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Retail View: For growth, expand on what you do best

Using bagged lettuce in the grocery store as an example of a successful strategy, two researchers have written a book extolling the virtues of value-added services or products to expand one’s business model and grow sales.

Edge Strategy: A New Mindset for Profitable Growth was written by Alan Lewis and and Dan McKone, who are managing directors at L.E.K. Consulting, a business consulting firm. Lewis recently spoke to The Produce News and explained the idea behind the Edge Strategy concept and how grocery retailers, among others, can use the principle to drive their own success.  mckone-lewis 1Dan McKone and Alan Lewis

Specifically talking about bagged lettuce, Lewis said that when a customer comes into a grocery store she is basically granting the store owner permission to market to her. But that permission only goes so far, and as a business owner expands his product line, it should be in areas closely related to their core business.

Too often, according to the authors, business owners look for growth in all the wrong places, by leaping into new businesses or products that do not leverage their foundational resources and core competencies.  

The bagged lettuce example, on the other hand, is a great illustration of an Edge Strategy.

Retailers are already selling bulk lettuce to consumers. By offering a higher-priced, value-added salad, the retailer is still trading on the permission granted by the shopper but essentially upselling that shopper within the same category.

Taking a commodity product and adding value to it, is the perfect example of an Edge Strategy. Lewis called it a pragmatic approach to high-margin growth for companies in all industries, but one that’s especially important for consumer-facing companies fighting for every last dollar and margin point, such as in the grocery business.

It is no secret that grocers are losing market share to the many different retailers, from drug stores to general merchandise stores to dollar stores. Lewis indicated that to compete, these traditional supermarkets must add products and services that are of higher value.  

He drew a comparison to a computer store that adds repair and service capabilities with the addition of a geek squad. The consumer bought the computer at that store, so it is an implied permission that the servicing of that computer goes hand-in-hand with the sale of it. It’s not a big leap and one that many consumers will make.

Going back to grocery retailing, Lewis argued that this is not necessarily a premium play. He said consumers of all economic levels are looking for convenience and value-added products. He suspects that the grocery landscape is going to change in years to come and will look different than it does today with more value-added products and fewer commodities.

The Edge Strategy comes into play by focusing on the periphery of what you do. In their research, Lewis and McKone found that many companies underexploited customer permissions that they have to explore higher-margin revenue sources. Those opportunities tend to lie at the periphery — or edge — of their current businesses. And that’s precisely why they work. Edge strategies are close enough to a company’s existing activities to give it an advantage, but sufficiently new enough to access different customer needs.

The report suggests that companies often find lucrative opportunities by taking a closer look at their customers’ journeys — their paths before and after they use the company’s product and the true objectives they are ultimately trying to achieve.

Back to the lettuce example: An increasing number of supermarkets are succeeding by recognizing that their customers aren’t just looking to fill their refrigerators — their broader journey ultimately has to do with putting prepared food on their tables. Lewis said customers are pressed for time, and willing to pay more for prepared and specially packaged foods.

Since cooking food lies at the edge of their existing business — selling groceries — food retailers are able to expand into this area with much lower risk than a company starting a natural prepared foods store from scratch.

“Whole Foods already had the customers, locations, supply chain and a high-quality product that people want,” Lewis said in a press release. “So, by opening up prepared foods as a business, they have gotten another 10 percent or 15 percent revenue that generates nearly half the company’s profit.”

The press release opines that the “Edge Strategy shows executives how to look at their companies’ existing capabilities to find product enhancements that increase revenue, build services that broaden their relationships with customers, and even create businesses that capitalize on their existing assets to serve new customers.”