Many companies are now sharpening their pencils and evaluating the profitability of their smaller branches. Closing them is not the only option. A focused growth strategy can help the branch and local community while benefiting your company and suppliers. Nominal incremental revenue from well-managed small branches can have a ripple effect on your business and position it for sustained growth.
Small branches run into trouble for several reasons. These branches are frequently the result of “fill-in” acquisitions; were start-ups focused on selected customers; or were designed to keep competitors from entering particular markets. Unfortunately, either the town has lost population, customers have moved out, competitors have taken the business, or the market has changed in another way. In some instances, these branches are in reasonably sized geographic markets, but they can't seem to earn significant market share. In other cases, distributors are having trouble operating profitable small branches in small markets.
What should be done? For dispassionate companies solely in pursuit of the bottom line, the answer is easy: If the branch isn't profitable after all the usual expense management strategies have been implemented — cost containment, inventory management and personnel reduction — then shut it down.
However, this might not be best for the long-term benefit of the business. After all, branch with three or four employees without a specific reason for being will never be successful. You have to question how much time and resources should be spent on a location that seems destined to always struggle to be profitable. But rather than asking, “How do I make this branch profitable?” ask yourself, “What value does this location have to the company?”
Branch value could come in several different forms. Keeping the branch open might be the best way to serve a large customer. Perhaps it's a highly profitable industrial account that requires local inventory, high fill rates and quick delivery, and maintaining a local branch is the only way to maintain the necessary service levels for that customer. Or, perhaps maintaining the branch is an educated bet on the future of a specific geographic market. Perhaps the demographic or business trends point toward more residential and commercial development and all the new business that may entail. A small branch may also be the perfect training location for your company to groom talent. Where better to train new managers than in a small location where there is limited risk?
You may also discover new growth potential for the location if you re-orient the branch's market focus. Maybe the market changed but you didn't. Sometimes the people running local branches focus on the business they are comfortable with, not the business that is there. To determine if the branch has value, ask yourself some tough questions:
- Are you serving yesterday's market, today's market or tomorrow's market?
- Have you spoken to customers and prospects in the market or are you relying on your branch manager or salesperson to tell you what is going on in the area?
- How many new accounts were opened over the past few years?
- What is the branch's product mix?
- What is its market share in the local area?
- Are key prospects still in the area?
- Have you asked customers what you could do to earn more of their business?
- Have you talked with local reps to get their view of the market?
- Are you receiving adequate local rep support at the branch?
- Do you have the right lines?
- Can you realign your inventory to focus on As and Bs and provide Cs and Ds from other branches on an as-needed basis?
- How else could you leverage your computer system?
If the branch represents a future opportunity, develop a plan that identifies ways to generate revenue. This may mean reviewing the account list to determine accounts to focus on; developing a new prospect list; adding, or changing, salespeople; moving the location to a better, or less expensive, site; or working with your marketing people to heighten the awareness of the services your company provides at that location.
If the branch is in a small market with relatively few competitors, perhaps price isn't as big of a decision driver as it might be in larger markets, and you could increase your prices by one-percent or two-percent. This increase drops to the bottom line and may make the branch profitable.
Consider doing more marketing. This could involve enhancing your signage, merchandising, conducting counter days or developing brochures and flyers. Don't forget to market your company to your own employees, too. Make sure your branch personnel know the services your company provides and are matching customers and prospects with these services.
You may find new business for your troubled branch in market or service niches your competitors aren't exploiting. Perhaps competing distributors in the market aren't strong in lighting retrofits or do a poor job of timely job-site delivery. Consider new product categories and related services. Depending upon your customer mix, it could be datacom, safety, security, green products, tool rentals or other niche opportunities.
If you still find the branch isn't profitable after considering some of the ideas proposed in this article, you may think about selling the branch to another electrical distributor, or seeing if a local distributor in a different line of trade is considering expansion in that town and may need the location.
You may also be able to keep some of the branch's business by assigning selected accounts to neighboring branches. It may require running a truck into the area a couple of times a week or using an overnight courier as your delivery service. It may not work for all product categories, but it does for many and is worth consideration. Another idea is to keep a local phone number answered remotely by an inside salesperson at another branch assigned to the account.
Smaller locations have their own distinct set of challenges in a down economy, but with some fresh thinking and the ideas in this article, you may be able to hammer out a survival strategy that will inject new life into a troubled branch.
Channel Marketing Group provides strategic planning, marketing planning and market research for manufacturers and distributors with a focus on growth initiatives to accelerate performance. For more insights, request to subscribe to CMG's newsletter, Converge, by contacting David Gordon, principal, at [email protected]. CMG is focused on the electrical industry and sponsors the industry blog, www.electricaltrends.com.