 the effect was striking. Tied into the

outstide sign and strip lettering, the interior wrought-iron

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92

railing and light, display barrels, product identifying

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signs, and "The Creamery, provide a coordinated, memorable
image to the consumer. As we mentioned before, what decor

you choose is not as important as being consistent in

 

the use of that decor in everything you do. The results

speak for themselves.

Personnel Attitudes and Appearance

Small stores traditionally have depended upon the
friendliness of their clerks to give their stores a warm,
friendly image. The modern convenience store is no exception.
With only two clerks regularly working the store, they can
build up valuable relations with the customers who shop
the store. This relationship guides the customer to the
belief that the store is h§£_store, and that she has confi—
dence in the products that are sold there because of the
confidence she has in the clerks that serve her. This
personal relationship is so important that it should not
be left to chance, but should be explained to all of the
employees. If they are correctly taught, they will be much
better able to answer customer questions concerning the
inability of the store to stock every item a supermarket
stocks, and they will be able to increase impulse and tie-

in purchases by product suggestions. If the employees

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93

complain about management's policies to the customers, the
customers will begin to lose faith in the store and her busi—
ness will soon be lost. Therefore, the building of good
employee morale and attitudes is vital to a good store image.

With a large proportion of our model store's volume
in dairy foods, the employee's appearance is vitally important.
The customer must believe that the dairy foods she is
purchasing are equal in quality to any others, or else a
monetary savings, no matter how great, will not induce her
to buy our products. The personification of your attitude
on cleanliness is visually demonstrated to your customers
every time the clerk checks her out. Therefore, the clerk's
personal cleanliness becomes your plant's cleanliness and
if it is not satisfactory, will work against you in building
a favorable consumer image.

To help build a favorable image, our clerks are
required to wash their hands thoroughly, with special
emphasis on their nails, before starting work. We have
also rented attractive smocks that present a neat and tidy
appearance. The smocks are also valuable for improved recall
when more than one store is building the same image. It is
imperative that the smocks be regularly laundered, and so we
have hired a local laundry to handle them. The smocks have

been met with great enthusiasm by the clerks, since they

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94

reduce wear and tear on their personal clothing. Many other
areas of the store also help build this image of cleanliness,

and are taken up next.

Cleanliness and Orderliness

Equally as important as having your store employees
be neat and clean, is having a store that appears to be
spotless. In this regard, the words “appears to be" are
very significant. Our senses often fool us. A store that

is actually not as clean as another can appear to be even

 

more clean. This is true because cleanliness is made up

of other factors such as orderliness, an uncluttered look,
simple lines and good lighting. The Early American decor
we have chosen works against us in this regard. It can be

a "fussy" decor, that is not simple and uncluttered looking,
and which could tend to make the store look disheveled.
Because of this, we took great pains to assure that the
Early American decor be interpreted as simply as possible,
and we modified the type faces on all of our signs to be
clear and clean looking. We then eliminated all in—store
Promotional material, except on our small “special" signs,
and through the use of long stretches of shelving, wide
aisles and a feeling of spaciousness achieved by putting the

frOZen food box in the center of the store, attempted to

95

build into our model a simple, uncluttered, Early American
appearance. The results are shown in Exhibit #15.

After the store has been built to be clean and
simple in appearance, the job is only partially done. The
employees must keep the shelves neat and dusted. The
products must be faced front, right on the front edge of
the shelf but not over it, or back a half an inch, and be
constantly dusted to remain clean. Management must not
assume that the clerks know how to do this job, but must
spend time and effort training them to do the job correctly,
and then follow up and check to see if it is being done
'regularly. Only in this way can the precious image of
cleanliness attach itself to your store.

Next, management must arrange to have a competent
floor maintenance service come in weekly to wax and buff the
floors. The money spent on floor care is some of the best
sPent money in the store, and can be thought of as an insurance
Policy——insurance against losing customers who think your
StOre is not clean. Regular dry mopping by the help will
then keep your floors looking attractive all of the time.

Finally, lighting must be the right color, intensity,
and location to best show off your clean, neat store. While
it is possible to overlight a store, it is not generally the

maj<1r problem. Since lighting equipment is expensive to buy

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97

and operate, many operators tend to skimp in this important
area. Since faulty lighting can undo all of your hard work
and planning, it is paramount that it be located by a
professional who knows how to give you the most light for
your money.

Today, it is not as important to mention the color
temperature of your lights since almost all retail establish-
ments use daylight cool fluorescents, but it is an important
detail. Incandescent lights, and some fluorescent tubes,
provide a warm colored light that turns clean white into
dirty white. This does not help your image at all. How-
ever, there are times when you must use incandescent lights.
Spotlights come only in incandescent, and if they are needed,
theyrnmst be used with a warmer colored bulb than your
flusuescents. In our model this provided little problem,
fcu: we wanted little touches of warmth around the store,

EHKS so we spotted lanterns with incandescent bulbs on

"Tflie Creamery" and also at the entrance. The warm pools
of'light that the new spotlights threw on our display barrels
Served to highlight them from the rest of the store. For
this reason, the two types of lights worked better for our
modelthan they would in a store that was entirely modern

in decor.

As a final touch, we placed fluorescent tubes on the

98

two posts that ran up the long side wall, built wooden shelves

around them connecting the grocery shelving running along
the wall, and bent opaque white plastic around the backs

of the shelves to provide back lighting for our glassed
jellies, jams, pickles, syrup, etc. The highlights

thus added a spark to the whole grocery department and have
caused much favorable comment. Yes, lighting is important
to help build your image of cleanliness, and this image
will reward you for your care and attention many times

over.

Advertising

To make a success of advertising, one must be
prepared to stick like a barnacle on a boat's
bottom. He should know before he begins it

that he must spend money—-lots of it. Somebody
must tell him that he cannot hope to reap results
commensurate with his expenditure early in the
game.10

John Wanamaker

Now that the store personality has been shaped, you
must tell your customers about it in the most consistently
Clear and efficient way possible. The image shown in your
store must be interpreted visually into your advertising so

that when a customer sees your advertisement she immediately

khows whose advertisement it is. By using consistent visual

\

loBristol, op. cit.

99

reminders, you multiply the effect of your advertising messages
no matter where they appear. Since our image is primarily
built by visual techniques, media that allow us to use sight
will be of prime importance to us. With only one store, we

are limited in what media we can profitably afford to use.
Television, radio and outdoor are eliminated immediately be—
cause of cost (see financial section on budget allocation for
advertisement). In East Lansing, there are three local

newspapers who serve our marketing area: the State Journal,

 

a daily paper distributed throughout the entire Lansing
metropolitan area; The State News, a paper printed five days
a week by Michigan State University students and reaching

25,000 students and several thousand more faculty; The Towne

 

Courier, a new weekly paper reaching every East Lansing home
through regular subscription or free "East Lansing Shopper."
It is also possible to circularize the local homes through
either a hand delivered or mailed circular. For our model
We chose the following media mix.

For the store's grand opening:

1. 3,000 home-delivered four-page pamphlet intro-
ducing the store.

2. A full—page ad in the Towne Courier and East Lansing
Shopper.

Followed by weekly ads of 30 column inches in the
Towne Courier for four straight weeks.

 

100

For the regular schedule:
1. 2,500 monthly home-delivered circulars.

2. Bi-weekly insertions of 30 column inches in
the Towne Courier and East Lansing Shopper.

This schedule allowed us a continuing advertising
program of sufficient strength that we could be fairly well
.assured of good advertising impact without being over-
shadowed by our competition. As of the present, we are the

only food advertisers in the Towne Courier and thus can

 

dominate this media. Our ad is of sufficient size (40% of
a full page) to provide good reader impact and will not be
lost or buried by other larger ads on the page. See
Exhibit #16 for reprints of the actual opening month's
advertisements.

As you can see in the advertisements and also in the
introductory circular, Exhibits #16 and #17, we attempted
to infuse our advertisements with the same Early American
feel that we had in the store. We also wanted to show
Visually that we were more than a dairy store now, that we
were a complete, full-line, convenience store.

Every advertising message must describe to the
cUStomer the Unique Selling Proposition (USP) that your
stOre offers them. Our USP used to be "Buy our low priced

milk." It is now, "Shop completely and conveniently while you

.LU.L

Exhibit #16. Opening month‘s adVertisements.

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save on milk and grocery products." We are stressing full-
line shopping, price, and then convenience in our introductory
advertisements to show the customer how we have changed and

to induce her to shop our store just once. The store will

then have to sell itself to get and keep her regular business.
The monthly circulars and biweekly newspaper ads will only
have to be reminders to her if she was satisfied with the

store when she shopped it.

We stress our other attributes in our advertising;
such things as our hours, store location, name and identify—
ing sign are all played up so that our customer knows where
to go, when and why. To facilitate easy placement of our
newspaper advertisement, we devised a work sheet, shown in
Exhibit #18, that only had to be filled out and mailed to
the newspaper and they would do the rest.

Before we discuss in-store promotion, let us make
tZhis final comment. Advertising is built on getting maximum
iflHPact for your money. Therefore, inasmuch as it is possible,
anYimajor store change should be made and co-ordinated so
thirt your advertising breaks as quickly as possible after
Yorur remodeling is finished so that you can get the maximum
imPaCt among your consumers. If small changes are put in

p1€¥3eneal, your opportunity to attract attention will be

d' - . . .
188:Lpa’ted. As you can see in Exhibit #16, the impact of

105

Exhibit #18. Towne Courier advertising worksheet.

 

From: Pick-Quick PANTRY, 1201 E. Grand River, E. Lansing, Mich.
To: Towne Courier

Due Date:

Friday before Advertisement date.

Ad Appear on: Wednesday .

All Ads 30 column inches.

 

1. Format Desired: (check one)

 

 

 

 

 

 

 

 

 

 

 

u:{m) H

 

 

 

For Format A & B:

10 [5
Fill in Product Name, Size, 9 .I 7

Reg. Price, and Special Price.

 

Type A 9 IE @-
Horizontal, with 10 Product 6" .
Boxes. map & hours.

7 [25.1 @CZ

5 columns wide
Type B I

. 1

Vertical, with 10 Product JC3§I_;H
Boxes, map & hours. 10" 12 ki

 

 

0

 

(5)

 

 

 

3 columns wide

1. 7.
2. Open Every Day 8 A.M. to 11 P.M- 8. Map Insert
3. 9.
4. 10.
5. ll.
___6. 12.

 

TYPe C

 

Horizontal, with Map &

_-‘- __—- ”VJ“

 

 

Hours, but fig product Boxes. -
6" C

O P Y

 

m

5 columns wide

 

 

Type D
Vertical, with Map & Hours
but 52 Product Boxes

10" C

tr

 

 

O P Y

J},

 

 

 

3 columns wide

 

Exhibit #18 (Cont.) Towne Courier advertising worksheet.

For Format C & D:
Fill in Copy for Center of Ad.
To be Set in Caslon Antique Type.

 

 

 

 

Insert in small type at bottom of the Advertisement:

"Prices good until .
Date
Quantity rights reserved.”

 

107

our new store opening even got us free publicity. The write-
up and picture, placed on the Editorial Page of the local
paper, was a big help in getting new customers aware of our
store“ This kind of free advertising was only made avail—
able to us because we made the store remodeling look so much
bigger than it actually was. A major store change affords
you the best chance you will ever get to pull customers

into your store. Use it for all it is worthi

In-store Promotion

To create consumer interest and knowledge about
our expanded product lines, in-store promotional pieces
‘were added to our marketing mix. This took the following
form: (1) three barrels cut in half and put on wrought-
iron legs spotted around the store, (2) new promotional shelf
spotters to point out our "specials" to our customers.
See Exhibits #19 and #20. Through the use of attractive
specials, we hope to constantly remind our shoppers of
something they might have forgotten they need and in this
way increase our sales per customer. We used the same
Early American theme in designing our promotional pieces
and believe them to be rather unique. Not only do they
contribute toward building our price image, they also re-

inforce our store decor. We feel that it is imperative

ExhiLit # 19 Display barrels.

    

Exhibit # 20

Promotional spotter.

 

 

EXhiblt # 21 Honor system bottle return.

109

that some type of in—store promotion be carried out to
increase your chances of selling impulse purchases and to
reinforce a low price image.

Another way that in-store promotion can build your
consumer image is through specially designed packages for
your own brands of merchandise. In Exhibit #22, you see
examples of ice cream cartons, egg cartons, cottage cheese
cartons, milk bottle tops and bread wrappers that were
designed to serve as reminder advertisements on products of
frequent use. Our price image would also be helped, because
the products carrying our name are all at least competitively
Priced with the chain stores. The additional exposure we
gained through the use of this medium greatly multiplies our
adVertising effectiveness and serve as silent salesmen in
our customers' kitchens.

In conclusion, let me say again that you must first
decide who you want to sell, and what it takes to sell them.
Then you must examine all the eleven areas listed previously
t? make sure that you have used every conceivable impression
maker to uniquely portray the same desired image. When you
have done this to the best of your ability, you can be
assl-lred that your consumer image is not suffering from lack

of attention. This is probably more than your competition

can say.

.LJ.U
Exhibit 3;; 22 . Private Lat-e1 Packages
mi:

      

 
 
 

 

a;

I.

1":

 

      
 

 

 

. (ck—- m
‘im’tfzas @‘93/

#4]

  

 

 

 

 

CHAPTER V
MERCHANDI SING METHODOLOGY

Philosophy of Selling

“Sales results," according to Wroe Alderson, "are
the functions of organized marketing effort (supply) applied
to market opportunity (demand)." He further states, "The
functionalist or ecological approach to competition begins
With the assumption that every firm must seek and find a
function in order to maintain itself in the market place.
Each firm competes by making the most of its individuality
and its special character."1 In other words, the firm
ShOuld constantly seek and utilize some competitive advantage
°Ver rival operators.

Basically, the operation of a convenience type food
Store is simple. After the decision of what market to serve
has been made, the next operation involves the assembly of
innumerable varieties of wanted foods and related items from

Wide geographical areas. These products are then offered in
\
1Wroe Alderson, garketinq Behavior and Executive

:ktiog (Homewood, Ill.: Richard D. Irwin, Inc., 1957),
‘ 55.

112

113

the quantities required at the place, time and price desired,
in competition with others.

The success of the convenience store lies in creating
a sufficient gross margin to cover the operating expense
and provide a residual of net profit. More precisely,
success depends upon getting all of the people concerned
with the operation to effectively carry it on with these
goals in mind.

Thus, the key factors of a successful operation are
gross margins and operating expense. Profitable gross
margins depend not only on purchasing goods at the lowest
available price, but also upon providing the proper merchandise
mix and displaying the goods in such a way as to induce
maximum sales. In addition, they depend upon the procure-
ment of merchandise at the time it is required, in the proper
quantities and varieties, on the right terms and then the
selling of these items at attractive prices.

The selling price of all products offered is also
affected by the operating expense burden that each item
should bear. This amount of operating expense depends upon
the efficient use of men and resources in carrying the
marketing burden. In order to allocate these expenses
effectively, the distinction between expenses which are

independent of sales volume, and those which vary with

114

volume is imperative.

The selling philosophy of the convenience store
operation should be the result of integration of all of the
aforementioned factors. Of course, the degree of importance
of each factor will vary from location to location. How—
ever, the mixing of these factors should be made with the
company's profit goals in mind. In most cases, the selling
strategy of this type firm should not be to maximize margins
on individual items or even to make a profit on each item
sold: Nor should the strategy be simply to maximize dollar
gross margins on all sales transactions. Instead, the over-
all strategy of a convenience store should be to maximize

net return on the total operation over a period of years.

Application to the Dairy Stores

No doubt one of the largest competitive advantages
of the drive-in convenience store operation is what the
name suggests-—convenience. One of the most important
factors which contributes to this convenience is location.
Inasmuch as the store chosen for our model was already
operating as a dairy store offering dairy products as well
as a limited line of dry groceries for sale, our study did
not permit the important function of store site location.

However, this did not present a problem since the test model

115

store is conveniently located in accordance with many of the
criteria presented in this study.

Our study did allow us the opportunity of dealing with
other important factors which play such a vital role in the
philosophy of selling of today's convenience stores. Our

findings and recommendations are as follows.

Brand Selection and Limitations

A balanced selection of items that fills the needs
and wishes of the consumers is a must for a successful
operation. Due to the limited amount of selling area in our
test store, we were faced with the problem of limiting the
products offered. We would be among the first to admit
that this is a very difficult task which cannot be solved
on a permanent basis. Instead, the solution is a constant
evaluation of customers' needs and wants and the never-
ending readjustment of the product mix offered for sale.

Our approach to this problem started with the evaluation of
sales of the different product groups carried in most super—
markets today. Using some of the published reports, plus
our knowledge of the local supermarkets as guides, we
determined what product groups would most effectively ful-

fill the needs of the majority of the convenience

116

shoppers.2 After this decision, we then analyzed the move-
ment of items within the product groups selected.

Our analysis of these product groups showed that a
small percentage of the items in each product category
accounted for the majority of sales.

For example, upon analyzing the movement of canned
and dried soups in the Middle West, we found that canned
soups accounted for 90.8 per cent of the total soup sales.
Sixty-two per cent of the canned soup sales were contributed
by 32 per cent of the canned soups offered for sale. Dried
soups accounted for 9.2 per cent of the total sales and 85
per cent of these sales were made by 43 per cent of the total
dried soups offered for sale.3

After analyzing the movement and determining the
items in each product group that we should stock, we focused
our attention on brand selection. The fact that the test

store is located in a trading area where the population is

 

As a guide for determining which product groups to
handle, we referred to the following sources: The Super
Ealue Study, Sales and Margins By Product Groups, pp. 1-16,
_£rogressive Grocer, New York, 1957; The Dillon Study - Sales
and Margins in Each of 530 Product Groups, Progressive Grocer,
New YOrk, May, 1960; Sales and Gross Margin Productivity
Report, Chain Store Age, New York, July, 1962.

 

 

 

 

The Detroit Free Press, ”Consumer Analysis Survey
of Buying Habits,“ Detroit, Michigan, 1962.

117

highly transient is a limiting factor. This limitation made
it necessary to restrict our brand selection to those brands
which are nationally advertised and have consumer acceptance.
In order to determine which national brands to carry,
we visited many of the supermarkets located in the same
area. We were able to determine which items were most
accepted by visiting these stores and asking the person
responsible for the store ordering or the stock clerk
responsible for the stocking of the products in question.
We were also able to gain valuable information from a
consumer analysis survey of buying habits. This report was
made available by one of the larger metropolitan newspapers
in the area.4 Other valuable information was gained from
wholesale grocers in Lansing and Detroit, Michigan.
No matter how many sources of information we had
and used in making these decisions, we were unable to fix
a difinite number of items or brands to handle. However,
the fact that a constant and vigilant eye is being kept on
the product mix in the operational store should tend to
alleviate many of the mistakes made in the original
PrOduct mix decision. (For itemized listing of original
PrOduct mix, see Appendix.) Indeed, the products must

Prove themselves worthy of the valuable Space allocated to

\

4"Canned, Dry Soups: Sales Performance in the Midwest,"
98239 Store Age, New York, 1962, p. 292.

118

them or be replaced. This process is a continuous one, and
sales as well as customer requests are being recorded and
used as guides for decision making.

Purchasing and Distribution
Rack Jobbers and Vendors

In order to insure completeness of line, it was
necessary to utilize many vendors and rack jobbers. How-
ever, in all cases, each vendor salesman was informed of
his specific space allocations and, in most cases, the
items which we would purchase from his firm.

Due to the nature of business of the health and
beauty aids, magazines, potato chip vendors, and the house-
ware and hardware rack jobbers, we limited their operations
to space allocations and inventory levels only (refer to
Appendix). Inasmuch as the items they service are guarantee
sale items, this should force maximum utilization of space
allocated.

The policy of payment by the company for all goods
and services provided was also discussed with a responsible
representative of each vendor firm. The understanding of
this function was necessary before the first purchase was
made, In most cases, we were able to shift from the cash
PaYment for goods by the store upon receipt to a thirty

(30) day billing. This allowed payment to be made by the

119
main office and also allowed the store clerks to utilize
valuable time gained in this shift.

The Advantages of Using Rack
Jobbers and Vendors

Items such as bread, soft drinks, cookies, potato
chips, magazines, pet food, and so forth, require specialized
knowledge for buying and servicing. Availability, delivery
time, sources of supply, terms, quantity units, and so forth,
are different from the grocery trade. The buying pattern
is also different. Therefore, the utilization of this
personnel is a must in the test model. The advantages
that come from using rack jobbers and vendors are many.

The following are some of the most outstanding advantages:

1. Specialists do the buying and selecting of
assortments.

2. Merchandising knowledge and experience are available,
and the rack jobber and vendors understand the
buying patterns, seasonal factors, and obsolescence.

3. Inventory control is the responsibility of the rack
jobbers, so no investment in warehouse inventory is
required.

4. Stocking is the responsibility of the rack jobber,

and very little store labor is required.

120

5. Quality control is handled by specialists.
All of the above-mentioned services are utilized by

the test model. However, since the rack jobbers and vendors
operate through driver-salesmen, the operation is only as
good as the supervision and control exercised by the store
management. Therefore, it is imperative that good super—
vision exist in this area at all times. In the case of our
model, we have carried out the supervision, but future plans
call for this function to be performed by the Retail Operations

Manager.

Other Sources

One of the paramount problems faced by a convenience
store operator is that of being able to obtain the goods he
offers for sale at a price that will allow him to make a
profit and still be competitive. The reason for this problem
is found in the small volume of business that the convenience
Store does in comparison with that of the larger supermarkets.
The large volume of business done by the supermarkets allow
them the privilege of quantity discounts. The volume of the
Convenience store does not allow the purchasing of goods in
large enough quantities to take advantage of the discounts
offered by most wholesalers.

The case of our test model was no exception.

121

However, a closer look at the services being offered by the
voluntary wholesaler with whom we do business did afford us
an opportunity to overcome part of this problem.

The charges placed on groceries by our wholesaler are
computed according to dollar purchases. Using manufacturers'
base cost of items as a starting point, the charge for
purchases up to $10,000 is 2.6 per cent of the amount of
purchase. The charge for purchases amounting to more than
$10,000 is 1.75 per cent of the amount purchased. In addition
to these charges, we also pay a minimum fee of $11.30 weekly.
This fee must be paid weekly regardless of purchases. The
cost of freight is also the responsibility of the purchaser
and in our case, it amounts to 29¢ per CWT.

Applying these charges to a $3,000 order that weighs

15,000 pounds, the calculations would be as follows:

 

$3,000 (Amount purchased) 15,000 (Pounds)
2.6%.(Charges for purchases) 29¢ (Per CWT)
$78.00 (Handling charge) $43.50 (Freight charges)
Sum of Charges
Minimum weekly fee $11.30
Handling fee 78.00

Freight charges 43.50

TOTAL CHARGES $132.80 or 4.4% of purchases

122

Private Label Bread

 

To offset the high percentage charge placed on
grocery purchases by our wholesaler, we decided to participate
in the Private Label Bread Program offered by the same
grocery wholesaler.

The bread is baked by a large national bakery and
is delivered direct to the store by the bakery on a daily
guaranteed sale basis. The delivery price of the bread is
the regular wholesale price less 20 per cent. Payment for
the bread is made to the wholesaler on a weekly basis.

The extra return on private label bread not only
offsets the comparatively high percentage charge paid on
groceries but also allows a better competitive position on

bakery goods.

Procedure and Inventory Control

Since the model store is one of five stores operated
by this dairy store group, purchasing of groceries from the
voluntary wholesaler is done on a combined basis. This
function is presently being performed by one of the plant
dairy employees on a weekly basis. However, future plans
call for the performance of this task by the Retail Operations

Manager.5 Until this position is filled, the purchasing will

\_

. 5A full description of this position will be outlined
ln a later chapter.

123

continue to be done as in the past. However, in order to
simplify the ordering procedure and inventory control, we
felt it necessary to construct an order book which lists

all of the authorized items, base cost, suggested retail
price, per cent of mark up, case pack, and the wholesaler‘s
code number for each of the authorized items. Due to the
procedure used in procuring an order from all of the stores,
we also felt it necessary to design an order form to simplify
this process (see Appendix). Under this method, the ordering
is routine and proceeds as follows. On Monday of each week
the order for each store is listed in the column headed up
by that particular store number. Since the need for each
item by store is usually small, the store needs are listed
by units. After all of the stores have been visited, the
needs for each item are summed up and placed against the
inventory on hand in the warehouse. If the warehouse inven-
tory is not large enough to fill all of the individual store
orders, the unit needed column is utilized (refer to
Appendix). The figures in this column are then compared
With the case pack of the particular items in question. If
the units needed and the case pack of a particular item are
approximately the same, a case is then ordered. H0wever,

if only two units of an item are needed and the variety in

qu€stion is packed forty-eight, the needs are usually recorded

124

and used for reference on the next order. Since the
stocking of the stores is performed by the same person, he
is in a good position to use his judgment in such cases.
Not only does this order form perform the function
of ordering, it also serves as an inventory control. Under
the wholesaler's present terms, a minimum weekly fee must
be paid regardless of the order. Therefore, these conditions
permit the ordering of smaller quantities and allow the

inventory of stock to be held at minimum.

Placing the Order

After the order has been determined using the code
numbers from the order book as a guide, the order is then
placed on the wholesaler's order book and sent by mail to the
Wholesaler's warehouse along with a signed blank check. The
order is then collected by the wholesaler and charges are
computed. The signed blank check is then filled out and
deposited, and the order is shipped. If there are any
discrepancies in the shipped order, allowances are made for
them the following week and credit is given accordingly.

The order book is utilized again the following week
When the shipment ordered is received. At that time, the
person in charge of the warehouse checks the received goods

against the order book. The prices paid for the goods are

125

also checked against the order book. If any differences are
noted, the prices are then checked against the wholesaler's
order book. If price advances or declines are listed for the
item in question in the wholesaler's order book, a notation
is made in the company's order book.

The successful utilization of this order book calls
for its constant updating. However, the resulting uniformity
in product mix, the easy ordering procedures it permits, and
the easy access to product information more than offset

the trouble required to keep it up-to-date.

Distribution of Goods From Warehouse

The delivery of goods from the warehouse in the test
model was made by the same truck that delivered the milk
and dairy products. When the order for the store was received
by the company warehouse, it was then collected. Since the
order book lists the products by product groups and code
numbers, the same pattern is utilized in the placement of
goods in the warehouse. The goods are listed numerically
bY consecutive code numbers and the warehouse is set up
according to this plan (refer to Appendix.) For example,
if eight units of Smuckers Apple Butter are needed, the
warehouse picker looks for the identification code 00012 on

the warehouse shelf insted of the variety in question. This

126

method permits easy location plus saving time for each item
picked. When an out-of-stock condition exists on a particular
item, the slot remains vacant. However, since the warehousing
of most items rs on a unit basis, this method does not pre-
sent any problems.

After the order is collected and price marked, a
record of transfer is made. The order is then placed on
milk bottle dollies and loaded on a truck. This truck is
equipped with a hydraulic lift and is capable of loading the
goods and the milk bottle dollies without manual lifting.
When the truck arrives at the store, the hydraulic lift
places the goods ordered, still contained on dollies, in the
baCkroom of the store. When stocking time arrives, the
dollies are rolled to the specific product group location

on the shelf and unloaded.

Inventory Control and Space Allocation

Due to the limited amount of space in the test
store, inventory control is a must. One method used to
Control the inventory on the shelves is the use of shallow
ShElving, and the maximum use of the distance between each
Shelfh By utilizing shallow shelves, we were able to limit
‘UME amount of each item and at the same time, fulfill the

needs of the customers during a week's period. The shelving

127

used in the test store is as follows:
From the bottom up:
Shelf Number 1 - 15-1/2 inches deep
Shelf NUmber 2 — 15-1/2 inches deep
Shelf Number 3 - l4-l/2 inches deep
Shelf Number 4 - 12—1/2 inches deep
Shelf Number 5 - 10—1/2 inches deep.

The allocation of space on the shelves was made
according to the size, shape, and expected movement of the
items. For example, due to the size of soap powders, toilet
tissue, and dried dog food, they were placed on the bottom
shelves. On the other hand, items such as bar soap and spices
were placed on the more shallow shelves. When placing these
items in such a manner, the amount needed to supply expected
weekly sales was kept in mind, and the problems of over-
Stocking on some items and understocking on others were
ruinimized. The present shelf allocation on many items may
be the same in the future but as buying patterns change, the
Shelf allocations will also have to change.

In addition to the inventory policy set forth in the
oPerating store, a control was also put into effect in the
warehouse. This control was discussed under purchasing.

The vendors were informed as to the amount of inventory

the), could stock in the store and in most cases, this inventory

128

was limited by the space allocated.

Lines Handled

Due to the limited amount of items offered for sale
and in order to gain as much uniformity in the specific
departments as possible under these conditions, we limited
the specific brands and sizes to as few as possible. Examples
of this can be found in our canned vegetable line, canned
soup line, baby food line, and frozen food line (refer
to Appendix). However, if the sales of other brands were
higher than the items that were uniform with the specific
departments, some duplication of items became necessary.
This was the exception rather than the rule though and in
most cases, we were successful in creating an appearance of
togetherness in most of the departments. This allowed a
better chance for customer attention to the specific

departments .

Private Label vs. National Brands

Probably the most important reason for our choosing
national brand merchandise, with the exception of bakery
90063, was due to location. The aforementioned high transient
FXKNJlation and the insurance against bad quality given by

most; nationally advertised brands were paramount considerations.

129

Presold merchandise has a power of self—movement
that the convenience store needs. This preselling of
merchandise involves the technique of mass motivating con—
sumers through the science of advertising.

For this reason, it is important that the convenience
store operator understand the role of the modern manufacturer
as motivator in the mass movement of merchandise.

With highly efficient production machinery spilling
out goods on one hand, and the needs of a prosperous and
growing population on the other, the manufacturer cannot
depend upon the efforts of the individual retail store alone
to mass motivate the entire consumer body into buying his
product. The national manufacturer must insure mass movement
of his products at the retail level with the machinery of
mass motivation. The manufacturer not only makes the product,
but he makes the product wanted.

The manufacturer appeals to the appetite of the
consumer directly through all of the facilities of adver-
tising. Through magazines, newspapers, radio, and television,
thousands of buying messages are being sent to millions of
PeOple every minute of the day: Thus a powerful vacuum is
‘Ireated at the consumer end of the marketing pipeline. In
moStcases, the product is wanted before it leaves the

production 1 ine .

130

Therefore, even though many private label brands
were available and in many cases the gross margins obtainable
were higher, we decided to take advantage of the pre—established
desire for the nationally advertised products rather than
face the risk of having to establish acceptance of merchandise
when the quality might be in doubt.

The case of company manufactured products appears
to represent a different situation (refer to Appendix). The
store used in our test model was already serving as an outlet
for dairy products and other items such as eggs prior to the
inception of the model store idea. This afforded the
established acceptance of these items and, therefore, the
outstanding problems so inherent in many private label

brands were not encountered.

Pricing Policy

One of the most powerful motivating factors in drawing
Consumers to a convenience type store is price. With this
factor in mind, we have attempted to establish a price image
in the minds of our consumers that is both fair and reasonable.
Although the average mark up on our product mix is close to
25 per cent, little emphasis should be placed on this,
be<Dause many items that return a profit of 6 per cent, turn

OV‘Er at the rate of four to five times per week, whereas

131

many of the items that carry a mark up of 35 per cent only

turn over once per month.
. is
The product mix of our store bt£==t=onr=change=uas-

made up of three categories. These categories with the

per cent of gross sales dgfie as follows:

 

Company Manufactured Products 63%
Perishables 8%
Groceries 29%

100%

The primary emphasis of our low price—creating ad-
vertising is placed on dairy items, as well as a few grocery
items which the consumer purchases every week. Among the
grocery items are sugar, coffee, butter, dog food, baby food,
canned milk, soap powder, margarine, and soup. The margins
on these items are usually kept as low as possible and many
times, these items are marked at cost. However, the main
emphasis of our advertising is placed on our milk prices.

We constantly advertise the lowest price milk in town. In
addition, we usually supplement our advertising with grocery
itemsthat are reduced to cost. We usually choose items with
high profit margins. In this way, we can emphasize over-
alljproduct coverage and at the same time, create additional
traffic in the store.

Another important consideration in pricing is that of

132

promotional allowances. When a promotional allowance is
announced by a manufacturer and the merchants in the same
area reflect this allowance, we also take advantage of it

if the item is considered a traffic puller or one which the
consumer uses to compare prices. On some of the slower turn-
over items, we take advantage of any price reduction.

Since the size of our store does not permit much
promotional activity, we generally limit our displays to the
three barrels used for display dumps in the front of the
store.

If an item is being promoted that is consistent with
our product mix, we are not adverse to promoting the item.
However, if the item does not blend into our product mix, we
do not participate in the promotion, regardless of the reduction
in price. We see no benefit in promoting every item that

comes along.

In-Store Product Location

Once the consumer is in the model store, she is led
throughout every area of the store. This task was accomplished
by fixture arrangement, merchandise placement, lighting, and
'UN3 different color schemes used in identifying the product
sections (see Exhibit #15). The old clerk service aisles

ha‘”5 been replaced with customer circulation aisles which

133

allow the customer plenty of room in which to shop.

The concept of using high volume items to pull
customers through the store is also utilized. For example,
the dairy and bakery departments are among the last places
the customer visits.

In addition, we have removed the largest obstacle
that confronted the customer in the old dairy store-—empty
bottles. Prior to the change, the customer was so loaded
down with empty milk bottles on her journey to the dairy
cooler, she had no room for extra purchases. Now the
customer is relieved of her bottles as soon as she enters
the store. This problem was solved by placing an empty
rack for returned bottles in the front of the store (see
Exhibit #21). Now the customer is free to purchase any—
thing she desires.

Related items are located together in the model
Store. Examples of this type of selling are obvious when
one examines the soft drink section and the snack section
in the front of the store as these departments have been

integrated in an effort to produce maximum sales.

Summary

In this chapter we have developed the methods that

WE? employed in our model store to give the product mix an

134

optimum balance of dairy and convenience goods. It is our
desire to give the customer more reasons to shop the store,
and thereby encourage larger sales per customer, as well as
increasing the total customer count. We discussed our
philosophy that favored using rack jobbers and vendors, and
national brand merchandise except for dairy products and
bread. We then examined the mechanics of ordering, stocking,
and pricing those products and gave specific examples of how
we organized these functions, in our model. It is in this
area that the average dairy store manager is woefully
deficient. It is hoped that this chapter has shed some

light on this most critical area.

CHAPTER VI
FINANCIAL MANAGEMENT AND PLANNING
Headquarters Level

Philosophy of Management

FFrom a managerial point of View, the firm is engaged

in integrated production (creation of utility) to serve, most

profitably, an area of market opportunity."1 A firm, there—

fore, finds justification in its existence by meeting the

needs and wants of its customers, who are its life blood

and principal source of revenue. In order to accomplish

‘the objectives of the firm, it must provide for adequate

:Einancial planning and management. Financial planning,

IDasically, is aimed at the profitable allocation of resources—-

 

 

lThomas A. Staudt, "Business Management as a Total
System of Action and the Role of Marketing," M_a_r_1agerial
lflarketing: Perspectives and Viewpoints (Homewood, Ill.:
I{ichard D. Irvin, Inc., 1962), p. 198.

 

2 ' I
Robert W. Johnson, FinanCial Management (Boston:
Itllyn and Bacon, Inc., 1961), p. 4.

3Statistical Abstracts of the United States, 83rd
edition (Washington, D.C.: U.S. Government Printing Office),

962.

135

136

material, labor, and capital.4 This section will examine how
resources should be allocated in the retail operations of
a small dairy manufacturer-retailer.

This segment of business is in an unfavorable position,
due to its size of operations. First, the firm is usually
too large for a single manager to control the entire operation.
Secondly, it is too small to attract trained personnel with
the skills necessary to carry out the accounting, retailing
and manufacturing functions. The lack of sophistication in
planning and management methods is a primary reason for the
limited success of these firms. The growing number of
failures and mergers of such businesses adds further evidence
'that a lack of marketing ability coupled with inadequate
Ifinancial planning and control often supply the one-two
ENJnch that knocks the firm out of the market.5

It is not our intention to suggest that just because
6i firm is small it is inefficient. There are many exceptions
t4) the rule; bigness, on the other hand, does not always
iruiicate efficiency; It can generally be said, however,

tJIat the large firm, with more resources, is in a better

\-

 

. 4Robert Ferber and P. J. verdoorn, Research Methods
j%§LJ§Qonomics and Business (New Ybrk: The Macmillan Company,
962), pp. 486-547.

5 . .
ens _ Statistical Abstracts of the United States, 83rd
1-ti.on, op. cit.

137

position to know its costs. A method of cost examination
used by many firms is a marketing audit. This is a valuable
tool in many respects. Its most important use is that it
allows the firm to know not only the extent of its costs,
but their nature and where they are incurred.

This lack of knowledge of costs was brought out very
clearly in our investigations. One of the most common problems
contributing to cost ignorance, was the absence of the right
type of financial reports and data. A quarterly consolidated
Balance Sheet and Profit and Loss Statement was used by the
company studied. Retail, wholesale distribution and manu-
facturing information was lumped together. Even the land,
«equipment, insurance and taxes, etc. were stated as single
ermires. It was impossible under these circumstances, to
(determine from where profits and losses were emenating.

It would have been impossible to plan under this handicap.

Formulating a pricing policy without full knowledge
0f costs is sheer folly, yet this was being done. The laCk
Of cost information is not as acute when a strong market
<=Ondition exists, and competition is mild. If the market
breaks into a strong competitive situation(and this has come

about) the manager is unaware of the point where profits

\

6
. Charles H. Sevin, HOW Manufacturers reduce their
iiléfigtribution Costs, Economic Series No. 72 (Washington,
~<2.: U.S. Government Printing Office).

 

 

138

disappear and losses begin to take place. The small operator,

many times, goes below this point in an attempt to maintain

"The lowest prices in town." It is this same individual

that usually forces competition to lower their prices in

order to stay competitive. The larger, more efficient

firms are able to go much lower than their small competitor

before profits are dissipated. Economies of scale, giving

lower unit costs, offers the large firm protection that

cannot be counted on by the small firm. The net effect of

“this suicidal price competition is that the small operator

ENJtS himself right out of business. If epitaphs were written

ffior businesses, many would read, "He had the lowest prices

141 town."

Mathematics in business decision—making is another

txool that aids the manager in charting the course of the firm.

Eflie era of snap judgment, seat of the pants type decision

making has come to a close. The small operator has been

Slow to accept a more scientific approach to business

<ieczijions. Although there are many complicated techniques

utlilizing mathematics, the small firm can adapt a variety

of Simple techinques that may be used in his particular

company to aid in sounder planning.
____‘___

 

7 . . . .
Robert Schlafer, Probability and Statistics for

E3 - . . .
‘4§E§35ness DeCiSions (New York: McGraw-Hill Book Co., Inc.,

1959), p. 678.
81bid.

139

One of the most used and abused tools of business
management is the break—even analysis.9 It goes without
saying that the firm that has some idea of its profit position
is better off than one that has little or no cost information.
A caution should be mentioned with respect to planning with
a break—even analysis, however. First, a firm does not
have one break-even point, but rather a series of points
along a cost and revenue curve. When a break-even analysis
is made, it is important to note that it will be valid only
at one stage of capacity, or within a short range of pro—
duction. Second, using a break—even chart as a target, or
sales goal is also not a realistic practice either. The
firm is not in business to break—even, but to make a profit.

Before a company makes expenditures for expansion,
or for other purposes, it should be certain that a fair
return on the capital used is obtainable. Unfortunately,
many small operators do not feel that working capital, or
retained earnings have a cost. There very definitely is a
cost of lost opportunity if the money is not employed as

. . . lO ,
JRrofitably as is pOSSible. If the small firm were to make

 

 

9Clayton W. Anderson, "Break-Even Analysis and variable
Budgeting, " Administrative Control and Executive Action,
(Chblumbus, Ohio: Charles E. Merril Books, Inc., 1961),
PP- 628-644.

10Richard H. Leftwich, The Price System and Resource
3!;J~ocation (New York: Holt, Rinehart and Winston, 1962),
P~ 183.

1:40

this test, it might be the case that the capital resources
are actually earning less than a fair rate of return. In-
vestment in a more profitable field would be the most logical
course of action. If, however, the owners and investors

in the firm are not primarily concerned with maximizing or
optimizing profits, then they should at least be aware that
less than maximum profits (greatest return on investment)

are being obtained.

Marketing Mix

A mix is defined as two or more interacting elements.
A marketing mix concept is made up of a particular combination
of factors that can be systematically analyzed and altered.
Simply stated, this deals with what commodities and services
the firm is going to offer its customers. Before a product—
service mix is established, the customer—prospect mix must
'be determined. This refers to the selection of customers, and
the segment of the market they represent. The particular
Segment that the firm is going to cultivate most intensively,
is dependent on several factors: (1) the extent that the
Segment is being neglected at the present; (2) the special
finialifications that the firm possesses to serve them, and
(:3) the taste of the business owners.

In order to tie the two mixes together (Exhibit 23),

141

Exhibit # 23. Interaction of customer prospect mix and
product service mix.

Customer - Prospect Mix

 

 

 

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(1) (2) (3) (4) Q

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W- __-..__._-.._ - __...___.._-_J m

 

 

 

 

 

 

 

Can be segmented by: Common needs, Geography,
Dollar volume, Seasonal,
or many other factors.

 

 

 

 

 

Marketing Sub Mix ‘3

0

Sales Adv._ 1 Promo. Merch. 3
AB

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____."r __ __ $
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-——- —— lo

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HDRIZONTALLY — Marketing plan for products for

the market place.

VERTICALLY‘- Total sales plan for all products,

' Adv., Promo., Merch., etc.

MARKET SUB—MIX — Will apply to customers in a
particular segment. Not all
products will be used by all
customers.

142

the right promotional mix must be composed. This mix

consists of a large battery of devices which might be employed

to induce customers to trade with a particular firm. The

same devices are involved whether one is thinking of inducing

altogehter new customers to trade, or of shifting customers

from competitors within the segment. These devices have

already been di scussed .

As previously stated, the model being set up is for

a convenience type market. Since the store size is quite

small, we were limited to the number of items that could be

stocked. The actual products, pricing and retail theory have

already been given. It is our purpose here to point out that

an approximation of the type of goods, and in what quantities

they will be sold, is necessary in making budgets, sales

forecasts, and other planning data.

The long range objective of financial planning is to

formulate a plan that will provide that enough revenue is

generated to cover the cost of doing business, plus leave

enOugh in profits to satisfy earning objectives. It will
be up to the business owners, when building new stores or

adaPting old ones, to be in the right location with the right

8126 store, offering the right products at the right price.

143
Transfer Pricing and Plant Analysis

Sometime after beginning the implementation of

recommendations made in our original study, we needed

to know the manufacturing cost of the 25 or more items
produced by the company. This information was important
(1) to compare cost and price data

for several reasons:

of competition; (2) to determine gross margin dollars from

sales, in order to make sales forecasts and budgets; (3) to

determine at what point we could lower price and still be

mak ing a profit .

This information was not available. No cost studies

had been made in the past that would tell us whether
transfer (wholesale) prices were above, or below, actual cost
of manufacture, or at what capacity the plant was operating.
Since intelligent planning could not be accomplished
without this information, we made the analysis ourselves.
Some interesting information and experience was
gained from this additional research, even though our
priI'nary study was retailing. Exhibit 24 represents our
fihcSings. (Note: Mr. A. L. Rippen, of the Food Science
Department at Michigan State, and Dr. Heddrick, of the MSU

D .
airy Plant provided technical assistance in this study).
\

 

l . . .
Operation Opportunity, op. Cit.

144

 

 

Exhibit 24. Manufacturing cost analysis (Feb., 1963).
Total Manufacture Wholesale
Item Units & Distrib. or Trans- Profit
Produced Cost fer Cost or Loss
Milk
Homo. 1/2 gallon 57084 30.9 30.5 $ (228)
Vit. D Milk
1/2 gallon 5166 31.0 31.5 26
Skim 1/2 gallon 7426 20.9 24.0 230
Multi Vit.

1/2 gallon 1705 31.9 32.0 2

Cottage Cheese
1 pound 355 20.1 21.0 3

Cottage Cheeze
30 oz. 364 33.1 32.0 (4)
Reg. Quarts 1139 19.9 17.0 (33)
Vit. D Quarts 1459 19.9 18.0 (28)
Butter Milk Quarts 346 15.1 16.0 31
Chocolate Quarts 342 19.1 22.0 10
Chocolate Pints 146 10.0 11.5 22
Coffee Cream 1/2 Pint 279 13.0 23.0 28
Half & Half Quart 162 27.0 43.0 25
Half & Half Pint 679 17.0 21.0 27

Whipping Cream
1/2 Pint 1100 18.9 26.0 78
Sour Cream 12 oz. 381 27.0 34.0 27
Net Milk $ 216

Ice Cream
Pints 252 26.8 18.0 (22)
1/2 Gallons 1571 57.0 50.0 (110)
Gallons 2036 100.9 85.0 (344)
Net Ice Cream $ (476)

Net Plant Profit

Or Loss $ (260)

This study covers 95% of total

pl ant production .

145

We readily admit that the plant survey was not carried out
with the exacting standards usually taken into account by

. . . 12 . .
experts in this field. For planning purposes, the figures
were within acceptable tolerances. The plant owner felt
that the costs as shown were too high, and did not accurately
reflect the true costs. This is understandable, since they

clearly show a net manufacturing loss for the month of
February, 1963 (the month used). Nevertheless, we believed
the figures to be representative of the actual for three
reasons: (1) the company owner had no figures to indicate
that ours were incorrect; (2) the plant was being operated
at approximately 28% of capacity, with the employees being
paid their full week‘s wages while actually working about
30 hours; (3) the company showed an over-all loss in the
first quarter Profit and Loss Statement, the first net
Operating loss in many years.

Exhibit #24 showed that many commodities were being
trarISferred or wholesaled at, or below actual cost. The
maj Ority of product sent to the company's retail outlets

Were being sold at an over-all company profit, but merchandise

going to wholesale accounts represented a net non—recoverable
\

12
W. H. Blanchard, Glynn McBride, and A. L. Rippen,

fia\c°\§t Analysis of Fluid Milk Packaging Operations, East
nsILng, Michigan State University, Department of Agricultural

E . .
Conomics and Food Sc1ence, 42 pages.

loss (about 40 per cent of milk sales are to wholesale
accounts).

We had to make arbitrary allocations of many of the
fixed/variable and direct/indirect expenses since no individual
'break-down was being made.

On the basis of these findings, we recommended a
long-range plan to decrease plant costs, increase efficiency,
raise prices to a more reasonable level, and to place in-
creased emphasis on developing the wholesale accounts. It
Should be noted that a 10 per cent price increase across the
'board on all company products would still allow them to be
sold at competitive prices, or below national brands and

Jxocal competition in the area.

Retail Financial Analysis

éfiaies Analysis

Our initial study into the retail operations of the

1Michigan Dairy Company began in December of 1962, culminating

1T1 February of 1963.13 We selected a typical store of the

iELVe store chain. It was believed that a thorough depth

stnmdy of one store would be more beneficial to us than a
.1_p_

3 . . .
Barnus, Byrd, Jones and Wright, Operation Opportunity
é}\ study in Dairy Retail Operations), East Lansing, Michigan,
a11., 1963, 82 pages.

147

general analysis of the entire retailing system. We did
find it necessary to pay visits to each of the other stores,
from time to time, to cross-check findings in the model.

The majority of the time, was however, spent in the base
store.

Before making any plans or recommendations, it was
necessary to check out any and all historical data regarding
the store and its past operational results, specifically sales.
‘We used a period of two years' sales figures for the
examination. Comparisons of raw figures were not revealing
in themselves, and did not indicate a clear trend. By
Plotting these figures graphically, we were able to detect
a Slight downward trend, but due to seasonal and cyclical
-fluctuations, the exact nature of the decrease could not

be'determined. In order to smooth the fluctuations, we

“595 a four—month moving average, from which a trend line
Coulxi be computed and drawn. The result was an 8 per cent
Yealflly decrease, or a total of 16 per cent decrease over the
two year period. This figure, in and of itself, was not
Sig'nificant. If, however, the decrease was compared to a

114

4‘6 per cent yearly increase in grocery type retailing,

thenetgrowth loss was right at 25 per cent over the two
\

léggatistical Abstracts of the United States, 83rd

e ' ' .

148

year period, and still decreasing (Exhibit #25).

The significant variables that had resulted in the
rapid loss of sales and profits were identified. Discounting
the internal difficulties of the firm contributing to the
decrease, the major external factors were (1) increased
competition from outside the county and state, and (2) dairy
stores were forced to lower prices due to a sharp decrease
in the retail price of dairy products in the local super—
markets; this was caused by increased competition within
that industry (we do not consider the dairy—convenience
store operation a primary competitor to supermarket stores).

The per cent of milk and dairy products sales in
Supermarkets is about 5-8 per cent of total sales. In the
Small dairy convenience stores, this runs from 60-90 per
<3ent of total sales. It is not difficult to see the effect
<3f dropping milk prices on profit. While the two types
<3f stores are not primary competitors, the elastic nature
<3f milk prices is such that a firm that retains a higher than
market price for this commodity will experience a sharp

decrease in volume .

Eflagak-Even Analysis

A cost of capital improvements was drawn up before

committing funds to the remodel and redesign of the store.

 

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Increased advertising, supervision and wages (longer store
hours) had to be considered as well. Exhibit #26 shows

the nature of cost and revenue that could be expected from
the expansion and remodel. Many of the expenditures, such
as a store sign, cash register (with totaling capability),
frozen food freezer, etc., were items of improvements that
should have been purchased in the past, but were included in
the total cost of the improvement package.

The new break—even figure was found to be $6,200
each month in sales, or roughtly $208 daily. This is a slight
increase over the previous figure of $186 each day, before
improvements. Sales and profits figures were based on the
annount of gross profit that could be expected at varying
Llevels of monthly sales $5,500, $7,500 and $9,500. The
.ratio of revenue was based on predicting the type, and amount
<Df merchandise that would be sold at the different levels,
land the average mark-up of the product mix. It was our
belief that at a low sales volume ($5,500), a high per cent
<3f sales would be milk products. As more customer traffic
43nd increased sales per customer were obtained, more non—
‘5aiiy items would be sold. Exhibit #27.

One point about the store break—even chart is
Significant. Although costs are broken into fixed and

ValT-‘iable categories, the nature of variable expenses is

151

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152

Exhibit #27. FPick-Quick PANTRY? projected profit and loss
statement (monthly).

 

 

 

 

Item (1) % (2) % (3) %
Manufacturing $ 4015 73 $ 5250 70 $ 5985 63
Perishable 550 10 750 10 760 8
Grocery 935 17 1500 20 2755 29

Total Sales § 5500 100 i 7500 100 g 9500 100
Gross Profit:

Manufacturing $ 465 13 $ 585 13 $ 706 13
Perishable 99 18 135 18 137 18
Grocery 168 18 300 18 551 20

 

 

 

 

Total Gross Profit § 776 14.1 § 1095 l4.6§ 1466 16.0

variable Expense:

 

 

Wages $ 450 $ 450 $ 450
Supplies 25 35 50
Repairs & Maintenance 12 12 12
Adv. & Promo. 50 .9 75 1.0 95 1.0
Administrative 128 128 128
Musc. _'10 10 10

Total Variable $ 675 12.3 $ 710 9.5$ 745 7.8
Fixed Expense :
'Utilities $ 100 $ 100 $ 100
Insurance 10 10 10
lDepreciation & Taxes 115 115 115

Total Fixed Expense$ 225 4.1 $ 225 2.9 $ 225 1.4

Total Expenses § 900 l6.4§ 935 12.4§ 970 10.2
Net Profit § (124) § 160 2-0§ 496 5.2

 

153

such that they really represent semi—fixed expenses. This
is because the only real variable is the wage expense. Wage
increases and sales are not in a linear relationship. It
takes the same amount of help to operate the store at $5,500
a month as it does at $7,500. Wage levels will, therefore,
rise in a stair—step fashion.

In the month before opening the revised model store,
milk, perishable, and grocery per cent to total sales were
in the following ratio: 77.5, 3.5 and 19.0 respectively.
The first month's results for the same product break-out
was 65, 6.0 and 29.0. At the $7,500 level our grocery per
cent was 50% higher than anticipated, perishable 4%.1ower,
and milk products 5% lower than forecasted in the store
budget analysis. Profit wise, this is a net addition to
gross margin dollars since the grocery category carries a
higher than average mark-up. At sales of $9,500 a month
or more, grocery and perishable sales will run well over 40%
of total sales.

Exhibit #28 shows graphically the ratio of milk
and grocery—perishable sales to total sales (weekly). This
exhibit also shows that grocery-perishable volume remains
fairly constant in spite of drops in milk sales. This
proves that people are now coming into the store for other

than milk purchases. While this was partially true before,

Exhibit #28.

Index Sales

 

 

154

 
  

Pick-Quick PANTRY sales.

 

 

 

 

 

2000
Weekly Sales
140+1900 Week Ending January 6
thru June 2, 1963
1800
130%- End Opening "P ,\
1700 WESk o~_ Total Sales
12091600
110%”0 -....._______
140 LB—E Line _____,
100$
__________ ‘—-Beg. Opening week
l—- - .1
90-1.
1100
INDEX (100 = Avg. weekly Sales January, 1963)
1000
E 900
t
I
800
220-0- 700
; 600 ‘__Grocery-Perish.
180f Sales
' 500
140% 400
100+ 300
K. Began Study
200
100
‘r ‘r t A:
Jan. Feb. 24 May 5 June 2

155

the improved product mix has given people more reason to come
into the store, where before the variety of goods was limited,
poorly stocked and poorly merchandised. Retailers often
confuse the mark-up of an item with its profitability. While
it is true that a greater amount of non-dairy items is

being sought, it is not our desire to decrease the emphasis
on dairy products. This commodity group has a low gross
profit, but its turnover rate is the fastest in the store.
Where the milk products will turn about five times a week,
many grocery items will turn but once a week or even once a
Inonth. Dairy products still account for over half of the
actual gross dollars, regarldess of the level of sales
Iprojected. We recognize that turnover is equally as important
a consideration as mark—up in a store's making a profit for

the company.

The Sales Forecast

At the end of May, 1963 (four weeks after the re-
modeled store opened) a 24% increase in sales for the first
five months of operations in 1963 was recorded. Exhibit #29
Shows monthly sales, and trend line. On the basis of past
information and least squares method, a June, 1963, fore—
czast was computed. Since the mean period of the trend line

analysis was March, 1963 (before completed remodel) the June

Exhibit #29. Pick-Quick PANTRY sales trend.

Index
120 .1. "(‘Eét‘)
.100 4' ' ‘\\\Store Opening
\Began to implement
80 7” recommendations
INDEX (100 = Jan. 1963) Monthly Sales _
Trend Line .
i f 1 1 f ‘1 7?

 

(Jan. 1, 1963 - June 30, 1963)

    

 

Jan Feb Mar Apr May June July

157

figure is a conservative estimate. It represents a slight
drop over the preceding month (opening month) of about $200.

Several factors indicate that the sales trend will
remain strong: (1) New store sign--there previously was no
store identification of any kind; (2) extended hours for
shopping; (3) improved product mix and better merchandising
and stocking methods; (4) increased summer demand for picnic
and snack items; (5) strong initial advertising program,
introducing new customers to the store should carry over;

(6) continued re-inforcing ads covering three of the four
‘weeks in the month; (7) the lack of suitable locations for
<:ompetition within the area should keep external influences
to a minimum.

A traditional sales drop in June of from $500-$800
in the test store, due to school let—out, is not expected
to be quite as severe as in the past. Sales should remain
fairly constant during the summer months with a minimum loss
of volume.

A strong advertising program in the fall is expected
to introduce new arrivals in the area to the store, plus
re—inforce regular and occasional customers.

On the basis of known information, we expect monthly
sales to peak for the year in November, 1963, at about $8,500.

This represents a gain of roughly 50% over the month before

158

opening. A forecast for 1964 is not possible at this time.
This is due to the absence of sales results for the entire
summer. It is not known how far sales will dip, or what
the recovery level will be at the end of September when
school is in full swing. The best time for making the 1964
forecast will be at the end of October, 1963.

One final point should be brought out with respect
to sales forecasting. Where there is a lack of historical
data, and significant variables from which to make accurate
forecasts, the best known information available must be
used. The important factor in this section is that it is
a necessity that sales goals be made and plans be formulated

and executed to accomplish these goals.

Summapy

The objective of this half of Chapter VI has been to
show the basic elements of financial planning in retailing
operations. We have endeavored to outline the types of things
that management should be doing. The pitfalls that the firm
may fall into, if inadequately prepared to cope with every—
day situations.

The eXperienced executive will be quick to notice
that certain financial areas have been omitted. Cash flows,

capitalization, working capital, long and short term borrowing

w. 5151.11»... ,

159

problems have not been covered. We do not discount these
issues as being unimportant, but, the main emphasis of this
section has been the allocation, rather than procurement of

resources .

Sto;§_Records and Control

Financial planning at the headquarters level has
been discussed, with emphasis on the responsibilities of
top management. This planning is relatively worthless un—
less backed up at the store level. Store employees have
certain functions that must be carried out with regard to

providing data for planning and safeguarding cash and profits.

Cash Register

The use of an automatic totaling cash register to a
supermarket chain manager is taken for granted. Yet, it is
surprising how many small business firms do not use them.
This was the situation in our Michigan Dairy Company study.
None of the five retail outlets of the firm had these
registers. With this thought in mind, it was felt that a
few words on this subject would be beneficial in pointing
out the advantages of this important control.

Although a register is normally thought of as an

instrument for the safeguarding of cash, it, nevertheless,

160

has: two other functions: (1) records and control; (2) customer
satjAsfaction and convenience. The type of register we
suggest is one with four department keys: (1) Company
manufactured products; (2) other perishables, (3) dry goods;
(4) tax, if applicable.

Examples of the record and control function of the
register are as follows:

1. .Accurate record of daily sales by departmental break—

down.

2. Automatic totaling of orders, thus increasing

efficiency and decreasing the possibility of mistakes.

3- It insures that each item purchased by the customer

will be rung up.

4- It gives an accurate record of sales tax collected

for the state.

5- It will give the company sufficient information to

chart sales trends in commodity groups.

6- Merchandise shrink and cash shortages can be more
easily detected and pinpointed. Aids inventory
control.

Gives a count of customers for each day's business.
Customer satisfaction and convenience is accomplished

b
y these features of the register.

161

1. When an automatic register is used, the customer is
more confident that the order has been computed
correctly.

2. The automatic is quicker, thus the image of
convenience and service is brought out by this
additional service.

3. Many customers like to check the register tape
themselves, when they get home. Being able to
issue a receipt of purchase will further increase
the confidence of the customer toward the store.

4. The register tape is useful in case of refunds. If
the customer brings back spoiled products, the
register tape will indicate the date, and type of
commodities bought, thus saving money by ferreting
out unjust demands for refunds.

.5. In case the customer feels that she has been
shortchanged, the machine has the capability of being
checked quickly, thus satisfying the customer regardless

of whether the error is in her favor or not.

Records

Once the firm has decided to use the automatic

register, over the old fashioned "ding-a-ling" type, there

are . . . .
Se\feral records that should be used in conjunction Wlth

162

the register: (1) a weekly sales and cash report; (2) daily
refund and error form; (3) a record of cash’overages and
shortages.

Exhibit #30 shows a form that could be used for a
store with one register. Since most of the dairy-convenience
stores we are dealing with in our study sell more than just
dairy items, it is necessary to have more than one depart-
mental key. The departmental adjustment portion of the work
sheet looks very complicated and foreboding, but in reality
it is very simple. It is quite important that any register
errors be noted so that an accurate record of what is being
sold can be maintained. The company has the option of having
the sheet filled out by store or office personnel. If it
is desired that the office complete the form at the end of
the week, it will still be necessary for the store employees
to note register readings, cash and check totals, etc. Where
the form is completed is a matter of choice. Valid arguments
could be offered for each option.

A record that facilitates filling out the cash report
is the refund and error statement, Exhibit 31. It is a
daily adjustment form and is self-explanatory.

The third form, cash overage and shortage, is a
control form. It is useful in tracing frequent shortages to

the person responsible, thus giving the company a basis for

163

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Exhibit # 31. Weekly sales and cash report. Refund and
error sheet.

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REGI STER
IDIUPE WEEK ENDING
_i, BOTTLE REFUNDS DAIRY REFUNDS REASON
DAIRY TOTAL
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DRY GOODS REF. REASON
TOTAL DRY GOODS
TAX REF. REASONS
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TOTAL REFUNDS
(To be filled out daily on a separate form)
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report.
__ DEPARTMENTAL ERRORS _
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net dairy net perish net dry groc net tax

166

(marrective action, and retraining, if required.

One point cannot be over-emphasized. Every time a
new employee comes in on a shift, the register must be
checiked over to that employee. Whether the register is
conqxletely cleared for each new shift is optional. A daily
balauncing of cash is required, regardless of how the shifts
are llandled.

In addition to records, each company should examine
its awash and check handling procedures to be sure the safest,
most (efficient method is being utilized. This refers to how
the company arranges to have money brought into the store,
where: it is kept overnight, and the transfer of receipts to
the main office or bank.

Cash is not the only thing in the store having value
to be accounted for. The merchandise is valuable as well.
The fkollowing section will deal with the problem of pilferage

and thaw the model was set up with maximum protection in mind.

Pilferage Control

In a store the size of the model, one might think
that 1ihere would be very little that could be done to insure
interilal security. we felt that it was especially important
that Ebilferage control measures be built into the store it-

Self. Since the store would have only one employee operating

167

the Ixnit at one time, busy periods would find her checking

out <2ustomers. It would be impossible to maintain security

unless the store had an optimum set-up. The following is

a list of measures taken:

1.

The self-service milk cooler made it possible to

move the register next to the “out" door. An iron

railing was placed between the in and "out" door,
thus requiring the customers to pass by the

checkout as the only exit from the store.

All merchandise was situated in a position such

that after the customer checked out, there was no
possibility of their picking up anything between the
checkout and the door.

The high grocery shelves that formerly ran down the
center of the store, blocking employee vision to the
back aisle, were pushed back to the wall and replaced
by low frozen food cases. This permitted complete
store surveillance from the checkout counter.

No major stocking, except milk, is required of the
store employee. This assures that the employee will
not be preoccupied when customers are in the store.
In order to let the employee know when customers

entered the store while she was stocking the self-

service milk case, a red light was installed that

168

flashed when the "in" door opened. This insured
that the clerk could be back onto the sales floor
quickly.

6. Limits were placed on the amount of cash to be
carried in the register to decrease loss in case
of hold-ups.

7.. The telephone was re—installed immediately behind
the check—out counter, so that the girl could be
near the register, and the telephone at all times.

8- A policy of rigidly adhering to posted store hours
was made. The reason for this policy is obvious.

9- All high cost items such as health and beauty aids
and cigarettes, were located adjacent to the check-
out.

vendor Control

Customers are not the only source of loss. Vendors
must Eilso be properly checked and monitored. Careless
manageurs sometimes take the view that since a vendor is in
business to service the store, he is above reproach.

Stores! have been forced into bankruptcy by this careless
attitude,

Our study indicates that the model will have increased
vendoa: activity as a result of (1) higher sales volume,

(2)

in“Proved product mix, much of which is handled by vendors.

169

It really makes little difference what the volume
and nature of the store's business is. A standard procedure
for checking and paying vendors should be set up. The good
way to prevent a number of malpractices by vendors is to use
a store stamp as a validating identifier. Each ticket when
presented should be completely filled out. The employee
will then stamp, sign, and date both copies, if a charge. It
is also our recommendation that where a vendor charge account
can be set up for the store, increased protection is obtained.
It not only helps to deter collusion between an employee and
a vendor, but decreases the need for large sums of cash in
the register, over and above the normal amount required to
do business.

It should also be said that checking the company
milk driver is a necessity, as well as outsiders. Although
the driver may be honest, loose controls on company products
might prove to encourage pilferage in the company distribution
Channels. The procedures outlined are designed to remove
any Conditions that might encourage an employee or a vendor
to be dishonest. We simply do not believe that they should
have to be put in a position where a decision must be made.
In Order to remedy this, as best we could, the conditions
that brought about the temptations have been removed or

neutralized. This will apply to cash transactions and

170

register operations as well.

Inventory Control

The reader may wonder why the problem of inventory
contxnols have not been dealt with in length, as have some
other: common problems in retailing. The reason is, primarily,
that the inventory question is not a key issue to the small
firm,

The previous statement should be qualified by saying
that cuperating policies have been designed to eliminate the
necessity of constant struggle with this area.

Below are listed a number of policies and procedures
that aJJLow us to make this statement:

1- Shelf Space is set up on a strict movement basis,
with constant reallocating being carried on to take
advantage of changing consumer desires and seasonal
patterns.
2- No Space is built into the backroom for storage of
overstock (except soft drinks and empties).
All merchandise sent to the store from the company
distribution center goes directly to the shelf.
Rack job merchandise and company manufactured products
represent the major dollar inventory investment.

These items are quick turnover, high volume commodities

171

that receive frequent service and attention.

5. Vendors are designated space, position on the shelf
and the amount to leave each week or day.

6. Vendors are not allowed to leave overstock (except
soft drinks).

‘7. The warehouse is operated on a principle of distri-
bution, rather than storage.

E3. Over ninety per cent of the weekly warehouse order
coming from the wholesaler is sent directly to the
stores. By designing the distribution system in
this manner, only part cases and advertised specials
remain in the warehouse on a regular basis.

9- The Retail Operations Manager (discussed in the
following chapter) is personally responsible for
ordering and monitoring shelf stock conditions and
movement. He makes out both the store and ware-
house orders. Control is concentrated at one point,
rather than many.

The small convenience retailer need not suffer the
disadvantages of being large and diversified, as is the case
of the large supermarket. This type of store must keep
Several weeks' stock in the backroom and on the store
Shelif- The convenience store has the advantage of rapid

tur . . . .
r1Over in the vast majority of its inventory. These two

172
characteristics allow the small store to capitalize on

this type of flexibility and control.

Summa ry

In this section, attention has been focused on policies
and procedures at store level. The nature of headquarters
directives and the degree to which they are carried out
often spell the difference between success or failure.

Central management must be aware of the opportunities
that can be afforded by built-in control systems. Unless
this awareness is present, these systems cannot be set up
and monitored. A lack of sophistication on the part of
management with respect to control has been found to be the
rule rather than the exception. The various planning tools
and control procedures examined in this chapter are not
considered to be a panacea, or by any means exhaustive.

The firm that accepts these suggestions as a guide will,
however, enhance its probability for success in the future.
HOW the system will be monitored and the role of the employee

Will be covered in the following chapter.

CHAP TE R VI I
PERSONNEL MANAGEMENT

Introduction

It has been brought out many times that businesses
have experienced less than desirable results because the
employees did not know what was expected of them, or what
they could expect from the company. It will be the objective
of this chapter to point out some of the things that will

improve this deficiency in management.

Retail Operations Manager

It has been our purpose to illustrate that the
daia:y—convenience store chain requires full-time management
Witli knowledge and experience in this area. While it is
conceded that the small dairy-manufacturer-retailer knows
the ntle trade, he nevertheless is not an expert in full
line gfirocery retailing and merchandising. We feel that it
is inmxerative that this portion of the business be put into
the hands of a specialist. It is not unusual to find this
jOb 155 delegated to an unqualified person whose primary job

ls sonRathing other than retailing, and who lacks the

173

174

fundamental knowledge required to do the proper job.

Functions

In order to fill the supervision deficiency in the
Michigan Dairy Company, we set up a position known as the
Retail Operations Manager. The management of the company
felt that it might be too expensive to hire someone with the
qualifications needed to fill the position that will be out—
lined. It was our argument that it would be even more
expensive not to. The increase in sales in the test store
have more than substantiated this fact. If the unit is
turned over to people with experience in the field, and who
follow the basic principles of retailing, the position
will pay for itself and provide management with a good return
on the investment. We readily admit that a small five store
chain with modest sales would be hard pressed to support this
position indefinitely at present levels, but it is our
contention that management must adopt a long-run View
building towards achieving maximum potential in the present
stores plus building new business with additional units.

This ambitious objective will never be reached unless the
company has the foresight to invest in competent management

now, in order to build for the future.

175

Duties

Below is a list of primary responsibilities the Retail

Operations Manager must handle:

1.

2.

10.

11.

Store ordering.

Warehouse ordering.

Price marking of items at the warehouse (central
marking of all grocery, non-rack jobbed items).
Select each store order on the appropriate day and
arrange for delivery.

Stocking, rotating and shelf maintenance.
Co-ordinations of rack jobbers, inventories, prices.
Advertising--choosing specials, set up advertising,
both circular and newspaper, and arrange for delivery
and distribution (circulars).

Employees--hiring, training, supervision, relations.
Act as a liason between stores and plant, stock
levels, movement of company products, check for
possible fill-in orders for all merchandise.

Work closely with the stores in handling customer
relations, competition problems.

Make up a weekly newsletter listing specials,
suggesting in-store merchandising tips, informing

employees of changes and additions to policies, pro—

cedures, prices and products (new and discontinued).

176

12. Maintenance of store records, movement figures, new
trends in convenience foods, planning.
13. New stores--after a new location is acquired and

the store is built the ROM* will be responsible

for getting the store into operation.

14. He will formulate new policies, procedures and have
complete authority to run the retail outlets.

It goes without saying that someone with the
experience and ability to accomplish these tasks will not
come cheaply. It is our belief that if the small dairy—
manufacturer-retailer wants to say in the retail business,
he must take some positive steps to insure that he will be
able to accomplish this objective. One point should be made
in respect to the duties of the ROM. When the business
reaches a satisfactory point in sales, we recommend that the
more repetitive jobs, such as stocking, receiving and stamping
merchandise, and filling and delivering orders be turned
over to a part-time employee who can be trained to do this
portion of the job. While these are important functions, we
feel that the ROM can best be utilized in a planning and
supervision function, rather than being tied to the more
routine and relatively less critical jobs. It cannot be

over-emphasized that the ultimate success of the retail

 

*Retail Operations Manager.

177

function will depend on the type of individual that is given

the responsibility of retail operations.

Store Personnel

In retailing, attitudes of the employee toward the
employer (company), the job being done, and individual's
contribution to company goals and objectives are important
to consider. Surveys reveal that opportunity to advance, to
be creative, to use initiative, and to learn, are prime
employee motivators. It is equally important for employees
to know what their duties are, and what is required of them.
In too many instances, employees have been hired with little
or no training and indoctrination as to their duties, no
idea as to the organization channels, or possible changes
to be made in the future that will affect their hours, wages
or location of employment. It would be much too lengthy to
try to outline the necessary points that should be covered
in hiring and indoctrination, but it should be pointed out
that a clear statement of company policies, procedures, etc.
be made at the time of hiring and during the early phases
of training. It is much better to clear up potential trouble
points at the beginning, than.it.isafter an employee has
become a part of the organization. A great deal of friction

can be removed if questions can be resolved before they become

178

major problems. In too many cases an employee is unhappy

and causes others to become discontented. There is a
reluctance to get rid of the person causing the disharmony.

We further believe that the idea that a person is indispensible
and cannot easily be replaced is pure fantasy. A machine
cannot run very long with worn out parts. Sooner or later

it will break down and cause more delay and expense than if
preventive maintenance had been taken when the difficulty

was first discovered.

Duties

The Pick-Quick PANTRY store (the model) was a new
concept in operations for the company. we used the present
company personnel in this store. Since there were new jobs
and responsibilities in running the store, it was necessary
to list the base duties of employees. This list is not
all inclusive, but it attempts to point out the major
functions. As the store progresses, new jobs will become
apparent, not only to the employee, but to the ROM, that
will need to be done in order to keep the operation running
smoothly and efficiently.

l. The primary duty of all employees will be to
give the customer quick, courteous, and efficient

service, indicating that his or her business is

appreciated.

179

To act as a public relations man with friends,
neighbors, and relatives, encouraging them to patronize
the store. Remember, if the store has no customers,
the employee will lose her job.

They should perform sales functions, as well as a
checkout function, informing customers of the expanded
product mix, new items, specials, convenient store
hours, and attractive-easy to shop layout and time
saving services.

Work with the ROM on merchandising and ordering
problems. This will include noting frequent requests
for items, observing stock conditions and informing
the ROM of frequent out of stocks or changes in
movement. Shelf allocation adjustments can be made
quickly and easily if recognized by the store
personnel.

Ring up all sales correctly.

Follow all company policies and procedures such as
vendor checking, record keeping, etc.

Cash checks in strict accordance with company mandates.
Each firm should examine his area and market and
decide on specific limits and rules for cashing
checks. This is an area that can cause high un-

recoverable losses in a hurry if strict procedures

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180

are not outlined and carried out.
8. Control expenses-bags, utilities, laundry, etc.
9. Inform the ROM of immediate or future maintenance
that may be required.
10. Present suggestions and ideas that you (the employee)
feel will increase store sales and profits, or that

offer an opportunity to save expenses.

Hours

In an earlier section, we indicated that the con—
Venience-retail business requires longer, more convenient
Shopping hours. It is recognized that there will be an
incremental increase in expense,- however, the additional or

1’{g/argil'lal revenue to be obtained in excess of cost, will
“Ore than cover the insignificant rise in costs.

It should also be emphasized that the 9—11 p.m.
bus;iness is, for the most part, plus business, due to the
nature of the items being purchased at this time, e.g.,
,gigarettes, milk, bread, etc. Once the sales on these
cmmmodities are lost, they can never be regained. Customers
in t1}? market for these goods will purchase them in a

rent store, rather than waiting until the next day

aifte

acquire them. To date, the test model has proven this to
t0

a reality. In some instances 9-ll p.m. trade has
be

181

accounted for twenty—five per cent of the total daily business,
especially on week—ends. We readily admit that, as people
become aware of the extended hours for shopping, there will

be.a certain number that will prolong their shopping trip

until. a later, more convenient time. The sharp rise in sales

do ncfl: indicate that there has been a mass shift in shopping

time, ibut an actual number of new customers gained as a

result: of the total improvement package.
A work schedule was made for the model that we

felt vwould allow the most efficient utilization of time, and

at tfua same time provide maximum service to the customer.

W0 employees formerly worked seven hours each, (8 a.m. -
a P-m.) with a one hour overlap between them.
In order to accommodate the additional two hours in

afia evening, the total time of each employee was extended

to Egeven hours and forty—five minutes, but with no overlap.

seve21 of the total increased store hours were, therefore,

partially offset by doing away with the overlap. In order

to facilitate cash register change-over so as not to interrupt
customer service, two cash register pans were installed.
The departure of operation from the other stores

red that some provision be made to insure that the new

requi

stem of store operations would proceed as smoothly as
SY

ossible- This not only included regular store employees
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182

who worked at the model store, but for relief people as

well. The remedy for this situation was to program the work

for each shift, enumerating each job and indicating when it

should be accomplished. Exhibit #32 shows the actual program

set up for the model store.

Wages

Wage control is important in assuring continued

Profitable operation. We have indicated that this expense

Will generally be a semi—fixed, rather than variable expense.

There are certain steps that can be taken to make sure the

firm is not incurring non-productive wage expense. One of

the things done in the model store was to eliminate long
dVerlaps of incoming and outgoing employees. We were able

‘0 do this due to the decreased requirement of store

employees to carry out major stocking. The Retail Operations

Mangager. driver-vendors, and the company milk driver will be

responsible for stocking more than ninety-five per cent of

the items sold. This leaves only a small amount of products

to be handled by the store employees, e.g., cigarettes, candy,

flagagines, etc. Each company should examine its work

.hedules to determine if all the wage expenses being incurred
9C
e necessary for the mOSt Profitable operation. Additional
ar
urfi that produce no increase in sales or profits should
hO

be deleted'

Exhibit #32.

TIME

7:45

8:00

— 8:00

- 8:30

- 9:00

y: 00 ~ 10:00

10:0 0 - 12:00

1:00

- 3:30

BEFORE MORNING GIRL LEAVES,

183

Pick-Quick PANTRY programmed duties by shift.

DUTIES

l.

4.

Set up register
a) count money
b) Change date
c) zero customer count
d) change tape

Turn on lights

a) inside

b) display

c) sign rotating, no light
on unless dark

Milk inventory and call in

Dust mop sales floor

check milk case - full

check empty bottles - empty

dust shelves and straighten
racks

Fill up cigarettes

Check soft drinks

Put up any new magazines

a) Full old copies and place
in the back in a box

Check bottle returns

Fill milk rack for noon traffic

 

Check milk and empties

l.
2.
3.

Milk
Empties
Count moneyand check out

SHE MUST EMPTY THE

BOTTLE RETURN RACK

 

Exhibit #32 (Cont.)

3:15 - 3:30

3:30 - 5:30

7:00 -— 10:30

184

Programmed

H

ONLfiubUJNI-J

duties by shift.

Check in
Fill milk case
Count register CHECK THE

SHADE
Hulk rack EVENING
Empty bottles RUSH
HOUR
Straighten shelves
Milk case OUTSIDE
Empty returns LANTERN
LIGHT ON

Hulk cases
Empty bottles

Dust mop the sales floor

Clear floor of merchandise,
cases and trash

Check milk cooler - full

Lock the door - close
Count money

Put money away

Clear top of checkout
All lights and sign out
Night light on

MILK CASE SHOULD BE FULL BEFORE LEAVING

FOR THE NIGHT

185

The question of how much to pay store employees

is a difficult one. It is extremely hard to generalize on

this subject since market conditions, and employment situations,

and availability vary drastically. Each firm must examine

its own particular trading area. It must be remembered,

however, that high quality help cannot be secured for low

Wages. Conversely, it cannot be said that just because

high wages are paid, the employees will do a better than

average job. The amount, and quality of work that will be

received from the employee will directly depend on two

factors; (1) the individual himself: (2) the quality 0f

the Stipervision, training, and working environment. It is

flpt necessary to belabor this point.

Bonus Plans

As stated above, each market condition and company

will differ from the next; however, a word should be said

regarding employee incentive plans. It is the company's

prerogative to decide if one is desirable or necessary.

A basic desire of employees is to feel useful. A

workgi is usually willing, and anxious to be productive,
fiicient’ and loyal if she feels that the employer is

e’i
'ntereSted in her, is watching her efforts to improve and
1.

willing to reward her for her efforts.
is

186

Where a tangible reward is obtainable, over and

above salary, the employee is given the motivation to work

for it. The purpose of the sample bonus plan suggested offers

the employee an incentive to put forth more than a minimum

effort to accomplish the job. The more the employee benefits,

the more profit the company makes. It should be pointed out

that an incentive plan that offers little or no reward

Opportunities, will not produce the desired results--

.LI'ICreased sales and profits.

The main emphasis of the dairy—convenience store is

the high quality milk products. The customer usually comes

1nt0 the store primarily to purchase these products. The

employee has done little or nothing to create the demand
/r influence the sale of these products. It is for this

season that we believe company manufactured products be

excluded from the bonus plan. The customer is going to

Purachase them anyway. Instead, we suggest that bonus be

paid on sales of non-company manufactured products. This

is the product group we are seeking to expand. In order

that Store personnel receive bonus, they will be required to

put forth someeffort. Increased sales on non—dairy items

ill be profitable to the company as well as the employee.
w

The schedule below was one used for the model store.

 

187

Weekly Bonus

 

1% $100 199

2% $200 — 299

3% $300 ‘ 399 After $500, a flat 5% will be

paid on designated items (over

499 this amount).

4% $400

5% $500 and up

The results from one month's operation of the model

ShOMI that bonus now being paid on the new schedule is greater

thari the flat, single percentage bonus on total sales, as

was formerly the case. The amount of bonus to be paid and

the percentage of sales will have to be determined by each

filfin'by'examining the nature of marginal revenue derived
from the commodities on which the bonus is computed. The
fat-10 of profit distribution in the model plan is 5:1,

ttuit is, for every one dollar in additional profits paid to

thee employee, the company receives five dollars.

Customer Relations

In addition to the regular duties of store employees,
vwa believe that they should serve a feed-back function. With

thga thought in mind, we instituted a form to be kept at

tore level to record (1) customer suggestions and complaints,
5

2) requests for new items.

and (

What the customer thinks of the store and how it is

188

being run is quite important to the success of the store

operation. Management is not always available to answer

questions or handle complaints. Many times it never hears

about these things until sales have deteriorated. We believe

that a record of customer comments should be recorded, and
answered, so that when recurring situations on the same

problem or opportunity arises, corrective steps can have

been taken.

This is also true of requests for new items. Customer

needs and wants change frequently. It is not hard for a

Store to lose potential sales if it is not carrying the type
0f merchandise the customer needs. If frequent requests are
Wade for an item, management should decide if the product
fr line fits into the product mix. If it is felt to be

dgeded, the company should seriously consider adding it to

the present line. There will be many times, however, that

the product does not fit and will have to be excluded.

The least management can do is to examine the product
potential rather than taking it on, or leaving it out with
little or no thought to long range objectives. The feed-
ligaC-k principle is extremely important in retailing, and should
not be sold short. It is an effective tool that serves the

tailer' as well as the customer.
re

189

Summary

In recent years, much ado has been made of the
computer and the area of automation. The role of the indi-
vidual has been overshadowed by these innovations to the
point where he has been forced to take a lesser position.
In retailing, however, the most important resource the firm
has is its people.

The aim of this chapter has been to highlight the
importance of the individual at each level of the firm's
operation - top management, supervision, and store personnel.
The ultimate success of the firm will depend on how well
each individual performs the tasks he is assigned. We
amend this statement to the effect that the firm must know
what are the important jobs to be performed and who is
qualified to do them. We have also stressed the inter-
dependence of each level and how it fits into the total
scheme. Each should contribute to optimize results in a

particular facet of the business.

CHAPTER VIII

SUMMARY AND CONCLUSION

This paper was conceived as an attempt to give the
small dairy store operator one method of becoming more profit-
able in his retail outlet. Our approach has been to change
the retail dairy store into a complete convenience drive-
in store, and to inject into this new marketing approach the
analysis and control procedures developed by the super-
market industry. To thoroughly cover the subject, we first
studied some of the more advanced methods of plant and store
location. We conclude that both qualitative and quantitative
methods must be utilized, and that estimated sales, expenses,
profits and return on investment must be the basis of all
location studies. The Corporate Image was then examined, and
we described how we determined whg should be sold, and what
it takes to sell them. It was in this chapter that we
began to describe the changes made in the Pick-Quick
PANTRY model store. We have given the reader an actual model
to follow, so that he can relate his specific problems to our
model solutions and know that these suggestions are not
"Blue-sky“ hypothesizing, but have actually been put to

190

191

test in an operating store.

While the mechanics of corporate image development
is the same for almost any retail establishment, the specific
merchandiSing methodology employed is what determines to whom
the store will appeal. We discussed the policies and control
procedures we employed to give the model store a dairy—
convenience orientation with improved profits and return on
investment. To know what our profit picture really was, it
was necessary to analyze the financial controls at both the
headquarters level and the store level. Since our model
store was notably weak in the area, we devised new control
procedures and used them to guide the development of our
model.

Finally, we examined the critical area of personnel
management. In studying management's approach to their
supervisors and store employees, we developed sample job
specifications and duties for our model store. Without
sound professional management, all else will fail. It is
our purpose to stress the programming of these jobs so that
a minimum level can be attained by the least experienced
individuals. Naturally, the operation that can attract,
train, and motivate its employees to produce above this
minimunllevel, will be even more successful.

In conclusion, we remind the reader that the model

192

presented is useful only to illustrate the various principles

 

discussed. While it has been an immediate success, the
long—run success of this, or any, business will be the degree
to which management constantly and consistently reviews its
current status in all of the above areas, and modifies

its policies and procedures to take the new competitive
situations into account. It is this constant feedback,
analysis and change that determines the winner in today's
marketplace. There is no question that the market is
available for a well run dairy—convenience store. All

that is needed is a man with a plan. This we have tried

to provide.

BIBLIOGRAPHY

Books

Anderson, Clayton W. "Break-even Analysis and variable
Budgeting,” Administrative Control and Executive
Action. Columbus, Ohio: Charles E. Merril Books,
Inc., 1961.

Bristol, L. H., Jr. Developing the Corporate Image.
New York: C. Scribner and Sons, 1960.

Charvat, Frank J. Supermarketing. New York: The Macmillan
Company, 1961.

 

Demographic Yearbook, 1962.

Ferber, Robert and Verdoon, P. J. Research Methods in
Economics and Business. New York: The Macmillan
Company, 1962.

Johnson, Robert W. Financial Management. Boston: Allyn
and Bacon, Inc., 1961.

Leftwich, Richard H. The Price System and Resource
Allocation. New YOrk: Holt, Rinehart and Winston,
1962.

Mueller, Willard F. and Garoian, Leon. Changes in the Market
Structure Grocepngetailing. Madison: University
of Wisconsin Press, 1961.

 

Schlafer, Robert. Probability and Statistics for Business
Decisions. New York: McGraw—Hill Book Co., Inc.,
1959.

Seelye, Alfred L. MarketiaggIn Transition. New York:
Harper and Brothers, 1958.

Smykay, E. W., Bowersox, D. J., and Mossman, F. H. Physical
Distribution Management. New YOrk: The Macmillan
Company, 1961.

 

193

 

 

194

Staudt, Thomas A. "Business Management as a Total System
of Action and the Role of Marketing," Managerial
Marketing: Perspectives and Viewpoints. Homewood,
Ill.: Richard D. Irvin, Inc., 1962.

 

Yaseen, Leonard C. Plant Location. New York: American
Research Council, 1956.

 

Periodicals

 

"Art of Building A Corporate Identity," Public Relations
Journal, 19:16-20, Jan., 1962.

 

"Basic Dimensions of the Corporate Image," Journal of

 

Bowersox, D. J. "An Analytic Approach to Warehouse Locations,"
Handling and Shipping, Feb., 1962, PP. l7-20.

 

Brown, Earl H. "Bantams Trace Uneven Sales, Profit Patterns,"
FOOd TQPiCBI Jan., 1961: p. 6+.

 

"Drive-In, Quick-Shop Stores Showing Growth," Progressive
Grocer, Aug., 1956, pp. 204+.

 

”Facts About Supermarkets in 1961," Super Market Merchandising,
Feb., 1962, p. 61.

 

For YOur Convenience, American Dairy Association, April, 1963.
For Your Information, American Dairy Association, Feb. 20, 1963.

"Latest Fad Among the Brass,“ Business Week, March 28, 1959,
p. 103+.

 

Lippincott and Marguiles, ”Visual Schitzophrenia," Management
Methods, 18:49-51, Aug., 1960.

 

Marguiles, W. P. "How to Select a New Corporate Name,"
Public Relations Journal, 19:12, Feb., 1962.

Milkovics, Lewis. "Drive-Ins Gain Popularity in Northern
States," Progressive Grocer, July, 1958, p. 70+.

 

195

"Min-It Market Drive—In Stores Expanding
in California,” Progressive Grocer, Oct., 1958,
p. 54+.

 

 

. "Min-It Market Drive-In Stores Expanding

 

in California," Part II, Progressive Grocer, Nov.,
1958, p. 64+.

 

. "Convenient Food Markets 2000 Drive—Ins
Goal by 1965," Progressive Grocer, Dec., 1959.

 

 

. "A Report on Drive-In Food Markets,"
Progressive Grocer, Jan., 1960, p. 73+.

 

 

. "What It Takes to Stock a New Drive—In

 

Market," Progressive Grocer, Feb., 1960, p. 68+.

 

. “Minit Market Makes Hit with New Jersey

 

Shoppers," Progressive Grocer, Jan., 1961, p. 61.

"New Frontiers in Store Location, Supermarket Merchandising,

Feb., 1963, p. 110.

 

"Small Units in Comeback in Guise of Bantams," Food Topics,
Jan., 1961, p. 16+.

 

"Speede Marts Squeeze Supermarket Lines into 2,200 Sq.
Foot Selling Area," Progressive Grocer, Feb., 1958,
p. 172+.

 

"The Truth about Bantams, Drive—Ins, Etc.," Super Market
Merchandising, Nov. 1958, pp. 44-66.

 

 

Pamphlets

 

Barnum, Byrd, Jones and Wright. Operation Opportunity.
(A Study in Dairy Retail Operations.) East Lansing,
Mich., Jan., 1963, 82 p.

 

Baumer, Elmer F. "Are Dairy Stores the Answer for Independents,"
Department of Agricultural Economics and Rural
Sociology. Columbus, Ohio: The Ohio State University.

____ . "Some Economics of Bargaining between
Producers and Handlers of Dairy Products,“ The
Department of Agriculture Economics and Rural
Sociology. Columbus, Ohio: The Ohio State University.

196

Blanchard, W. H., McBride, Glynn, and Rippin, A. L.
A Cost Analysis of Fluid Milk Packaging Operations.
East Lansing: Michigan State University,
Department of Agricultural Economics and Food Science,

42 p.

Cohen, Saul B. and Applebaum, William. ”Evaluating Store
Sites and Determining Store Rents," Store Location
and Development Studies. Worcester Mass.:

Clark University, Jan., 1961.

McBride, Glen. Structural Changes in Michigan's Dairy
Industry and Their Implications. Department of
Agricultural Economics. East Lansing: Michigan
State University, April, 1962.

Government Publications

Sevin, Charles H.' How Manufacturers Reduce their Distribution
Costs, Economic Series No. 72. Washington, D.C.:
U.S. Government Printing Office.

Statistical Abstracts of the United States, 83rd Edition.
Washington, D. C.: U.S. Government Printing
Office, 1962.

U.S. Department of Agriculture, Dairy Statistics Through
1960.

Uppublished Material

Kennedy, J. F. Speech at Milk and Nutrition Conference.
Washington, D.C., January, 1962. Unpublished.

APPENDIX

Authorized Vendor Space

Description

 

I. Housewares and Hardware Section

II. Health and Beauty Aids
III. Bakery Department
Company A 20% of total dept. space
Company B 20% of total dept. space
Company C 20% of total dept. space
Private
Label 35% of total dept. space
Archway
Cookie
Company 5% of total dept. space
IV. Magazine Section

V. Tobacco and Miscellaneous Section
Cigarettes (carton sales)
50% of total dept. space
Cigars (five pack sales) 5% of
total dept. space
Smoking tobacco 5% of total

dept. space
Candy and gum 40% of total
dept. space
VI. Individual Cigarette Sales
VII. Snack Items, Potato Chips and Snacks

Frito Lay 70% of total dept. space
Adams Potato Chips 30% of total
dept. space

197

Space of Section
in Linear Feet

9' shelf space
44.5 sq. ft. peg
board space

32' shelf space
6 sq. ft. peg board
space

40' shelf space

24' shelf space

4' section
5 shelves
20' shelf space

2' long
6 shelves merchandiser

22' shelf space

198

Other Authorized Items

 

Authorized Soft Drinks

 

Six Pack Individual Sales

Seven Up 7 ounces Seven Up 24 ounces
Seven Up 12 ounces Vernor's 24 ounces
vernor's 8 ounces HieKlas Assorted 24 ounces
Canada Dry Canada Dry

Ginger Ale 7 ounces Assorted Mixes 24 ounces
Pepsi Cola 16 ounces Coca Cola 26 ounces
Pepsi Cola 12 ounces Pepsi Cola 26 ounces
Coca Cola 16 ounces
Coca Cola 12 ounces

Sprite 12 ounces

Authorized National Biscuit Company Baked Goods

Number One Premium Saltines Six Ounce Rye Thins

Seven ounce Premium Saltines Oreo Cookies - small size
Number One Graham Crackers Fig Newton Cookies - small size
Twelve Ounce Ritz Crackers Sugar Wafers - small size

Six Ounce Cheese Nips Cheese Tid Bits — 10¢ size

Six Ounce Bacon Thins Oysterettes - 19¢ size

Six Ounce Swiss and Ham Cheese Nips — 10¢ size

Six Ounce Sociables

Authorized Packaged Meat Items

 

Item Size Retail Price
Skinless Franks 1 pound $ .65
Leona Bologna, round & square 8 ounces .39
Leona Bologna, round & square 1 pound .69
Honey Loaf 8 ounces .59
Old Hickory Loaf 8 ounces .59
Ham and Cheese Loaf 8 ounces .59
Meat and Cheese Loaf 8 ounces .49
Cooked Salami Loaf 8 ounces .49
Old Fashion Loaf 8 ounces .49
Party Assortment Loaf 1 pound .89
Roasty—Links Skinless Sausage 10 ounces .59
Polish Skinless Sausage 1 pound .79
Bacon . 1 pound .69
Boiled Ham 6 ounces .69
Dried Beef 3 ounces .39
Canadian Bacon 6 ounces .75

Braunschweiger .79

199

Company Manufactured Products

 

 

Description Size Retail Price
Plain Homogenized Milk One-half gallon $ .35
Vitamin D Milk One-half gallon .36
Multivitamin Milk One-half gallon .37
Skimmed Milk One-half gallon .27
Regular Milk Quart .20
Homogenized Milk Quart , .21
Buttermilk Quart .19
Chocolate Milk Quart .26
Cream Quart .95
Half and Half Quart .51
Shipping Cream Quart 1.19
Cream One-half pint .25
Chocolate Milk Pint .15
Half and Half Pint .26
Cottage Cheese 30 ounces .39
Cottage Cheese Number One .21
Whipping Cream One—half pint .33
Sour Cream Pint .39
Orange Juice One-half gallon .59
Flavor Drink One-half gallon .29
Orange Drink Quart .18
Orange Drink Pint .10
Ice Cream

Regular Gallon .96
Regular One-half gallon .59
Regular Quart .49
Regular Pint .25
Sherbet One-half gallon .59
Sherbet Pint .25
Others
Butter 1 pound .73
Grade A Eggs Dozen .54
Brown Giant Ice Cream Bar .05
Popsicle Bar .05

Malt Cup .10

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