Retailers Facing Fierce Competition Can Grow Revenue and Profit by Understanding Customers’ Real Needs, Then Creating New Offerings at the Edge of Their Core Business, Says L.E.K. Consulting
Boston, MA — September 12, 2016 — To health-conscious consumers, green lettuce is a basic food staple. But for food retailers slogging through pockets of grocery deflation and a low-growth economy, bags of lettuce, cut, washed and packaged as dinner portions, are emblematic of innovation to drive profit growth.
Taking a commodity product and adding value to it, say, a service, is an example of an “edge strategy” — a pragmatic approach to high-margin growth for companies in all industries, but one that’s especially important for consumer-facing companies fighting for every last dollar and margin point.
The approach is detailed in Edge Strategy: A New Mindset for Profitable Growth (Harvard Business Review Press, 2016), by Alan Lewis and Dan McKone, Managing Directors at L.E.K. Consulting.
They say too many companies are looking for growth in all the wrong places. They undershoot — obsessively trying to win a few more points of market share. When these efforts yield diminishing returns, they often overshoot — leaping into entirely new businesses that dramatically change their risk profile without sufficiently leveraging their foundational resources and capabilities.
Winning by Focusing on the Periphery of What You Do
In their research, Lewis and McKone found that many companies underexploited customer permissions that they have to explore higher-margin revenue sources. Those opportunities tend lie at the periphery — or edge — of their current businesses. And that’s precisely why they work: Edge strategies are close enough to a company’s existing activities to give it an advantage, but sufficiently new enough to access different customer needs.
How can consumer businesses find these opportunities? Lewis and McKone suggest that companies often find lucrative opportunities by taking a closer look at their customers’ journeys — their paths before and after they use the company’s product and the true objectives they are ultimately trying to achieve.
Apropos to the lettuce example, an increasing numbers of grocers are succeeding by recognizing that their customers aren’t just looking to fill their refrigerators — their broader journey ultimately has to do with putting prepared food on their tables. Customers are increasingly in search of new levels of convenience. They are pressed for time, want something homemade, but don’t want to start from scratch or slave over the preparation.
Thanks to that realization, prepared and specially packaged foods have become ubiquitous— for example, offering pre-cut carrots and celery, pre-cut zucchini noodles, and chopped, washed, bagged lettuce that can generate four to five times the profit of an ordinary head of lettuce.
Taking it a step further, Whole Foods has installed espresso bars, pizza ovens, barbeque and even seating areas in many of its stores — investing far more in prepared foods than the typical supermarket deli counter.
“The company started out on a mission to bring natural organic groceries to the world,” says McKone. “Then it said, why don’t we walk one step further on the journey and not only fill customers’ pantries but also fill their stomachs.”
Since cooking food lies at the edge of its existing business — selling groceries — Whole Foods was able to expand with much lower risk than a company starting a natural prepared foods store from scratch.
“Whole Foods already had the customers, locations, supply chain and a high-quality product that people want,” Lewis says. “So, by opening up prepared foods as a business, they have gotten another 10 percent or 15 percent revenue that generates nearly half the company’s profit.”
Edge Strategy shows executives how to look at their companies’ existing capabilities to find product enhancements that increase revenue, build services that broaden their relationships with customers, and even create businesses that capitalize on their existing assets to serve new customers. By developing an “edge mindset,” companies using this approach can consistently capture all of the return from the risks they have already taken.
For more information, or to schedule an interview with Alan Lewis or Dan McKone, contact Katarina Wenk-Bodenmiller of Sommerfield Communications at +1 (212) 255-8386 / firstname.lastname@example.org.
About L.E.K. Consulting:
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public sector organizations, private equity firms and emerging entrepreneurial businesses. Founded more than 30 years ago, L.E.K. employs more than 1,000 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.
Edge Strategy® is a registered trademark of L.E.K. Consulting LLC.
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