May 2, 2011

Measuring Profitability of Kosher Stores

An Israeli entrepreneur with an eye towards expanding his supermarket empire to the US shores opted out when he could not justify the annual sales per square foot as opposed to his successful model in Israel. For me, this method of evaluating the potential of a supermarket venture was an eye openener. I had been involved with many retailers whose calculations of a potential winner were based on such projections as number of customers times the average basket and so forth. The square foot method is not new to American suprermarkets. Winn-Dixie Stores is generating annual sales of $500 per square foot at new stores and recent remodels — compared with $300 per square foot at earlier remodels — and is moving forward aggressively to install elements of those "transformational" stores at all new and remodeled locations, the company's top executive said at an investor presentation here last week. The stores offer expanded perishables and prepared foods and a wide-open entrance that leads directly into the produce area. Stores like Winn-Dixie are also “fixing” stores that are underachievers by remodeling and reinventing the product mix.


The Israeli entrepreneur told me that kosher independents “operate more on the fly, based on intuition and perhaps family experience.” He said that he dropped the idea of acquiring a seemingly successful kosher independent store because it “just didn’t add up,” at least the way he made his calculations. I thought about this whole issue after a discussion with a retailer who appeared to do “volume” but fell short on “profits.” He blamed it on shrinking margins and a slowed economy, but did not appear to focus on a possible redesign of the store or perhaps a total evaluation of his product mix. I wondered how he would fare if he adopted the square foot idea, but when I broached the subject, he seemed to be far from even taking a serious look at that model. This might be an appropriate time for such a re-evaluation, especially for the dozen or so stores that will be opening their doors in the next few months or those that will be expanding. Just my sixth sense!