Kuzminblog

Changing the world for better… at least the world of gas stations)

Cloud-Based Solutions in Logistics

My expert comments given to LogLerney portal appeared to be the fundamental issue for this article. I do consider cloud-based technologies have a huge potential for the entire field of logistics.

Cloud-based solutions and backup have proved to be a better alternative to traditional options. A growing number of applications and management software lets businesses reduce the costs and concentrate on some prior issues and targets. What is the idea of such advanced supply chain managing tools and how can they be implemented in logistics?

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Why сonsulting does not always work?

Alexander Kuzmin, RusHOLTS CEO, spoke at the conference “Global and local markets of oil and petroleum products: the analysis, pricing, trade flows“, presenting the report on the non-fuel businesses of filling stations. Development and marketing of modern gas station chain have become relevant and even a prime-time topic for Russian gas station chains, both large and small. Request for an effective program of roadside service comes from the top of the Vertically Integrated Oil Companies’ management which is good. On the other hand it is sad that in the minds of many leaders the level of understanding of the non-fuel business development remained at the 2010 level.

Recently, representatives of the world’s leading management consulting companies have spoken a lot about the need for Russian gas stations chains to develop their potential of non-fuel businesses. In most cases, to the audience’s attention are offered the “best practices” based on the experience of more mature foreign markets with no less than half a century of history. Why are these recommendations still not massively implemented in the Russian conditions?

As a practitioner, I see several reasons for this: the main one – the majority of local gas station chains has no basis for the application of such recommendations. We got many gas station chains that havn’t the elementary basic structure of the non-fuel businesses, for which it would be possible to apply the proposed tools to improve efficiency. Zero multiplied by any number still gives you a zero.

Presentation >>
Full version of the report presented at the conference >>

Key figures:
The income of one station with customer traffic of 1000 people per day and more at baseline (!) level of the non-fuel businesses’ organization is more than 1 million rubles.
Profit of a gas station with 1000 checks of customer traffic per day from CAFE department – 350 thousand rubles (with the revenues of 700 thousand rubles).
Coffee with the right sales organization can cover 10% of customer traffic, it is 210 thousand per month. Fast food covers about 5% of customer traffic and 80 thousand per month and pastries will ensure another 60 thousand per month.

Profits from a gas station with 1000 checks per day from SHOP department – 450 thousand per month (with revenues of 1.4 million rubles).
Again, it’s more than a million rubles a month as a profit. And it is at the base level of the organization of non-fuel businesses, a result that can and should be improved. After all, if the basis is zero, it won’t matter how much you will multiply the efforts, the result is still will be a zero.

These figures can be rotated again. You have a basic level of development of the non-fuel businesses, if the sales of coffee cover 10% of customer traffic and another 5% of customers buy fast food and pastries. This is the level from which you can push off and seek to improve the situation.

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Is it possible to get the “George Clooney effect” coffee sales at the gas stations?

Let’s talk about the habit of drinking coffee outside the home in Europe, Canada and Russia. Drinking coffee at the gas station, taking a cup of coffee to go on the way to work are the new habits of the modern metropolises inhabitants which change the coffe-drinking traditions in different countries around the world.

Mornings in the establishments of the Canadian coffee chain  in any city of Maple Leaf Country starts in the exact same way. The crowd of visitors sweeps stocks of coffee and pastries in the blink of an eye – the nation is one of the most coffee-addicted in the world, which is confirmed by the impressive figures of consumption and the degree of prevalence of drink among absolutely all categories of citizens in terms of monthly income, place of residence, occupation, etc. .

In 2015, the country has topped the list of 80 countries in terms of coffee consumption, calculated in liters per capita that are bought and cinsumed in catering establishments – mostly in the cafes. In terms of absolute consumption, including the volumes of coffee beverages drunk at home, Canada is the third in the world with 152 liters per person each year. Ahead are only Netherlands and Finland coffee fiends, confirms the authoritative Euromonitor study.

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Italy didn’t make it even to the top-10, which the experts were quick to explain by the continuing decline in economic activity in the country, leading to a decrease in the level of cafes traffic and locat tradition of drinking coffee at home in the Apennine peninsula. And let’s not forget about the overall culture of coffee consumption. 99% of the Italians are espresso consumers, so measured by liters they will never win the title from North Americans who are drinking the coffee by buckets, even in the heyday of italian economy. Let’s be honest to ourselves and to the readers (and even to Americans and Canadians) – for most of North Americans coffee does not play the role of a self-sufficient coffee beverage, they use it to accompany a burger or a cheesecake. As for the Finns and Netherlanders – they also like filter coffee, which by implication means large portions by volume. But still, ratings are having it their own way. Let’s move on.

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Fully functional Internet of Things for gas stations is ready to take off

The Russian market of IoT solutions has a pronounced contrast compared to Europe and the United States in terms of ensuring connectivity of networks for M2M-technology devices. Its potential is regarded as a very high one. Therefore, analytical firm J’son & Partners Consulting in its research on the results of 2016 for the market of distributed systems and telemetry, remote monitoring and control services paid some special attention to the Russian Internet of Things market. Non-fuel businesses of filling stations may become the exemplary ones for the whole IoT industry, because the industry has a request for major changes to be made. It’s one thing when startups are looking for new items, and quite another one when such a request comes from the leaders of Vertically Integrated Oil Companies (VIOC).

What exactly J’son & Partners Consulting analysts evaluated?
Both the level of penetration and scale of systems that were examined in the study in the were assessed by the amount of wired and wireless devices in the segment of machine-to-machine (M2M), which are automatically (or with minimal human involvement) produce and transmit data collected by telemetry systems, and execute commands of these systems. Devices with built-in data processing functionality were not taken into account. The main objective of the study was to evaluate the prospects of transformation of distributed telemetry systems in the light of Internet of Things (IoT) future development.

One of the main conclusions drawn by the analysts – in Russia there is no fully developed IoT-systems, because 99% of the devices that are used in distributed telemetry systems are not connected to the industry IoT-platforms. Instead they are working on proprietary software and hardware products with a very limited functionality. These solutions are, in fact, the systems of “machine-to-man” (M2H) class. Thus, the number of connected devices identified in the study is simply the number of devices used for distributed telemetry and remote management and control systems that could potentially be transformed into IoT-systems.

Another feature of the market today is its very deep fragmentation: there is no single, unified market of telemetry solutions in Russia. It do not exist as such. In fact, customers are dealing with a set of virtually unrelated markets, which determine their profile on the basis of combined number of customers from various industries.

The main categories here are:
• Market of vehicles’ tracking systems and services, including so-called “smart insurance”
• Market of protective consoles and video surveillance security systems based on them. It is the only major segment of the market which is directly linked to the “smart home” segment.
• Emerging markets of systems and services for the commercial metering of consumed utilities’ resources (electricity, water, heating, gas) by companies and households. This segment can also be used in “smart home” projects.
• Market of payment systems: ATMs, POS-terminals, cash registers with WAN-connection, mobile payment modules.

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Why I invite Costa Express in Russia or «Welcome and No Trespassing»

“Without my friends there’s a little bit of me, but with a lot of friends there’s plenty of myself” – lines from a soviet children’s song perfectly describes the essential meaning of co-operation in any business. You can be the author of most innovative solutions, to develop breakthrough technologies, but it’s only going to be possible to bring it to a state of “finished product” by going through a complex chain of cooperation with a number of business partners.

And this is true even for applied business initiatives of the microscopic, compared to the market standards, formats. Opening a small shop selling two or three positions of coffee beverages and about the same range of pastries (i.e. we’re talking about literally micro scale of business, not even SMBs), immediately causes the owners of such an enterprise to the need to acquire the suppliers of coffee machines, cups, coffee beans or ready-to-use blends , semi-finished products for baking, microwave oven – and so on and so forth.

Generally speaking, each individual element of the entire infrastructure of the object can be obtained separately, from a separate supplier. Nobody forbids you from doing so – go ahead, “hedging the risks”, “putting eggs in different baskets”, call it what you want, as long as it works out in this form for the company you’ve been run. If it works – thank God then, if it fails to do so – not to worry, there will be time to optimize your business without much damage, taking into account the scale of your operations.

But when it comes to huge chains or huge international companies and their landmark initiatives for expansion into new geographical realities, the situation is somewhat different. It is true that the rule of “little help from my friends” remains the same, except that the «quality-quantity» ratio of worthy friends turns out to be of a smaller magnitude. Usually there are one or two or three of them, not more – just like in real life.

Big business speaks its own language, and to find a worthy companion in the new region of the planet Earth is always extremely difficult for anybody. Knowing this firsthand from our own experience, we are well aware of what challenges face the advanced companies in terms of technological aspects of their business – such as Costa Express.

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Costa Coffee: supply chain as a growth factor

When traditional logistic models and the organization of the supply chain have jeopardized the dynamic growth of the company, the owners of Costa Coffee went all-in. The company completely changed the leadership, adopted a new strategy for the organization of supply, hired a new logistics operator, and also introduced a new enterprise software to provide a new level of benefit from the telemetry component of its system. We believe that the final result speaks for itself.

Author’s note
When I was preparing this article, i was surprised by how similar problems had to be solved in RusHOLTS around the same time. An illustration of the similarity could be invention of the rad by Marconi and Popov. The problem is in the air and solution comes to those who are looking for it. Only RusHOLTS had to be tis own “new” logistics operator because of the lack of worthy proposals. No “regional partners”, no services outsourcing – only our own trained and well-managed structures that guarantee the high quality of work.

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Developed by RusHOLTS experts ADR system, smart monitoring of coffee machines and analytics on customer request, a customer service of our own and the creation of the Monitoring Centre – are the details that make up the effectiveness of the coffee business.

Given Russian distances, poor road quality and penetration of the Internet in the regions, our experience of conquering Russian realities by telemetry is no less rich and interesting. And as you can see, quite in the style of the world’s leading coffee industry players!

Moving at a high-speed and operating 24 hours a day, the world has become dependent on coffee to maintain this pace of work. Do we run into the coffee shop or brew a cup of invigorating drink on our own in the office, staying overtime in the university library or in the hospital cafe, on the road or on vacation, we always look forward to the same level of quality of the drink, the familiar taste and adequate cost.

Costa Express brand was created by one of the largest operators in the HoReCa and owner of Costa Coffee – Whitbread Group in 2011, in order to promote self-service coffee, both as the company’s growth platform for the future work in general and as a the whole coffee industry in particular. We’ve already written about this in more detail.

The good performance of the first year of operation confirmed the reality of the ambitious plans of Costa Express to increase the number of machines at least to 3000 to the end of 2016.

Life without a supply chain manager

In the first months after the launch in 2011, the company’s business was in many respects like a blown horse. The existing fleet of coffee machines was transferred from under the Coffee Nation brand under the brand of Costa Express and some new partners have joined their servicing. The company worked to the point of exhaustion and under tremendous pressure to quickly get impressive dynamics of growth and justify the investment * of Whitbread. (* Approx. volume of project investment amounted to £ 60 million).

By April 2012, the company realized that in order to achieve the planned growth it will have to make some changes in the organization of the supply chain. At the time of making this decision, the company did not even have the position of supply chain manager. Traditional for the industry logistics and purchasing operations were distributed among employees of the financial unit and the engineering department.

At the first stage the staff of the company’s new business unit identified three fundamental functions of the supply chain, on which the business Costa Coffee should be based.

1. Management of ingredients replenishment for coffee making at the sales point
2. Providing sales points with spare parts for coffee machines.
3. Effective management of the delivery process of new Costa Express machines and their preparation for installation on the sales points.

The most critical for the entire business proved to be the first point, which will be discussed further.

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Delicious coffee with the minimum human involvement. Costa Express – white starts and wins

Vending as a sales technique is good – but only when it comes to newspapers, chocolates and chips, as well as personal care products. He who presses the button is the one who got the goods. Just pushed it – and continued their own way. Coffee beverages vending business now comes with minimum human involvement.

Coffee vending tend to vary in terms of product quality from “Lord, what is this ???” to “Well, okay.” Why is that? Because making of coffee – is a complex process with a thousand of nuances. No exceptions. The only thing that differs very much from a good “vending coffee» to a vending of a bad coffee” – is a chain Costa Coffee called Costa Express Company.

Costa Express Coffee – is an unexpected example of the coffee business in terms of a combination of indicators varying from “country of origin”. How this company was able to appear in the UK, a country of a totalitarian tea cult – it is a mystery. Nevertheless, it was there in 1971 when this brand appeared, which not only takes a confident second place in the World after Starbucks but represents today the very notion of “premium coffee vending” that tend to vary in terms of product quality, from “Lord, what is ???” to “Well, okay.” Why is that? Because making the coffee is a complex process with a thousand nuances. Virtually no exceptions. The only thing that is very distracting from the association with «vending coffee –is a vending of a bad coffee” – is a chain called  in Costa Coffee.

Different business segments have a “turnkey project” of their own

The company covers a variety of segments and locations: vending machines Costa Coffee are available at railway stations and bookstores, in Marriott hotels, Odeon cinemas, retail chains such as Waitrose, Debenhams and Tesco, and even in Pizza Hut pizzerias and Beefeater pubs. Of course, service stations Moto and RoadChef also were not left behind.

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Project Marlow – сoffee GOELRO* plan

In 2011, Costa Coffee, the second largest chain of coffee shops, decided to expand its portfolio and hit the vending area.

The movement in the new direction began with the acquisition of the Coffee Nation chain – thus Costa Express brand was born. Costa decided not to lose time and quickly started to transform the quality of vending coffee to new heights.
The main tool for the breakthrough was going to be a new approach to the implementation of the vending machine itself to make it an example of all that people usually invest in the concept of “innovation”.

Brewing high-quality coffee “from-grain-to-the-cup” via the vending machine – it’s a constant challenge. At some stage it was even a challenge to the very common sense. Getting a consistently high level of quality in the long run was not allowed by the specific historical moment’s technology.

Meanwhile, people got used to the quality level of coffee as “brewed by barista” and such a request could not be canceled. Costa had to ensure quick brewing of high-quality coffee, considering the relevant requirements as to its temperature and as to the level of freshness of milk that is added in some particularly popular drinks. And of course not to forget about such “trifles” as hygienic and sanitary requirements, economic feasibility and reliability of the machine in terms of different operating conditions, that goes without saying.

It’s just how they joked once in the late 90s KVN stand-up playing with Russian word for “the lungs” which is synonymous to the adjective “easy” – “Now that’s the task coming from the bronchial tubes! – Yes, of course, it’s not one of the lungs!”.
Well, what else can it be but not easy? The owners of the company aimed to the conquest of international markets. Making it with a trivial device that’s present in any business center or shopping mall from Lisbon to Vladivostok is impossible – how you will be different from what is already present in the local markets?
Thus “Project Marlow” was born aiming at a complete revision of the whole coffee vending in the direction of “intelligent supervending”, how the company puts it.

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The “Marlow Project” team

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Is Your Cup of Coffee Worth Paying that Price?

How much should a cup of your favorite coffee cost? What key factors does the price include? Which coffee is cheaper? One will hardly find the exact answer to all those questions when considering a well-flavored aromatic drink, as we are speaking of a tasty one. 

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Regularly proceeding with an in-depth statistics and analysis, coffee market experts are very unlikely to reveal the truth. They know that the average price may range from $0.5 to $1 per cup of your beloved espresso or Americano. Those drinks do not require additional ingredients like milk making cost price lower if compared with latte o cappuccino. Producers and marketers benefit from enormous revenues selling their products with up to 1000% markup. For this reason, the niche appears to have a great potential for businesses, which use all possible means to protect their segment keeping newcomers away. They established an average market price, which is about $1 per cup.

You will probably ask why we do not follow this pricing strategy when selling coffee at filling stations and you will be right. Switching demand is the key reason, as it shapes the trading rules for shops available at filling stations. This is why implementing discounter principles would be wrong when establishing the right price. On the other hand, various actions featuring free coffee and additional bonuses appear to be extremely popular with customers visiting filling stations. Why is it so?

What Does It Take to Opt for A Discounter Pricing Strategy?

Although businesses will hardly amaze customers offering launches with a 50-dollar cup of coffee, some brands still make efforts to implement the discounter pricing strategy. We have an example of Coffee Fix Company. Launched its COFiCO shop in 2015 in St. Petersburg, the company offered a fixed price to all available positions. The marketing strategy was expected to be a success with the further opening of 50 more venues. However, according to the information available on company’s social network pages it can only boast 3 coffee shops with a fixed price that is higher than they planned beforehand. In other words, a discounter pricing strategy appeared to be nothing but a failure.

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Hailing from Israel, Cofix appeared to be another company aiming at establishing an efficient discounter pricing strategy. The idea is to sell coffee at a fixed price without any reductions or markups.  According to the information provided by the official Cofix representatives, they expect at least 1000 coffee shops opened in Russia only including 300 venues in Moscow and 700 spots nationwide.

Fixed Pricing

Mass production and distribution of coffee come with an in-line business model. The idea of a fixed pricing strategy is very simple. You get high revenues due to a difference between the prime cost and the established sales price. We should note that the coffee prime cost is rather low if compared with any other product of mass production. On the other hand, the quality always matters! A single cup of coffee of poor quality will result in low sales and bad customers’ impression. This type of business includes some fundamental aspects of repeat sales principles. Major costs include rent and employees’ salary. These are actually the only sources whenever you need to reduce your costs.

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We recommend being rather accurate and picky when it comes to choosing the right place for rent. As soon as you are done with the choice, you need to proceed with an in-depth marketing research identifying your target and key customers in this particular area. You need to launch an efficient marketing research to detect all key consumers’ channels that may range from educational establishments located around to transport infrastructure, cinemas, sports arenas, etc. Choosing the right location for the venue is the magic formula of success. Combine it with a perfectly tasting and affordable cup of coffee, and you will master the niche at short notice. Also, consider hiring a professional staff including experienced baristas.

Modern technologies have already taken coffee business to a new level introducing advanced and innovative solutions letting you reduce the costs and monitor the entire selling process. Whenever you want to track every cup of coffee delivered to your customers, you can implement efficient IT solutions that will prevent from any types of frauds performed by your staff. In other words, you will always keep in touch with the recipe they use and the total revenues you expect to get. Modern IT solutions will let you take control over your business without any efforts. Just lay back and relax watching your venue getting more and more prosperous each day. Related products appear to be additional monetization tool. The range is enormously wide. You can opt to a selection of items ranging from auto accessories to jewelry and hot-dogs.

Cup of Coffee for a Customer-Oriented Approach

A wise and thoughtfully arranged assortment is the key to successful sales. Knowing your range of products from scratch will let you include supportive products creating an award-winning combination of goods. It calls for a descent level of marketing skills. You may face some pitfalls before establishing an ideal list of “ingredients”, as it may take much time. However, if you succeed, you will witness the sales increase at once.

Think of all possible alternatives and substitution to be prepared for any type of emergencies. The one and only rule is to launch a smooth and trouble-proof selling reprocess. Always keep in mind that every time it stops, you start losing your money. The slightest mistake can lead to bankruptcy.

In spite of all possible drawbacks, the discounter-pricing strategy has a great business potential. They will certainly find their customers even with an100-150% to stand out from other players on the market featuring 1000% markup. We do not really care about money when it comes to coffee. This fact makes coffee market rather flexible with a place for any pricing strategy.

 

 

Efficient Solutions to Reduce Human Factor Errors at Filling Stations

My colleagues often blame me for inventing efficient tools that reduce the influence of human factor. They often say I don’t like people.

Well, it’s true. You can’t like all the people, anyway. However, every time I share my ideas on the human factor, it does not mean I reproach filling station operators or other employees for being negligent or low qualified. You can always find a responsible and initiative person as well as those who suffer from a lack of ambitions being unable to perform an extra move. Some employees try their best to follow their duties and fulfill their every responsibility while other do not give a damn what employers expect from them. Others make efforts to be a real pain in the neck interfering with devices operation without having enough knowledge and operational skills.

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