Is your company addicted to growth?

In the January-February 2017 issue of the Harvard Business Review, the article “Curing the Addiction to Growth” presents a provocative idea: Companies in all industries eventually see their growth slow. The authors argue that too often, multi-location businesses focus on opening new stores to drive growth—even when doing so can destroy the profitability of their other businesses ie at some point even the fastest-growing retail chain achieves market saturation where new stores cannibalize existing ones.

Instead of focusing on sales growth, the authors suggest that multi-location businesses should focus on Return on Invested Capital (ROIC). What opportunities does each location have to maximize its profits given the investment in the site? The authors make five suggestions for boosting sales from existing stores:

  1. Invest in analytics: Customers need to be able to find the products they want at an attractive value and get help from staff. The ability to have the right quantities, pricing, and staffing models depend on analytics, and the article calls out a great case study on how Kroger uses infrared technology to manage check-out lanes.
  2. Keep a keen eye on product development: Use highly disciplined methods to identify and test potential offerings, including considering private-label offerings. The right products and labels will drive loyalty and capture more market share.
  3. Staff at the right levels with the right team: Staff can make or break the results for a store, so hiring the right people, training them well, and deploying technology to help them be more effective is important.
  4. Use the omni-channel strategy: Customers who go online and then go to the store often pick up extras—thus increasing their intended basket size.
  5. Revise customer policies to maximize growth: Look at your store policies. Do you need to revise how you accept payment? Your store hours? The number of lanes for your drive-through? These three components helped drive sales for McDonald’s, a case study cited in the research.

To be fair, companies are also driven by the shareholders to deliver even better returns. Through quick expansion either organically or through acquisition, a company can really bolster its bottom line. The tricky part is whether this could be sustained over a long period as revenues undoubtedly will start to wane and taper off.

Check out my related post:

Why major retailer Hutzler’s could not survive the retail threat?

Interesting reads:

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