Boosting Store Profitability
Store Profitability Boost
Our client, an operator of semi-autonomous convenience stores, was intrigued by our MOOS offering. They obviously liked the ability to improve their shelf availability and reduce operational costs, but they really invested due to a more strategic rationale of future use-cases with connected shelves. Long before they could get there, they were surprised by the huge operational improvement potential that they had left untouched.
The Setting
Our client operates largely unmanned shops in typical high-traffic inner-city convenience locations and captive audiences, e.g., hotel lobbies and travel hubs. The stores are replenished by suppliers, and re-ordering takes place through the local payment terminal. They have 'shop-keepers' who are responsible for emergency restocking or jumping in for some customer support, but these are either remote or side-jobs for lobby personnel in a hotel. At high-traffic locations, the replenishment and store check could be daily, but this was less frequent outside of their primary circle.
They have a payment terminal and rely on customers' own scanning and check-out. While this gives a good customer experience, it also places a lot of trust in the willingness of customers to actually check out and pay for all their items. With their all-night operations and tailoring to a party crowd, they clearly tested the good faith operations and experienced clear limitations. Their shrinkage was very high, especially for beers and snacks on weekend nights.
They were looking for a smarter way to invest in a better formula and saw great strategic value in the solution of MOOS.
The Strategy: Gateway to Retail Innovation
With remote or outsourced shop-keepers, they needed largely autonomous operations. As such, they have been scanning and evaluating a wide variety of unmanned retail tech. They had experimented with cameras and object recognition, traditional weight scales, check-in gates, and various components of scan & go or grab & go formulas. Obviously, they looked with great interest at the struggle of Walmart's GO and the local experiments of retail giants. Like others, they had gained their own experience with the limitations of current retail tech – and they had grown more realistic about the required phasing towards autonomous operations.
They wanted to pursue a roadmap and invest in components that fit in a wider ecosystem and could create a pathway towards innovation. They were excited by the opportunity that MOOS could offer with 'cornerstone' technology on this path, by 'connecting the shelves'. They recognized a progression of use-cases on the back of this cornerstone:
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Inventory control: Get better control of the actual stock and replenishment of stores. The shrinkage challenge and outsourced operation made it challenging to ensure acceptable service levels. Spot checks showed a huge error between inventory in the system and actual inventory on the shelves. Getting a more accurate view of actual shelf-inventory levels could help optimize their replenishment and improve OSA. In addition, a wide array of diagnostics were identified to use historical data, e.g., planogram optimization, dynamic assortment (morning vs. evening), etc.
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Transaction: Create alerts for theft, communicate promotions/cross-sell, create a check of replenishment by 3rd parties, check of shelf quality (e.g., shift to front).
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Integration/Innovation: Create the 'pick from shelf' trigger that can be added to a basket for an individual who could be identified with check-in or cameras. This could create automated check-out.
The Surprise: Huge Hidden Potential
We started our collaboration with a pilot, connecting 10 cooler shelves with their high-rotation products across several test sites. The insights that this uncovered created quite an eye-opener.
They naturally already knew the composition of their business. Like many convenience stores, their high rotation products were a selection of drinks and snacks. The Pareto of their assortment was fairly extreme: over 80% of their absolute margin was created by only a handful of products. This was already well-understood based on their sales and margin reporting.
What they did not know was how much potential they had left untouched by the occasional stock-out of these products. Even with daily replenishments and daily store-checks, they could easily miss a few hours of sales of their high-rotating items. Using the MOOS system to signal that they're 'running low', creating a small back-stock for immediate intra-day restocking replenishment from a nearby hub could already address this.
Putting numbers to this potential created the real surprise. If the MOOS system and 'rapid replenishment' were only implemented for six (!) of their most critical products, they could already boost store profitability by a whopping 20%. This already takes into account the additional investment in their control and response system, making it a no-brainer business case.
Can You Also Get a Profitability Boost?
The jump in performance at our client was pretty astonishing. Quickly finding and capturing such potential is obviously related to the state of the business and largely due to the maturity of their operations. Probably other measures or interventions could have gone a long way to capture a good share of this potential. At the same time, the path towards discovering and driving improvements was shortened dramatically with the MOOS system. And, it doesn't stop there. After enabling operational improvements in their store operations, their original strategic ambition still holds. The MOOS system and resulting 'connected shelf' can create a pathway towards all kinds of value-added use-cases that are currently being sequenced and explored with our client.
We are proud to have shown such clear value potential in unmanned/outsourced retail operations. We have learned what the telltale signs and criteria are and can fairly quickly pinpoint similar value cases in your retail operations as well. Get in touch to explore.