Retail Inc.

Case Description
Welcome to my Retail Inc Empire!

I would like to formally welcome you to the management role of my Retail Inc-Stores. I have chosen
you to take control of the company based on your experience, intelligence, and potential for managerial
excellence. The previous manager, Mr. McMillan, decided that the role was no longer what he was
looking for. To be honest, I was quite sad to see him go.

Now that you are on board however, I am charging you with the responsibility of establishing a new
direction and strategy for the company. The convenience store space is getting increasingly competi-
tive with the entrance of some big players, and now more than ever we need to be SMART. I believe
that due to your previous experience in the industry you will be perfect in leading my operation into the
future.

I am going to be watching and monitoring your performance closely. If you are successful in managing
the sites compared to your competitors, you will be awarded the role of management team. If your
results are not favourable however, I will be replacing you immediately.

In brief, I am looking for the management team which can generate the highest profits in the forthcom-
ing quarters by optimising the two current sites as well as making a strategic decision regarding
opening a the third store. Your team has the total control of all facets of the operation from pricing
policies, staffing, marketing, changing shelf items and customer service issues and so forth.

I have enclosed information of the company background, as well as some information on the current
and potential convenient store plus the latest market research report which should help you in planning
your team’s next move.

I wish you much success in this endeavour and look forward to reviewing your progress.

Mrs. Costalotta

Retail Inc owner and entrepreneur

Company Background

A Brief Overview

There are currently two convenience stores in your portfolio; and both are full service fuel sites. During your
period of management, an opportunity will arise to develop another store (Store C). This site does not
include fuel.

SITE A
APPROX RETAIL SALES SPACE 300M2

Logistics
Large impressive site with relatively new fixtures and fittings. It has a food service area with a café type environment, includ-
ing in-store seating. Site A is also equipped with a maximum number of fuel pumps, an ATM and a car wash. It is in a good
demographic area, situated on a major arterial highway catching commuting traffic going home from work. It is in a
relatively affluent suburb with the local population representing mostly professional families. There are four private schools
in the area. Distribution of customers is around 75% transient and 25% residential.

Strategies moving forward

While Store A continues to satisfy our customers’ needs, we feel that its growth potential is minimal. A few years ago we
invested funds to redevelop the site to bring it in as a first class performer. An opportunity now exists for extra hours of
operation. We feel that it will provide with more opportunities to differentiate the site from the competition. A further invest-
ment can be allocated for an in-store upgrade provided that there is a good business case made for that investment.
Though you make the call!
SITE B
APPROX RETAIL SALES SPACE 150M2

Logistics
This is a smaller site. It is a little tired and probably needs refurbishment. Currently there is unused land for expansion and
you have several options for site improvement including refurbishment of the shop, adding a car wash, putting in a food
service area, and adding more pumps. Any or all improvements can all be done within a 3 month period.

It is in a poorer demographic area than Store A, situated on a minor street catching just some traffic going both ways to
and from work. There is a slight crime problem in the area and the general clientele are mostly residential with the local
population being blue collar workers.

Strategies moving forward

Store B is a bit of a dog site. While it continues to survive, its profit growth potential is limited by the lack of investment that
has gone into it. We have not invested funds to update the site for many years. Having looked at the figures required to
update facilities, it is imperative for you, the new management team, to make a solid business case for any such expendi-
ture.
SITE C
SHOP SHELL UNDER NEW APARTMENT AND OFFICE BLOCK, APPROX SIZE 200M2

Logistics

The potential for this shop is interesting. If you exercise the option
ption to ta
take
ke o
out
ut tthe
he llea
lease,
ease
se, yo
you
u wo
woul
would
uld
d then make the invest-
ment to get the site operational. It would take 3 months to both get council approval and for the total fit-out. The store is
in a relatively densely populated area, close to the railway station, rise.
tion major regional centre and zoned by council as high rise
It is expected that the shop would attract more residential customers than transit clients with about 60%/40% ratio.

Strategies moving forward

Late last year, we also explored the possibility of expanding our sites to include this non-fuel site. We feel that as we already
have a solid reputation in this region and, with proper marketing, can capitalize here on our local successes. Also, by open-
ing a third site, we would gain additional volume discounts from suppliers that are not available to us with only two sites.
Our research to date indicates that a third site holds significant profit potential for Retail Inc’s operations.
Overall
During your time as the managing team, we anticipate you will act on some, many, or all of these opportunities in order to
create value for the business. Undoubtedly, it will be a time of change for us, however, we feel that the end result will be a
company that is more responsive to customers’ needs and the industry in general. In short, we anticipate that our sites will
emerge as the regional leader in the supply of convenience store services to the community.

Further Background
Retail Inc has been in the industry for over 20 years. It has been operating Store A and Store B for 12 and 10 years respec-
tively. Both sites have undergone many changes since and the old manager McMillan, was reported to be a good operator
but not very big on customer service. The last three years under McMillan has seen slowly dwindling consolidated profits
with Store A being the better performer.

Although the growth rate in the industry has been positive over the past few years, Retail Inc’s convenience stores were
not able to generate the profit levels in the last year that were anticipated. There were possibly two principal reasons for our
reduced profitability this year.

First, the sales forecast that were developed in the last year called for Store B refurbishment. Because the
forecasts for store sales were slightly optimistic, our lack of investment in major equipment and facilities helped
drive our customer base down at a greater rate than expected. This reduced our turnover to well below our
anticipated level. Fortunately, this is a great chance to turn this problem into a future opportunity provided we can
get growth back into the store by investing into enhancements.

Second, in an effort to make more profit, McMillan hired more people. Unfortunately, he did not put any special
efforts in the marketing area. While it is a little unclear as to the direct impact of low visibility from a marketing point
of view, it appears that fierce competition from neighbourhood sites hurt us as they gained increased traffic flow
with some interesting marketing efforts. Hiring more people turned out to be a very costly decision, since it was
not aligned with other decision areas and generated more costs than additional revenues.

Operating Environment
Each competing management team has a convenience store situated with exactly the same location variables. You will be
in direct competition with the other teams within each location and vice versa different locations don’t compete with each
other.
Market Research Report
Prior to his departure McMillan had contracted marketing agency for a market research study on customer preference for
each of the products sold in the C-Stores. Unfortunately, his tenure ended abruptly, but here is the information.

CATEGORY EXAMPLES OF ITEMS PREFERENCES RESPONDS TO

PROMOTION

Tobacco Cigarettes, tobacco Customers less price sensitive than Low

fuel customers. They are more
concerned with the number of hours
the store is open and are more
influenced by events

Confectionery Chocolates, sweets, health bars Customers interested in well adver- High
tised products and the convenience
of long hours. Service is important
along with cleanliness. A remodelled
store will appear cleaner to them.

Beverage Carbonated beverage, energy Customers interested in well adver- High

drinks, fruit juices, water, flavoured tised products and the convenience
milk of long hours. Service is important
along with cleanliness. A remodelled
store will appear cleaner to them.

Milk & Bread Fresh milk, bread, dairy case, Customers usually buy items needed Low
fresh fruit & vegetables daily without the hassle of long
queues. Cleanliness, freshness,
merchandising is very important.

Grocery General grocery shelf lines, Items purchased to fill emergency Very low
cereals, canned foods, dog & cat needs. Not very price sensitive but
food, personal hygiene cleanliness, merchandising, in-date
stock important.

Snack foods & Ice Salty snacks (chips), nuts, ice Customers interested in well adver- Medium
Cream creams tised products and the convenience
of long hours. Not particularly price
sensitive. Service is important along
with cleanliness. A remodelled store
will appear cleaner to them.

General Newspapers & magazines, phone Usually fairly price sensitive but Low
Merchandise cards, communication services, because of convenience they will be
general merchandise, automotive, influenced by fuel prices and visits to
lubricants the store.
Food Service External & Internal Branded fast
food, pies sausage rolls, chicken
rolls, burgers etc, hot dogs, sand
other, deli service, donuts &
muffins, FCB, hot beverages,
CAFÉ sales
Car Wash
Fuel Pump sales
Customers less price sensitive than Medium - High
fuel customers. They are more
concerned with the number of hours
the store is open and are more
influenced by cleanliness, freshness,
variety and customer service. A
remodelled store will appear cleaner
and more appealing to them.
Customers usually use wash within Medium
local area. Full service, short wait
time and price point are important.
Price is the strongest selling point. Very high
Additional customers are more likely
to come into the store and buy other
products from the shop if they fill up
at the pumps.