Your client is a regional grocery chain. Profits are down 20% over two years. How would you structure the problem?

Before I lay out a structure, I'd like to confirm two things. Is the goal to get profit back to where it was two years ago, and is there a timeline? And has the 20% drop come with flat sales, or are sales down too? I'd break the problem into three parts. First, where the profit went. Profit is revenue minus cost, so I'd split the drop into price, volume and mix on the revenue side, and cost of goods, labor and rent on the cost side. Second, why it happened. I'd look at both external factors and internal factors. Third, what to do about it. That depends on the cause, but I'd size each option and rank them by profit impact and how fast they pay back. I'd start with whichever side moved more. Do we have that data?

Before I lay out a structure, I'd like to confirm two things. Is the goal to get profit back to where it was two years ago, and is there a timeline? And has the 20% drop come with flat sales, or are sales down too? I'll assume for now that the goal is to recover the lost profit within about two years. I'd break the problem into three parts. First, where the profit went. Profit is revenue minus cost, so I'd split the drop into price, volume and mix on the revenue side, and cost of goods, labor and rent on the cost side. For a grocer I'd look at it by store and by category, because a 20% fall is rarely spread evenly. A few stores, or one category like fresh produce, often explain most of it. Second, why it happened. I'd separate what's happening to the whole market, such as food inflation or shoppers trading down, from what's specific to this client, such as a discounter opening near its best stores or more waste in fresh. Third, what to do about it. That depends on the cause, but I'd size each option and rank them by profit impact and how fast they pay back. The options might be renegotiating with suppliers, pushing private label, or fixing prices in the stores under pressure. My starting hypothesis is that this is a margin problem more than a sales problem. Grocery margins are thin, so supplier cost increases the chain couldn't pass on would be enough to cause a drop like this. So I'd start with gross margin by category. Do we have that data?