Retailer combats low profit margins by lowering expenses
Business need: Attaining efficiencies under low-margin revenue constraints
Grocery stores operate on razor-thin gross profit margins—low single digits—which means that every opportunity to centralize and gain efficiencies can support the bottom line. For low-margin businesses, managing ongoing expenses like office supplies is critically important to the bottom line.
This supermarket chain started with core office supplies on contract yet, over time, the number of items purchased outside a core catalog usually grows—something LAC Group sees in virtually all its clients. As employees grow accustomed to their personal preferences and ordering products not on the list, annual spending creeps upward, beyond the contract amount originally budgeted.
Managers overseeing the office product contract for this client were interested in striking the best deal for the company, yet the supermarket chain was also in the unique position of co-sponsoring a number of annual, high-profile events with the supplier. The challenge was to contain and reduce costs for products used across all the grocer’s locations while maintaining the supplier relationship.
Business solution: Benchmark pricing and increase contract purchasing
LAC Group’s spend team began with a contract audit, looking at the supplier’s individual stock keeping units (SKUs), prices and which items were on- and off-contract. That data was compared to LAC Group’s own database, which is continuously updated with pricing and SKUs for an extensive list of products sold by an array of vendors.
The team then analyzed whether day-to-day actual purchases were aligned with the types of products reflected on the current contract. LAC Group looks at every item, quarter over quarter, to look for SKU changes and pricing discrepancies. This granular approach of parsing data is what enables it to pinpoint savings and leverage spend for optimal contract negotiations. As one of the managers said, this “data-driven approach accurately showed us what we should be paying.”
Finally, because it was important to maintain the relationship with its office supply vendor, LAC Group met with the representative to discuss a mutually agreed-upon solution. It’s a customary practice to work with clients’ preferred vendors whenever possible, and LAC Group’s “outsider” perspective allows for negotiation with greater objectivity.
Business outcome: 17% reduction in office supply spending
Working with the supplier on favorable terms, LAC Group was able to renegotiate the contract. The result was a 17% reduction of office supply spending while preserving the good relationship, including the event co-sponsorship.
Supported by LAC Group’s proprietary database and data-driven approach, the client is also able to track monthly usage of office products ranging from pens to ink cartridges across some 90 distributed locations.