January 2017 GP Decline

Below is an email from Joe Anderson, Zone Merchandising Leader regarding January’s GP Decline as it has a lot of good information. 

 Dear FOASC Leadership,

As your local Merchandising representative, I wanted to proactively address concerns about January margin. I put together the following report for you and your store base. I hope this helps. Please let me know if you have any questions!  

January was a tough month for sales and margin. Obviously sales were impacted by the weather — I haven’t seen weather this wet since El Nino 1998 – I remember watching people paddle canoes down the streets of Santa Barbara. However, I wanted to specifically address the margin declines. The negative impact on margin was due to a few key factors:

2017 MARGIN – WHAT’S IMPACTING GP%?

1)      Last year in January 2016, we had the record Lotto jackpot. This resulted in an extra $2.5 Million GP$ for the Zone. Remember, Lotto is calculated at 100% GP, so every ticket sold inflates the stores total GP. Normally this is a good thing. As a Market Manager, I used to tell Franchisees that they best way to increase margin is to sell more Food or more Lotto (ie: adding more tickets under the counter). Basically, we had no chance of cycling these numbers.

2)      Last year in January 2016, GLA had an extra $300,000 in non-carbs billbacks that we cycled this year. You may remember that we changed the way billbacks/scanbacks were processed in the fourth quarter of 2015, so 2-3 months of overdue funding hit in January 2016. Funding levels are increasing, however the amount didn’t cover the entire fourth quarter of 2015 hitting in January 2016.

3)      Altria changed the way they transmit the Category Alignment Funds. In short, the January billbacks were short and we will see these populate in February… so, expect a much better month shortly.

If sales were positive to last year, we probably would have been OK. As you know, we are very margin focused in the Zone, and we actually grew margin across most of the major categories in January, for example:

1)      Beer was up 60 basis points.

2)      Candy was up 140 basis points.

3)      Coffee was up 190 basis points.

4)      Fountain was flat.

5)      Fresh Bakery was up 250 basis points!

6)      HABC was up 2 basis points.

7)      Non Carbs down 40 basis points (see point #2 above).

8)      Soft Drinks were up 240 basis points.

Also, as stated above, I’m notably GP% obsessed. I personally adjusted pricing on approximately 600 items in 2016 (NOT due to cost increases) in order to increase margin %, even though some prices went down to drive traffic on key items and promotions. This allowed us to simultaneously grow sales, GP%, t-counts, and support the overall ETA process. This process included extensive competitive price surveys on every item in the store, along with our new pricing model system that allows for fairly accurate impact statements. Expect this (again) in early 2017 from your local Merch team and Norm.

2017 SALES – HOW CAN WE INCREASE PROFITS TODAY?

Despite the fact that we can “explain” the GP compression (see above), Norm and the local team are very sensitive to the loss of revenue that Franchisees are feeling this year from soft SALES. Norm is asking for the local leadership to do more and go above-and-beyond during this time. He’s asking every FC in the Zone to review by-store PMAs (by-category margin reports), beginning with a workshop to ensure that they are highly trained to support franchisees. Expect FC’s to hit stores over the next 1-2 weeks with a laser focus on margin and a renewed sense of urgency about SALES. We are equipping them with a portfolio of ideas for stores to immediately grow sales, and we have some good ideas.

PS: As I speak to Franchisees, I’m proactively advising everyone to sell cigarettes at SRP and the SRP markdown for 2-packs. With the April date looming, customers are watching every penny, and they will leave us forever if we are not offering our best price. Of course this is optional advice, but I highly advise not adjusting pricing up for the next few months. We can and will reevaluate in June.

Happy selling. More to come.

Thank you,

Joe Anderson

7-Eleven – Greater Los Angeles

Zone Merchandising Leader

Please feel free to reach out if you have further questions.