The "Broaden Your Base" strategic retail fallacy is driven by the seemingly logical belief that you increase basket size with no growth in customer count by having more to sell the customer on each visit. It only seems logical that "the more you sell, the more income you drive." Unfortunately, history paints a less rosy requiem for many retailers that pursued this strategy.
I enjoyed wickedone's comments on the Walgreens convenience initiative and the other messages in that thread. However, I must dissent on the pursuit of these so-called higher margin goods on the frontend to offset lower Rx reimbursements and generics as a surefire profit driver. Southland, the originator of robust Seven-Eleven c-store expansion did exactly the same thing, except its bread and butter/decreasing margin category was gasoline, not pharmacy. They later went bankrupt and retrenched because they fell victim to overstoring (cannibalization) and the much higher cost of delivering teensy quantities of goods to lots of locations across a broad geography against a backdrop of thousands of c-store competitors also adding locations in a flat market.
I think that there is a pertinent lesson for Walgreens to learn from the demise of Hostess Bakeries aside from the stupid action contributed by 6,000 Confection/Bakery Union employees that put their legacy costs ahead of the future of 18,000 current workers and countless thousands of collateral casualties among Hostess suppliers and route operators that will also become displaced. By explanation, I'll dub the parallel to Walgreens "The Twinkie Effect".
Hostess grew by rapid expansion and acquisition, layering in new product category after new product category, retaining multiple and regional brands and incurring huge debt in a consumables marketplace that was only growing with the census. It then decided to expand its distribution to virtually anyone with a retail store... c-stores, dollar stores, neighborhood markets, bodegas, gas stations... you name it. Since the market for bread and snack cakes was slow growth and affected by wellness trends like Atkins diet, their rate of sales growth never materialized and their costs of distributing these products to so many additional, small locations rose dramatically. The other thing that grew geometrically was spoilage/out-of-code goods that went from bekery to store to dumpster, at enormous cost.
Anyone see a parallel, here?
GLTA,
Yank
