Insight of FOODplus Supermarket Stores – A Study of Complexities for Sales and Profit

This report provides a comprehensive review of information on the gross profit of FOODplus supermarket chain, where the average gross profit was1.027 ($ million) in last twelve months. Although, the main approach of this report is to make a detailed assessment of the day-to-day operations of the stores in the chain, and it also focuses on the broader impact of the company's direction of planning.

Insight of FOODplus Supermarket Stores – A Study of
Complexities for Sales and Profit
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Executive Summary
The journey of FOODplus Chain in Australian Supermarket Industry
This report provides a comprehensive review of information on the gross profit of FOODplus
supermarket chain, where the average gross profit was1.027 ($ million) in last twelve months.
Although, the main approach of this report is to make a detailed assessment of the day-to-day
operations of the stores in the chain, and it also focuses on the broader impact of the
company's direction of planning. The main issues involved in this project are four key
elements of the FOODplus management. The company's main concern about profit retention,
influence of business operation on Sundays, wastage minimization, and review of online sales
volume in the online store channel initiative. The study also researched the location wise
difference in online selling, but found no such evidences. The impact level of advertising
expenses, parking facility, staff strength, and trading hours on sales volume of the stores in
the supermarket chain also has been assessed, and a significant impact of advertising
expenses, and staff strength was observed. Despite the diverse possibilities of the
supermarket industry, the variety of products sold, location of the malls, number of staffs
working, hours of actual business hours, and numerous parallel factors have always been the
important predictors in estimating sales and profit of the industry. It is difficult to recruit and
maintain skilled workers in the sector, because competing companies also want to attract
more qualified staff to guarantee their success in sales. Therefore, FOODplus is offering
bonus for exceptional performance to the managers for their effective strategies, and also
ensuring the atmosphere of competitiveness by rewarding the top 6% successful managers.
Policies, such as the reduction in wastage of unsold products, and proper evaluation of profits
earned from online sales played an important role in the development process. FOODplus is
currently in an intermediate stage, in which several factors are swotted for their impact on
overall sales figure of the stores. The management also aims to expand its customer base by
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intensifying the online sales channel, as the policy of a responsible company. This is just the
right time to put a step forward to become the leader in the Australian market by inputting
challenges to the employees. The aim of the current project is to bring together a management
mechanism for maximization of gross profit by exploring the detail of the important aspects
of the supermarket stores regarding the satisfaction of the company, which is the most
valuable information to maintain an effective and upward growth of the company.
The report therefore presents:
 the exploration study on gross profit earned by top 6% stores in the supermarket
chain, for finalization on the name of the managers for bonus;
 the impact of business being open on Sundays and direct impact on gross profit level
of the stores;
 the analysis of online sales initiation in different FOODplus stores across the states of
Australia;
 effect of advertising and promotional expenses, staff strength, car parking spaces, and
hours of trading on total sales revenue for each supermarket;
 assessment of sales revenue from online sales channel;
 state wise wastage management effectiveness, especially estimating the supermarkets
in New South Wales and Victoria;
 calculation of average price increase in a standard basket of food items over the last
12 months;
 analysis the scope of keeping the supermarkets open on Sundays to compete with the
competitors in the market;
 And, investigation of the sample size for the present study, especially the
representation of the stores from Western Australia and Tasmania in the sample.
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Introduction
Future seems bright for FOODplus supermarket chain, but the management should
frame comprehensive policies for online sale and waste management…
The focus of the annual survey of the performance report provides a broad evaluation of
gross profit and sales revenues of the FOODplus chain. The report also presents a spectrum
of information on the decisive factors for sales revenue earned by the stores, especially
emphasising on the initiative of the online sales venture. Parallel analysis on state wise
wastage management, positive impact of doing business on Sundays to compete with market
players, and critical evaluation of the effectiveness and sufficiency of the sample size has
been performed (Chanaka, and Achchuthan, 2014).
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1. Overall View of Gross Profit
a. In FOODplus, average gross profit for the supermarkets in last twelve months was
approximately 1.027 million dollars ($ m), which varied store wise by a margin up to
0.743 million dollars. Minimum profit earned was 0.02 ($ m), which ranged to a
maximum of 3.159 ($ m). The middle 50% of the markets earned a profit between
0.445 and 1.539 ($ m) for the last year. The overall picture revealed that 50% of the
stores earned a gross profit of less than 0.972 ($ m). Gross profit of the top 25% stores
was between 1.539 and 3.159 ($ m).
b. Top 6% supermarket managers or top 45 profitable stores were found to earn a profit
more than 2.229 ($ m), and were suggested for the bonus level. It is to be noted that
top 6% was considered among the total chain of supermarkets of FOODplus.
c. Unusual instances are termed as outliers in statistical language. Gross profit analysis
did not reveal presence of any outlier store in terms of gross profit earning. Hence, no
special cases of gross profit for the last twelve months were identified.
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2. Descriptive Measures and Insights
a. The decision of opening the stores on Sunday is an important one. The average gross
profit for the 93 supermarkets open on Sundays was 1.097 ($ m), which varied from
0.05 ($ m) to 2.882 ($ m). Average gross profit for the 57 markets, closed on Sundays
was 0.913 ($ m), with a range between 0.02 ($ m) and 3.159 ($ m). Interestingly, the
variation in profit margin was higher in the Sunday open markets by 0.14 ($ m). 50%
of the markets closed on Sundays earned profit up to 0.894 ($ m), whereas the margin
was 1.074 ($ m) for the stores open on Sundays.
b. The online channel initiative by the management was active in 42 out of 62 malls,
which consisted of 67.74% of the existing malls. Again, for other locations, 60 out of
88 existing markets already had adopted online sales, which was 68.18% of other
markets. There was not much difference in proportion of online stores was observed
between mall and other locations, and neither there was any statistical significance in
favour of the difference. Hence, stores in malls and other locations were equally
active in online sales.
c. 46 out of total 150 supermarkets were maintaining high level of unsold stocks,
whereas 23 supermarkets were able to reduce the wastage amount to low level. South
Australia and Queensland had the highest wastage level with 23.9% stores, followed
by Victoria and New South Wales with respectively 19.6% and 17.4% stores
maintaining high level of unsold stocks. Northern Territory and Australian Capital
Territory were the two best states with only 2.2% stores maintaining high wastage
levels. When this scenario was seen from within state prospective, Tasmania was
found to be the worst state managing unsold products, followed by South Australia.
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3. Significant variation in Sales: Other variables
Advertisement cost, number of staffs, car spaces, and hours of trading were perceived to be
the four primary reasons for variation of sales between stores. Among these four predictors of
sales, advertisement cost, number of staffs, car spaces were found to have positive impact on
sales figures, whereas hours of trading was found to have a negative impact on sales figures.
But, the two most important and the only statistically significant predictors were found to be
advertisement cost and number of staffs working in the supermarkets. Keeping all other
factors constant, an increase in advertisement cost by $1000 was found to estimate an
increase in sales by 0.038 ($ m) in a year. Similarly, increasing one staff was found to
increase yearly sales volume by 0.058 ($ m). It is to be noted that the impact discussed here
stands when other factors or predictors of sales were kept constant. Car parking space was
positively related to revenue generated from sales, but failed to be a significant predictor.
Hours of trading was found to have almost no relation with sales revenue. Among all
predictors, advertisement cost was the most important factor for estimating revenue earned
from sales.
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4. Some Basic Estimates
a. The average revenue from online sales for 102 supermarkets was 0.363 ($ m) with a
variation of 0.31 ($ m) for the supermarkets in last twelve months, which varied
between no revenue from sales to 1.458 ($ m). The top 50% stores were able to earn
more than 0.329 ($ m) for last year. The estimated revenue from online sales for last
twelve months was between 0.3 ($ m) and 0.42 ($ m).
b. The overall number of markets maintaining a low wastage level was 23 out of 150
observations in the sample. These stores constituted for 15.33% markets of
FOODplus chain. With 95% confidence, it was possible to estimate that low wastage
stores in the entire population were between 9.57% and 21.10%. Additionally, low
wastage stores in New South Wales were 7 in numbers, which constituted of 17.95%
of the stores in NSW. The estimated number of such stores in NSW within the entire
FOODplus chain was between 5.9% and 29.99%. Similar analysis for Victoria yielded
that 5 out of 31 (P =16.31%) stores were low wastage stores. The estimated range for
low wastage stores in Victoria was between 3.18% and 29.08%. Hence, with 95%
confidence it was possible to say that number of stores with low wastage in Victoria
was somewhere between 3.18% and 29.08%. Stores in Queensland, state of, Victoria
and New South Wales, the state requires waste management available to reduce
operating costs and increase gross profits.
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5. Performance: Industry as a Whole
a. To review the price increase in a standard basket of food items for a supermarket
chain over the last 12 months, the descriptive of the price in 2017 and 2018 was
essential. In 2017, the average price for standard basket of food items was $ 171.81,
whereas, it increased to $ 178.85 in 2018. The average difference of $7 was observed
from the sample. Evidence in favour of the ACCC guidelines of price increase for not
more than $ 6.85 was found. Hence, FOODplus was found to have complied with the
norms of ACCC, for the price increase for a standard basket of food items in last
twelve months. The rise in food prices is entirely within the limits allowed by the
Australian Competition and Consumer Commission, and the management of the food
market should pay close attention to the increasing pattern of food prices provide.
b. Regarding the markets opening on Sunday, the finding of the independent study was
rejected by the research analysis. 93 markets out of 150 were open on Sundays,
according to the collected sample. Enough evidence was there to claim with 95%
confidence that fewer than 70% of all FOODplus supermarkets were open on
Sundays. But, there was not enough evidence to support the same claim with 99%
confidence that stores opened on Sundays were less than 70%. Managing supermarket
chains operation needs to focus on online distribution in malls and elsewhere. Less
than 70 percentages of supermarkets are open on Sunday, but to compete with market
leaders and increase average revenue, several stores are expected to open on Sunday.
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6. Sampling Methods for the Annual Survey
a. Number of representation of supermarkets from Queensland was 27, whereas, 16
stores from Western Australia and 5 stores from Tasmania were in the sample. 18%
stores from Queensland, 10.7% from Western Australia, and only 3.3% representation
was there from Tasmania. The estimated overall representation for Queensland was
estimated between 11.85% and 24.15%. The estimated range representation from
West Australia was between 5.73% and 15.61%, and that from Tasmania was
between 0.46% and 6.21%. The assertion about the disparity in representation was
indeed very precise.
Maximum age for any supermarket store was 24 years in the sample, whereas,
FOODplus supermarket began operating 27 years ago. The probable reason for
absence of any such store with more than 24 years of business experience could have
been random sampling. 150 stores were chosen by random sampling from the all the
750 FOODplus supermarket stores. But, detail analysis revealed that supermarket
stores above approximately 24 years of age were unusual, which statistically can be
referred as outlier value. Hence, those stores were absent from the sample.
b. Regarding future surveys with respect to performance, to estimate the average gross
profit within $120,000, selection of minimum 148 supermarkets in the sample was
required. Similarly, to achieve proportion of high wastage stores within 6%, sample
study with at least 227 supermarkets was necessary and sufficient.
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Conclusion
The investigation was conducted to explore the financial gains, location wise advantage, state
wise representation and human resources of the company's existing properties with 150 stores
out of the total strength of 750 stores in Australia. The description of the perpetrator was
considered an important prerequisite for inclusion in the sample of 150 stores. Micro level
data was collected, such as sales figure, gross profit figure, wages, number of staffs, business
mode on Sundays, presence of union, parking facility in the mall, and most importantly the
business period of the store. Categorical information about food prices per basket in 2017 and
2018 was collected to evaluate the upsurge in food prices. A significant increase in food
prices of $6.5 per basket was observed. Ethical aspects were detailed after the research group
and staffs were originally included confidently in the interview. It is important that the
references to the association of wastage management, business hour supervision, and online
sales expansion are taken into account in detail.
Recommendation
Samples of the survey were randomly selected and there was no balanced representation of
supermarkets in Australian states. Larger samples can minimize differences in the form of
presentation. While the sample size was enough to estimate the future gross profit of these
stores, with an estimated six percentage the number is short.
Focus of FOODplus directors should be on increasing sales by business on Sundays.
Competitors should be contended through online sales. The initiative of the management to
encourage online sales should be promoted on a large scale. Waste management efficiency
should be priority of some states, especially for Tasmania, Queensland and South Australia
(Matsa, 2011). Stores should increase their staffs and advertisement costs to see a positive
impact in sales, which eventually increase the gross profit of the industry (de Chernatony,
2012).
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References
Chanaka, U., AW, W. and Achchuthan, S., 2014. An Assessment of Retail Service Quality:
An Empirical Study of the RSQS in Sri Lankan Supermarkets.
de Chernatony, L., 2012. The impact of the changed balance of power from manufacturer to
retailer in the UK packaged groceries market. Journal of Retail and Marketing Channels
(RLE Retailing and Distribution), p.258.
Matsa, D.A., 2011. Competition and product quality in the supermarket industry. The
Quarterly Journal of Economics, 126(3), pp.1539-1591.
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