Growing Your Productivity: How Small Independent Retailers Can Compete with the Chains

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December 19th 2019

by Carolee Colter – Consultant, Columinate

No expense can go unexamined in this era of relentless competition. “The marketplace continues to get more efficient, and our competitors are constantly in a battle to lower prices,” says Don Moffitt, my Columinate colleague.

Don conducts financial feasibility studies for retailers, particularly when they are looking to expand or refinance debt. Often a business contemplating a significant change can’t manage it without a hard look at reducing expenses. And in retail, we know labor is the second-highest expense after the cost of goods.

Don Moffitt“When we look at trimming expenses,” says Don, “it’s not hard to ask if we can cut the cost of goods or supplies. Can we wrap the food differently, find a cheaper source of store supplies, ask customers if they want a bag? That kind of cost-cutting is not painful. But cutting labor is emotionally challenging.”

So how do small independent retailers compete with the chains? As Don points out, “If we try to pay for increased wages by raising prices, our competitors won’t let us do that easily.” At the same time, paying low wages in a tight labor market leads to high turnover, understaffing, and losing your talent to the competition.

The only way to balance controlling costs with increasing compensation is to step up productivity. “That doesn’t mean working harder or faster,” Don insists. “It’s a cliché to say ‘work smarter,’ but it’s true. Our innovation has to be in how we work together, how we do our jobs.”

Don draws on an idea from his 18 years with Whole Foods Market. When he started, the company was just a one-store operation—a small, locally-owned grocery store. By the time he left, he’d served as a store manager, Vice President of Store Development and Regional President–and Whole Foods had become a regional presence with 85 stores.

One of Whole Foods’ innovations was a labor ‘gainshare’ program. Here’s how Don explains it: “Let’s say we’ve calculated that the grocery department could run on 7.2% of sales for labor while providing adequate service. If we can do the work with less labor as a percentage of sales, almost all of the savings gained are paid back to the staff.”

The gainshare program motivated the staff to find ways to increase productivity. “People wrote down every task they did and asked, ‘What’s the most efficient way we can do this?'”

However, a gainshare program needs to be well designed. As Don relates, “When you use compensation incentives, whatever you’re incentivizing, you will get. Better productivity could result in worse customer service. You can be too efficient.” For example, the prepared foods department had been consistently over budget on labor. With the gainshare program, the department manager started scheduling tighter. But then customers were waiting too long in line.

Deli counterBut here’s where innovation in how we work together comes in. The prepared foods manager supervised the cheese section as well as the deli counter. “So he went to his cheese cutters and told them, ‘When the lines get long, come help the customers at the counter. When the lines are short, we’ll send people over to help you.'”

In contrast, Don tells about a store whose owners simply paid out profit-sharing checks to staff without asking anything in return. “There was no creativity or productivity required,” he notes. It was a wasted opportunity and ultimately won’t help the business to thrive.

“If people don’t get financial information and understand the larger context of their day-to-day decisions, they aren’t in a position to help the business run more productively. That’s why I’m a fan of Open Book Management.”

If you’re going to institute a financial incentive program for staff, it’s important to make a celebration of the payout with an explanation of how the staff contributed to the results. “We need incentives that are not only financial,” Don thinks. “At Whole Foods, we held monthly meetings where it was announced that the team just set a new record and people cheered. Cash alone wouldn’t have been adequate.”

Conversely, if there is no payout, it’s still a good idea to hold a meeting to discuss what prevented the gain or profit, and what steps the staff and leaders can take for better results next quarter.

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Carolee Colter has been consulting for co-ops and independents in the natural foods industry for over 30 years. She’s been leading workshops at Provender for most of those years.

As the leader of the HR Team of Columinate, she has surveyed thousands of employees in our industry, and uses that data in her work to help make her clients the workplaces of choice in their communities. For help with increasing productivity with staff involvement, contact info@columinate.coop.