Driving Franchisee Profitability in the Face of Declining Profit Margins
Wal-Mart was about to enter the South African market and, as a result, many stores were being threatened by lower profitability, impacting financial liquidity which was likely to threaten store closures.
Situation
SPAR Western Cape Franchisees had experienced many years of declining profit margins. Lower customer consumption demand due to high unemployment (recorded at 25%) had curtained customer spend and profitability was further hampered by increasing operational costs, higher Labor demands and surging Utility prices. Grocery/ Supermarket competition was on the increase, and Wal-Mart was about to enter the South African market. As a result, many stores were being threatened by lower profitability, impacting financial liquidity which was likely to result in store closures.
Action Plan
- Build and execute the initial strategy to unlock retail business liquidity and implement the next phase of growth while reducing costs and improving efficiencies and driving customer traffic by improving the overall customer shopping experience.
- Finance: Negotiated/ concluded “franchisee” company’s finance restructuring requirements/ agreements with investment Financing Houses / Banks – including Private Equity offerings, Debt Restructuring, Turnaround financing and Lease Buy-Back agreements with Real Estate Property Companies.
- Recruited in-house retail store design teams to rejuvenate / revamp/ modernize aging retail grocery stores within the limits of a capital budget and meet the customer shopping experience needs/requirements.
- Collaborate and leverage merchandise and marketing senior management teams to develop go-to-market strategies, and customer-centric combat marketing programs, and roll-out customer focused “Vertical Killer Price” promotions and “Delivering Excellence in Fresh-Food” and “War-on-Waste” (eliminating/ streamlining core categories to care for customer demands) specialty campaigns to attract customer traffic.
- Recruited/ outsourced professional accounting services and external vendors to provide a full financial management service (financial control, reporting & dashboards, planning & analysis, internal audit and asset protection).
- Negotiated with franchisee to trim excess wage payments and non-critical expenditure, reduce wastage, implement recommended “Best-Operating-Practices” to improve productivity/ efficiencies and follow prescribed procedures on merchandise category inventory levels to ensure correct ordering/ minimum stock levels/ and in-store food-production capacities, and so improve the customers’ needs/demands and the overall shopping experience – Provided staff training.
Results
- Concept-to-execution strategies to unlock retail business liquidity; negotiated private equity (PE) offerings, debt restructuring, turnaround financing, and lease buy-back agreements.
- Led operational turnaround of one of the most under-performing divisions in the company.
- Saved 4 strategic grocery supermarkets with total sales revenue of $76.8M from closure by strengthening liquidity through a negotiated debt financing & restructuring solution; trimmed excess wage payments and non-critical expenditures, implemented “Best-Operating-Practices”, and instituted customer forums to monitor satisfaction levels.
Stores with $76.8M Retail Sales Revenue saved from closure.
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