By Mark Baum, Senior Vice President, Industry Relations, and Chief Collaboration Officer, Food Marketing Institute
In the past few years, we’ve witnessed a proliferation of new business and profit models within retail and direct-to-consumer selling. With omnichannel strategies at the core of these models, the industry has passed the physical vs. digital argument and into a channel agnostic world with a focus on enabling consumer choice and fulfilling demand.
There is an advantage to looking at the larger retail landscape and applying the lessons learned to food retail. I had the pleasure of speaking with Rod Sides, vice chairman, U.S. retail and distribution leader, Deloitte LLP about how changes in retail are impacting the way we measure how we do business. Sides will be speaking about this topic at our upcoming Financial Executive and Internal Auditing Conference and pointed out that, “Companies at all stages of maturity, from early stage startups to Fortune 50 companies, are competing for market share, which has led to a diversification of competition, with companies seeking new profit models incremental to ‘core retailing.’”
For years, many companies have used ‘own label’ credit cards as an additional revenue stream, but we are now seeing many permutations of subscriptions, marketplaces, fulfillment as a service, in-house ad/media networks, and more.
“At the core, each company is seeking to create consumer value and find a way to capture their fair share of that value,” Sides shared. “Retailers have always focused on creating and capturing value. The way we measure the health of retail should also focus on value.”
As a result, Sides advises traditional metrics like same store sales (comp sales) and sales per square foot are no longer as relevant to evaluate financial and operational health of today’s retailers. “The single channel focus ignores that 10 percent of all retail sales are digitally driven (e.g., ecommerce)1 and 75 percent of in-store sales are digitally influenced,2” Sides said. “In fact, nearly nine in 10 finance executives (88 percent) in a December 2018-January 2019 survey are planning to or have already begun to change their metrics to align to cross-channel operations.3”
According to Sides, retail metrics should be:
- Holistic: Channel agnostic metrics allow for a more complete view of the organization
- Inclusive: Address all business models, formats, channels, and fulfillment methods
- Value-Driving: Incorporate the parts of the business that drive value for an organization
- Operational: Focus on metrics that reflect the operations, not simply financial ratios
- Balanced: Consider growth and profitability as well as forward-looking and recent performance
Research by Deloitte suggests, only 8 percent of finance executives surveyed stated their organization’s metrics are positioned to address changes in the retail industry environment.4 “Addressing the right set of metrics will illustrate the tension in the business, help the industry better discuss performance, identify how companies are really faring and put value at the forefront of the conversation,” Sides said.
Join us at the Financial Executive and Internal Auditing Conference to discuss more.
 U.S. Census Bureau, E-Commerce Retail Sales as a Percent of Total Sales [ECOMPCTSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ECOMPCTSA, April 4, 2019.
 Deloitte Consumer Shopping Survey, November 2017 (n=10,868)
 Deloitte Survey of Finance Executives, December 2018-January 2019
Photo Credit: SpartanNash