Retail Fuel Marketer
We engaged at a major fuel retailer with tens of billions of dollars in annual sales. The business was coming off its best performance in recent years, but still had rising expense levels and a history of underperforming relative to plan. The economic turmoil and falling oil prices prompted the executive team to proactively optimize the business. As a result of our work, operating profits are up over 250%.
Accunomics’ consultants worked closely with the company’s finance staff to consolidate millions of rows of transaction data into a single profitability model that fully reconciled to their business unit and sales division income statements. Departing from their previous focus on volume and gross margins, the management team was now able to evaluate their profitability by customer, ship-to, terminal and geographic region.
The profitability model revealed that 44% of customers were unprofitable when expenses were fully allocated. When the insights from the model were combined with findings from Accunomics’ in-depth financial statement analysis and 50+ personal interviews, the executive team became committed to transforming the business to a new level of profitability.
Price & Discount Optimization
We conducted a detailed analysis of transaction level pricing and discounting, and assessed the correlation between pricing and the company’s brand presence, street price and customer value. The analysis revealed significant inconsistencies, with high discounts being extended to unprofitable customers and highly favorable pricing being offered to smaller accounts.
We also measured the company’s brand value within local markets by comparing its rack and street pricing relative to other branded competitors. The analysis revealed that while the company’s brand demanded a premium on the street, they often failed to capture that value at the rack. Further, the company often used a single price for an entire market area, and often failed to recover differences in delivery costs to far-away ship-to addresses.
Accunomics’ insights prompted the company to conduct a series of price pilots within a small sampling of their markets. As confidence increased in their new opportunities, the company began to assert itself as a price leader. The result has been an improvement in net pricing of several hundred million dollars.
Geographic Region Optimization
Our consultants collaborated with the company on a strategic review of its operating territory. Proprietary supply sources, captive distribution assets, local brand presence and major customer locations were all considered. Further, Accunomics’ profitability model allowed the company to assess profitability by state and terminal, thus enabling Accunomics to evaluate a wide variety of realignment scenarios.
The process enabled the company to better understand the value of select tertiary territories to its profitability, and their corresponding contribution to the company’s operating expenses. The territories contributed to management complexity, but did not contribute profits or anchor sales volume of proprietary product. Further, the combination of the company’s share and the market’s growth prospects did not merit significant investment in brand advertising. Thus, the company made a strategic withdrawal from those markets.
Service Model Optimization
The company’s operating expenses had been increasing relative to gross margins for several years, and their General Managers had become frustrated with the level of overhead burden being allocated to their business units. The executive management team had established an imperative to bring operating expenses in line with its gross margins.
We began by assessing the value of the company’s myriad of support services to their core business units. General Managers were surveyed on the importance of various staff functions and processes, revealing that only approximately 35% of the services were critical to the functioning of the business. Next, Accunomics conducted an in-depth effort survey of the entire organization, assigning budget dollars and headcount to granular service functions and assigning those services to specific business units.
Armed with a comprehensive and quantified view of the organizations’ operating expenses, our consultants conducted interactive workshops with key business leaders to define the future state service requirements. Accunomics’ modeling enabled it to quickly score planned reductions against the savings goal. We then worked closely with the company’s project team and leadership to develop organization structures, assign responsibilities, and, importantly, assess the risk of making the changes.
As a result of our work, operating expenses were reduced by over $200 million, an improvement of over 30%.