On analysing the return on investment, floor space and labour, a newsagent I was talking with recently has concluded that they will be better off without Tatts in their business.
They are yet to undertake the new corporate image and digital marketing fit out and therefore they have been running the numbers.
While their Tatts numbers are good, growth is average for any Tatts outlet. It is not keeping in line with non-agency parts of their business where they are growing revenue by 15% with most this coming from high-margin products where year on year growth is even higher.
Looking at one of their growth categories, they have lifted revenue by $26,000 on the back of less than $3,000 additional inventory tory investment and with no additional space investment. The $26,000 in revenue represents $14,300 in gross profit. This is equal to more than $200,000 in lottery sales.
What is even more important is that the category example above is a new traffic generator, it bring in people who in the past have not traditionally shopped in the business. Lotteries, on the other hand, rely on traditional traffic.
So, the question for the retailer is do they cut ties with Tatts? It is a business-specific and tough question as the raw numbers are confronting. For this business, do they really want to turn off what is certain revenue and take more of a risk in the business? Recent results indicate that they can safely back themselves.
As they thought about a business without lotteries they started to see greater potential.
For example, the most valuable retail space in the shop would be freed up to be 100% under their control. Sketching that out from a street front perspective they started to see a very different business to what shoppers see today with lottery collateral dominating the image of the business.
This led to the contemplation of what would our business be? This is a good question. Even thinking about it can be liberating in terms of what could be if you had complete control.
The decision is not yet 100% locked in. They have several months yet before they must lock it in. However, they say they are set. I am writing about this today in part to give them a way to gather other opinions.
Let them know what you think in comments here.
Hi Mark
I thought this would have sparked some discussion not sure about anyone else but i would not give up tatts because of the income and traffic it brings
Plenty of calls Andrew, no one wants to be on the record.
Nice idea but with comms currently making up around 30% of GP, it is a hard ask. Wages savings would be around 25k. Not enough. traffic drivers are scarce with mags the way they are.
Surely this a case by case analysis. If tatts comms dont contribute much to your gp, a case to flick it could be made. Ytd sales are up 4% in my zone, which is healthy in the current retail environment. It also pours cold water on tatts “lottoland gotta go” campaign suggesting it is killing newsagents. Its more likely impacting tatts online. Do your sums. Dont buy into panic or hyperbole. Tatts remains the single most important product in the channel.
I think if you are situated in a mall or a location where footfall is not an issue, you can treat phasing out Tatts as an arithmetical exercise. Even then, the basket link can be critical. If just 10% of lottery customers buy other items at higher margin, the loss from the lottery customers forgone could be much much more than the agency commission.
If you are in a strip or secondary location the calculations are difficult. Where will the lottery customers go. If nobody else takes up the lottery option, you could easily set off a spiral of decline as customers change their destination habits to still buy their lottery fix.
If in a rural situation, the difficulty of exiting could be overwhelming.
As I said: On analysing the return on investment, floor space and labour, a newsagent I was talking with recently has concluded that they will be better off without Tatts in their business.
The goals of my post were to report what one newsagent has done and to lay out that it is an option.
My point is that quantifying the investment is straight forward, quantifying the return is far from straight forward. If I take out lottery (something I am constantly considering) I have to be aware of all the knock on effects. Customers are not easily categorised, if I disrupt the balance of the store, the end result could be far greater than losing the income of one product line.