October 6, 2015

Measuring the Gap Between Performance and Potential

Insider

How’s business? Good? Great? Better than you expect?

Most fuel and convenience retailers—even the best—have gaps between performance and potential. The success that’s possible in a particular site actually changes as markets, consumers and competition change. That means that a retailer’s horizon for success also changes. The way you defined success yesterday—and the business practices you’re using to achieve it—may no longer make sense in today’s reality.

Ignoring the gap between performance and potential is like leaving money buried in the dirt. This is especially true of retailers who established their businesses in a simpler time, when it was possible to manage a business with just a few metrics. “Volume is everything, and price drives volume,” one retailer told us. But with price his only tool, lower and lower his prices went until there was nowhere lower to go. 

Another retailer was ready to expand his business: “With this location I can’t lose.” He commissioned a site analysis to confirm what he already believed. But Kalibrate’s analysis, accounting for competition, traffic and consumer spending patterns in the area, showed a very different picture. When Kalibrate recommended against the purchase, the fuel retailer wasn’t happy. He would have been even less happy had he invested in a site and, three years down the line, discovered that it was a business built to fail. 

Best-in-class fuel and convenience retailers combine big ambitions with objective assessments. This creates a foundation of REALITY strong enough to stand on.

 

KEY CONCEPT: Market Efficiency

Market efficiency is defined as market share divided by volume share. So, for example, 10% of site market share should return 10% volume share. This is a key indicator of fuel retail performance in relation to the competitive environment. Many fuel retailers don’t know about this indicator, and therefore have no idea that it can be influenced to raise performance. Market efficiency can help fuel retailers approach strategy in three areas of: 

Performance management strategy

  • What do I need to do to become the pacesetter in my market?
  • Which of my sites are underperforming? 
  • How much and where should I investment to increase site performance? What return can I expect?

Market entry and growth strategy

  • Where is the unsatisfied demand in my existing markets?
  • Which new markets are the most attractive for me to enter?  
  • What are the points of critical mass and saturation within each market?

Investment/divestment strategy

  • How should I invest capital for highest returns? Open new outlets? Rebuild or remodel existing outlets? Change offerings at the sites? 
  • Should I divest underperforming sites or invest to increase performance? 
  • Should I consider network/site acquisition opportunities?
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