Busy Does Not Equal Profitable

My parents used to have a favorite watering hole and feed bag that served the best barbecue in the south along with beer brewed on the premises. What can I say? My pop likes his beer and 'cue.

Imagine my parents dismay when they approached the place one Saturday evening to find the doors shuttered and the lights off. "I don't understand it," my mother bemused, "the place was always so busy, how could they go out of business?"

She was partly right. The place was typically hopping on weekends, and on the occasions me and my misses accompanied them we had to wait a spell for a table. But, busy does not equal profitable. All busy means is that an establishment has a popular product that was effectively marketed to the surrounding area. That doesn't mean they are doing the most basic of economic functions -- buying low and selling high.

When purchasing a franchise, there's a good amount of research you should do before betting away your retirement and plunking down the balance of your 401K. One of the simplest things to do is visit a few of the franchise locations within driving distance and see how busy they are. It seems logical. But all this will tell you is how popular the product is, not how profitable you will be.

You still have to look into distribution agreements, leases, labor costs, franchise fees, etc. You know, the meat and potatoes of running a business. Otherwise you may end up like these guys. One of whom fell victim to the old "place is jumping" research.

And don't worry about my dad, he's already found a new place to gas up on the weekends. Instead of barbecue it's crab legs, and the microbrewery on the premises puts the other one to shame. He's a resilient man, my dad.

Franchise "Creature Feature" Writer

Alternate Supply Chains

I have a friend who used to own and operate a small video rental store, the type you would safely refer to as a "mom and pop" operation. There was only one location with a small, but loyal, customer base. The store was profitable, but slight shifts in the business could spoil the bottom line from month to month.

If you don't know anything about the DVD distribution pipeline, don't worry, it's actually pretty simple. The major studios sell the DVDs to a few distributors with warehouses across the country who in turn supply stores with the movies. Obviously, the more volume a store does, the more discount the distributor gives. Since my friend's store was so small, she obviously didn't net that much of a discount.

One day she was thumbing through the Sunday paper and saw an ad for one of the major electronic chains, the kind that sells everything -- including DVDs. Their advertised price for that week's major release was less than her distributor had charged her per unit of that title by approximately five dollars. It might not seem like much, but when she checked the previous sale prices at this retailer over the last month, at the volume she dealt in, the difference over all the units she purchased that month was astounding. In fact, the savings would approximately equal the monthly salary of one of her part-time employees.

On Monday, she called her distributor and asked if she could negotiate a better discount to help her compete in her market. Based on her volume, she couldn't get a better deal. She would have had to order around ten times the amounts she currently dealt in to achieve the next discount plateau.

So, she negotiated a deal with the manager of the local electronics store, and began purchasing her copies of movies directly from them at their weekly discount prices. She dealt in such small volume (about eight copies of a major release) that it didn't negatively impact the electronics store's bottom line, and since she was renting rather than selling she really wasn't competing. Her meager profits started looking up.

I guess you couldn't say she thought "out of the box" on that one since she was buying from a big box retailer, but she certainly didn't allow preconceived notions about an industry' supply chain keep her from turning a profit.

Purchasing goods from local farmer and growers, materials that don't need to be shipped from the other side of the country, and other little savings throughout your business (which is why it's so important to not allow the franchisor lock you into a singular supply chain) can be the difference between living in the red and living in the black.

Franchise "Creature Feature" Writer

Plan Your Store Layout Carefully

Upon entering my local grocery the other day, I noticed a weight scale placed directly at the entrance. I figured what the hey and hopped on. The red needle sprung to life and bounced back and forth for a few seconds before finally settling on a number. Needless to say I slinked off the scale with far less hubris than I had jumping on to it and prayed no one was standing behind me who saw that number.

Believe me when I say that little red needle adversely affected my shopping experience. When staring down the sale on 24 pack sodas, I decided tap water might be better. I figured my baked potatoes didn't need sour cream, so that didn't get purchased on this trip. And although I love cheese, I skipped that aisle completely.

All in all I spent less this week at the grocery store than I normally do by making those, and many similar, decisions.

So, the question the grocery store needs to ask is whether or not placing that weight scale directly at the entrance was the best decision for their store?

I've run a store before. I know that you need to add something to the store so other things get pushed around and everything gets shuffled up -- and you eventually wind up with a weight scale by the door.

Every now and then it's a good idea to take a step back and look at the store layout as a whole. What's the store's traffic? How does it flow? What can be put there to maximize sales? And most importantly, what shouldn't be put there because it will drive sales down?

It's like that old saying, don't lose sight of the forest for the trees. And the new saying I'm gonna try and spread across the nation, don't tell me I'm fat when you want me to buy food. Sure, it doesn't have the same ring as the first, but it's still very true.

Franchise "Creature Feature" Writer