From #126, September - October 2006

Closing the ‘Gap’

Using co-op data to achieve improved store performance

B Y   M E L   B R A V E R M A N 

drawing of construction site

Many cooperatives struggle to find appropriate operational benchmarks and to set challenging yet attainable goals. Without the use of external data to help them understand how the industry may be changing, they are left with their own historical performance data (if available) as the sole source from which to base their benchmarks and goals. While cooperatives that have been historically successful (financially speaking) may be able to use this approach and maintain their success, it is more difficult for underperforming stores to use this model, although many do.

It is also apparent that successful stores are successful not because they simply continue to operate as they have in the past. Much of their success is due to their desire to continually improve, and part of that improvement is driven by having current information on how others in the industry are performing and by comparing their performance to others. So, where do many cooperative retailers look for industry data, and how do they use this data in setting their goals?

CoCoGap is a tool developed by Walden Swanson for the specific purpose of exposing operators to industry achievements and gearing users to stretch their comfort zone when establishing departmental goals. It is a tool that allows users to view their controllable operational data (margin, labor percent, sales growth, and inventory turns) in comparison to high performers—the top quartile of peers. CoCoGap allows the user to create a scenario for what s/he would like to achieve and quantifies the proposed performance in departmental terms. Using this tool appropriately requires the user’s understanding of other factors in a goal-setting process, such as historical performance, industry trends, market factors (competition), and new approaches to be initiated.

Learning from co-op peers
In early 2006, I was asked to assess the operational performance of all stores in the Central Corridor and to make suggestions on areas where the co-ops in this region might beneficially focus part of their training budgets. In thinking through this process, I determined that by using CoCoGap I would not only be able to measure how well each department in each store was performing, but, more important, I would also be able to produce a dollar amount for the “gap” in performance (the difference between individual store performance and the top quartile of stores) for each controllable factor.

In setting up the spreadsheet to allow the Central Corridor co-ops to view each controllable area of their stores’ operational performance, I exposed them to the dollar amount of underperformance. When quantifying performance in this way, it is much easier to see where you may receive the greatest return for your input of time and resources.

We are now involved in a project in which most of the produce managers in the Central Corridor are working on closing the gap in margin that the assessment brought to light. Produce managers viewed their current performance relative to the top quartile in their CoCoGap comparison, understood the dollar amount of potential gain, and instituted a set of goals and specific tactics to “close the gap” and increase their department’s profitability. As of this writing we have not had the results of our first quarter in this process, but we have heightened the awareness of produce managers and general managers concerning the gains that are available to them.

CoCoGap has been used by a number of stores in a number of ways, with budgeting and goal setting being the main approaches. Let’s look at a few examples and what results these stores have achieved.

Wheatsville Cooperative—Austin, Texas
Almost three years ago, Wheatsville general manager Dan Gillotte looked at CoCoGap and recognized his store was performing below the top quartile in a number of areas. At about that same time, Midwest managers conducted an operational audit of Wheatsville, and I was hired to work with the management team in assessing the store’s layout and merchandising.

Wheatsville’s process began with its grocery department. Each sub-department was underperforming according to CoCoGap. Gillotte and the grocery manager decided to establish top quartile performance for all the co-op’s sub-department labor goals. Grocery sales growth was lackluster, and margin performance was also below the top quartile, but because of the highly competitive nature of the Austin market, they decided not to use the top quartile as their specific margin goal, but rather chose a goal between current performance and the top quartile- they determined they could eventually achieve top quartile performance, but it would take time for margin to reach this goal.

What tactics did they implement to improve their performance? First they focused on improving sales, inventory turns, and labor by reducing backstock, discontinuing slow moving products (they also brought in a POS system at this time to give them appropriate data), initiated a reset based upon turns (reducing HABA space and increasing grocery space), and increased facings of all fast-moving products.

These tactics were extremely successful. Wheatsville began approaching, and at times exceeding, the top quartile in labor and margin minus labor (MML) and is continuing to perform in this manner. All areas of Wheatsville’s grocery department performance have improved. In the two years since this approach was instituted, its grocery department has gone from a marginal performer to a very strong department. Sales have gone from years of single-digit growth to consistent double-digit growth, with the most recent three quarters showing 22 percent sales growth. In the same two years, grocery inventory turns have gone from 16.8 to 20.6; margin has grown from 30.9 percent to 33.6 percent; labor is down to 5.0 percent from 5.8 percent; and MML has grown from 25.2 percent to 28.4 percent. On current annualized grocery sales of $3.74 million, this MML improvement is approximately $120,000, almost all going to the bottom line.

Now Wheatsville has begun using CoCoGap to assist department managers in establishing all department operational goals for the upcoming year. As Gillotte states, “It is very helpful to see what the top quartile is. We want to be at least top quartile in all areas of performance.”

Peoples Food Cooperative—La Crosse, Wis.
Michelle Schry, general manager at People’s Food Co-op, began using CoCoGap sometime in 2001 and has used it regularly since that time. People’s uses CoCoGap in its goal-setting process, with each manager creating quarterly goals. The entire team reviews quarterly performance (the internal name for this process is an “autopsy”); they also receive a weekly report on performance vs. goals.

One aspect of the process is to have managers challenge each other when setting goals—pushing for best performance and reeling in a department manager who may have set an unrealistic goal. All tactics to be implemented are shared with and critiqued by the whole team. All this is carried out under the umbrella of the co-op’s overall strategy. Schry believes her management team is more focused on performance through using CoCoGap and goal-setting process.

Schry says you must be careful when using the top quartile, because this may not be adequate as a goal. She feels most stores are underperforming in the prepared foods area, so she wants her manager to have stronger targets. The current top quartile comparison for prepared foods is 33.7 percent labor and 59.4 percent margin, but People’s is achieving labor of 27 percent and margin of 60.2 percent, exceeding top quartile performance.

When reviewing performance at People’s, I did not want to look at their most recent two years, since they have significantly expanded and are running a different operation. In looking at performance between 2001 and 2004, the results are: total store sales growth has gone from 7 percent to 11 percent and total store margin has grown from 33.6 percent to 35.7 percent. Direct labor has also grown from 17.5 percent to 19.4 percent, but productivity has improved, with sales per labor hour growing from $51 to $54.5. MML has increased slightly (.2), which translates to an annual improvement of $13,300 using the 2004 sales base of $6.65 million.

When responding to a question about the value of using CoCoGap and its goal-setting process, Schry says, “It is a really great way to get everyone on the same page, pulling in the same direction, and challenging each other.” My experience says that if your team acts in this manner, improved performance is just ahead.

Berkshire Co-op Market—Great Barrington, Mass.
Berkshire managers use CoCoGap as a “check and balance on what we are doing and where we are headed,” states general manger Art Ames. He and his store manager use CoCoGap, but their department managers are not regularly using this tool. At times the store manager will review CoCoGap with a department manager to quantify the effect of obtaining the department manager’s goals, to compare goals to top quartile, or to play with the scenario to see how different goals will impact the dollar contribution of a department. Ames is very clear that CoCoGap provides just one piece of data needed for goals setting: operational trends and competitive environment are among the other data reviewed.

Ames says, “CoCoGap enables a department manager to take all of the goals and in one place understand the potential impact of these goals—it connects all the targeted numbers into one result (gross profit minus labor dollars).” Berkshire is moving budgeting down to the department manager level, a process that will take time. CoCoGap will become more important as managers begin establishing their own department goals.

Open Harvest Natural Foods Co-op—Lincoln, Neb.
Open Harvest finds value in using CoCoGap with department managers, says general manager Jean Helms. It allows their department managers to see what the top quartile performance is and helps these managers “stretch” themselves to set aggressive but realistic goals. Helms also uses additional data to pull out stores (eight stores, typically) she feels are most comparable to Open Harvest, to put a “face” on top quartile performance. She says, “This exposes our department managers to other stores’ performance.”

After goals are set, plans to achieve these goals are in place, and new data is available, Open Harvest has department managers compare their current performance with the original Gap they used in establishing their goals. They can see how well they are performing and what dollar impact they are having on the co-op.

Using CoCoGap creates a “clear focus for our managers,” states Helms. “If they are doing well in one area, we tend to focus our strongest goals on areas most in need of improvement.” She adds, “Seeing the dollar impact of their performance is very significant—we are not just talking about percentages.”

Helms says Open Harvest has been using CoCoGap with department managers for almost three years. Here’s a look at total store annualized performance, comparing first quarter 2004 to first quarter 2006: Sales growth has gone from regular single-digit growth (5.5 percent) to 13.5 percent; margin has grown from 37.9 percent to 38.8 percent; labor has been reduced from 23.8 percent to 22.3 percent; and MML (including benefits) has grown from 14.2 percent to 16.5 percent. Using Open Harvest’s current sales base of approximately $3 million, the annual gain from performance improvement is approximately $69,000.

Obviously, it is not CoCoGap that creates improvement but the daily hard work these co-ops put into improving operations. However, if you are not setting appropriate goals that stretch individual department performance, the focus on improvement is lessened and likewise achievement. The two common threads I picked up in my conversations with these general managers are: