A few days ago, the Chicago chain of grocery stores, Treasure Island Foods, announced that it is closing. The store has been a Chicago institution for some 55 years, serving urban areas with mostly small format stores, filled with both common and hard to find items. Julia Childs once called Treasure Island Foods, “America’s most European supermarket.”
In the Chicago Tribune, there were columns lamenting the loss of this Chicago icon. Treasure Island Foods was not a low cost grocery. Indeed, they carried dozens of mustard brands and even more olive oils. To the discerning shopper, foodie, or gourmand, there was always something interesting there, and it had a price. In general, they worked to impress customers with hard to find items and offered good service. The model worked or decades. Now it does not work.
What happened to Treasure Island is a symptom of what is and has been happening to retail.
1. E-Commerce Provides Great Selection: Even if this store had a great selection of hard to find items, the reality is that Amazon and its many third-party sellers can provide an even bigger selection.
Lesson: It is hard to compete with the infinite selection of online. Retailers have the advantage of offering instant delivery. The focus for retailers should be on high demand, high use items, not rare and low rate of sale items.
2. Prices Matter: The sad tale is that Treasure Island Foods had most of its stores in very affluent parts of Chicago and its suburbs. Presumably, these customers can handle higher prices in exchange for selection and service. “Wouldn’t you pay a dollar extra for great service?” That was the message of a Chicago shopper talking about the store in the wake of its closing. Sorry, wealthy people like deals, too, and no they don’t want to pay more for paper towels because you smiled at the checkout lane. Plus, they are more likely to order from Amazon, shop online and buy in large quantities at Costco. More deals, please!
Lesson: It is hard to run a store and compete against Amazon, an e-commerce leader with advantages in logistics, shipping, analytics, data, and even ordering from suppliers. Price matters to everyone. People love deals. Holding onto a niche that is price defensible is harder each day. Lowering prices gets you more customers and keeps away the competition. Always examine your business for places to invite more customers by lowering price. High margins are beautiful but attract competition. Jeff Bezos said, “Your margin is my opportunity.” Beware, the high margin business.
3. We Learned from Self Service Models: Most people will tell you they love good customer service and that customer service is hard to find. These are the same people that pump their own gas, box their own items at Costco, go to Home Depot for DIY projects, and check themselves in at the airport and at the hotel. Frankly, the wave of self service models, including now, cashless and check-out free Amazon stores, shows that we love the idea of customer service, but would like to save a buck (or more) if we do a few simple things ourselves.
Lesson: Price transparency wins over people. Invite them to take on some work, lower price, and people accept the work and assume the value is fair. Self service won over expensive customer service because people valued price over assistance.
4. Focus on Products as Services: The other side of customer service is that customers do pay for service, but when a product is a service (and it saves them time, work, and even provides improved outcomes). Consider the rise of Instacart, food preparation and delivery services and even the regular replenishment of staple items on Amazon. In these examples, the product is supplanted by a more valuable service, namely the full shopping, delivery, stocking and preparation of the product. Yes, people pay for that.
Lesson: If your retail business can become a service, go for it. Services that return time and reduce work to consumers are more valuable than the small customer service gestures in a store. Delivery, sourcing, use, stocking – you name it, yes there is a demand for that. But you don’t sell that in a brick and mortar store you do it online and via an app with a digital strategy.
5. Use the Right Metric for Your Retail Business: Aldi, the large network of discount grocery stores is a success story, even if it fights with Amazon, Whole Foods, and others. What have they done? They use small format stores to sell a few very highly desired items. It has been estimated that their products are selected based on the “velocity of sale.” No hard to find items there. They want items that will sell fast and allow for rapid replenishment of the shelves. The inventory is nearly entirely on the floor. Aldi is otherwise bare bones. It offers few extras, low prices, albeit with limited selection, and enjoys quite the following.
Lesson: If you operate in physical retail, brick and mortar, realize you are in the real estate business. Your products pay you rent. The best rent is a high, regular rent. This can come from products that sell fast and often, with a low to moderate margin. Slow moving, expensive items are often not as good at paying rent. The sales are infrequent and require a highly trained sales force to sell the items. Consider a metric like gross sales per square foot per day, and stay very focused on reducing costs. It has worked for Aldi.
Professor Walker provides keynote talks, seminars presentations, executive training programs, and executive briefings.
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“From Big Data to Big Profits: Getting the Most from Your Data and Analytics”
“Leveraging Artificial Intelligence and Automation at Work”
“Winner Take All – Digital Strategy: From Data to Dominance”
“Success with an Inter-Generational Workforce: From Boomers to Millennials”
“FinTech, Payments, and Economic Trends and Outlooks in Consumer Lending”
“The World in 2050: Risks and Opportunities Ahead”
About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University.
His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
He will miss Treasure Island Foods, but will surely find impressive selection at Whole Foods and online and great deals at Aldi and Costco.
You can find him at @RussWalker1492 and russellwalkerphd.com
Alsi, Amazon, Chicago, Costco, Customer Service, Data, E-Commerce, featured, Food, foods, grocery, Instacart, Jeff Bezos, Julia Child, margin, mustard, olive oil, prices, Pricing, rent, Retail, service, shipping, Treasure Island Foods, Whole Foods
Russell – thought this was a good article. I’ve invested in the retail technology space and grocery in particular. Laurence