I newsagent colleague shared product efficiency data with me earlier this week which showed that shoppers purchasing transport tickets purchased nothing else 84% of the time. This is in a business with excellent up-sell opportunities in place at the counter and excellent, engaging, customer service.
5% of transactions included a newspaper. Only .3% of the time did customers purchase anything with a margin close to 50%.
As the margin on transport tickets has been driven down by state governments (of all political sides), newsagents have stayed in the game in the hope that the traffic generated by offering transport tickets translates into add-on business.
The newsagent reporting that 84% of transport ticket sales are for tickets alone is not unique. Indeed, this figure for alone sales is low compared to others I have seen – some are as high as 94%!
On first glance it is easy to argue that transport tickets are not efficient and that we do need to assess their value on the margin made from the tickets and not from the hop of selling something else to the customer. However, we also need to consider whether the transport ticket customer will remember us when they do want something else and come back in and purchase other items.
My view is that transport ticket shoppers are blinkered when they need a ticket or a transport card top-up and that it is unlikely they will think of us when they want a card, a gift or something else. They usually get transport related products from us because it’s convenient when using public transport. That’s the mindset they have when coming to us. They’d be in a different mindset when shopping at a more leisurely pace.
I do not believe suppliers of low margin products and services when they say that we will benefit from the traffic they generate for us. This is an argument we need to challenge as there is no data I can see to support such a case.
Okay, I am no psychologist with insights into the minds of shoppers, not even close. But I do watch shoppers and I listen to them. I suspect that many buying a transport ticket don’t even know what else we sell. I suspect most would not think of us when they do want to buy the other items we’d like to sell them.
So we come to the question: are these slim margin products (anything with a margin of 6% or less) worth it to us? This is a complex question we can only answer for our own businesses considering our own circumstances. It’s a question newsagents need to ask themselves. They need to make a thorough assessment based on their own business data and considering future plans for their business.
For me, my newsagency businesses are less interested in these slim margin traffic generators than we are in lower volume, high margin, more sustained products and services that we have more personal control over – products and services so valued by customers that they will seek us out.
Totally agree about “generate traffic”. Phone companies need to look at this too. We get a FREE $2 sim card. For that we have to get a form filled in and send it off to Canberra after ID check etc. I send them to Coles and suggest they come to me for the top-ups. Seriously looking at Vodafone at only 5%. Often dont buy anything else either. At least there is no space or stock holding required.
Had a rep in from Royal Call yesterday and offering 40% on the Touch terminal for overseas phone cards. They will get my business
Long gone are the days when you “give” something away and hope to get add on sales, customers are driven at the moment and only spend on what they come in for most of the time. We are seeing a lot more people ask for the minimum lotto, only buy one weekly mag instead of the pair or 3. Cigs are mostly single item sales now instead of chewy or lighters. Everything we offer needs to give me a return or it is costing me money, in saying that Lotto and recharge do not cost anything besides wage costs until they are sold. If the selling point of something is that it will generate traffic them beware, chances are you will make nothing from it.
It’s a good week to be rasing this point – with the dreaded AFL footy cards coming at us in the next few weeks. The way the publishers want us to handle this is a pain. We have to manage putaways for several hundred subscription customers, control issues and returns for subagents, and use valueable space – all for a lousy 5% margin. If we increase our OTC sales by 25% (about the norm), we will have an increase in gross margin of about $4.50 per day for newspapers, plus about $20.00 for the cards themselves. It’s simply not worth the effort and the risk.
Really interesting coverage on low margin high volume products. One aspect that could be worth exploring is if you choose not to offer them, you guarantee a higher volume of sales for the alternate vendor in the locality. By choosing to participate you will half their sales, and possibly build a purchase habit in consumers, who would otherwise go elsewhere. Visits = awareness of store = higher chance of a second purchase.
Thanks John. It’s something newsagents to work through in the context of their local circumstances. My goal with the post was to get people thinking about this and challenging their perception of these high-traffic low-margin lines.