Annual strategic planning discussions are an important time for evaluating the current state of the business and identifying the best go-forward path.
As the retail and restaurant industries navigate sweeping changes, these two critical questions should be at the top of your leadership team’s discussion list when it's time to determine your company's growth strategy for the next year.
Which Stage of the Business Growth Cycle is Our Brand Currently in?
Brands early in the growth cycle typically grow through aggressive addition of new units, while brands in the mature phase of the growth cycle typically grow through operational improvements. If you fail to understand where you fall in the growth cycle, you’ll make the wrong strategic decisions.
As Harvard Business Review notes, leaders of many retail chains don’t know when to make the transition from applying early stage growth strategies to late stage growth strategies. Making the right decisions in late stage growth may not drive huge gains in top line revenue but can drive operating profit. HBR cites 17 successful retailers who grew operating profit an average of 8 percent a year over a recent 5-year period despite modest top line growth.
When expected return on invested capital (ROIC), sales forecasts on new sites, and other metrics begin to decline, your company may have entered a new phase in the growth cycle.
Where Should We Allocate Resources for the Best ROI?
Once you identified your company's growth stage, it’s time to determine where to allocate resources.
Early growth stage companies need to identify which markets and specific sites present the best opportunities for new unit growth.
- Which markets have the right types of customers, an acceptable level of competition, and strong fundamentals?
- Which sites within those markets are a fit based on both quantitative and qualitative metrics?
Late growth stage companies need to determine which locations are worth investing in further and which ones are not to drive growth. A portfolio audit can be a helpful tool in prioritizing investments.
The opportunity for growing revenues at existing locations can be significant. Buxton recently compared the sales forecasts of a sample set of current clients to their actual performance, and found that on average they were leaving the following on the table:
*Forecast is above average unit volume but actual performance is lower than average
Tactics for growing revenues through existing stores or restaurants may include the following:
- Closing or relocating underperforming units
- Remodeling or expanding existing units
- Investing in staff training
- Implementing local store marketing technology
- Investing in technology to improve customer experience (e.g. faster checkout processes)
- Building a new distribution facility to fulfill online orders in key markets
The Bottom Line
By identifying your company’s growth stage and best investment opportunities, you can develop a strategy that will position your brand for success for many years to come.