Supermarket branching is not all it's cracked up to be, according to a recent survey of 40 banks.
Certainly, all banks have recognized the need for alternative distribution and the anachronism of the branch as a stand-alone, $1.5 million facility.
The store has many conceptual advantages that include: a large number of people who are not bank customers walking through your lobby every day, low entry cost at about $25O,OOO per facility, and an attractive opportunity for alternative delivery.
But a survey by SCB Forums Ltd. tells a different story. It queried 40 banks of various sizes that have been in the business from one month to 10 years, asking about performance of their supermarket branches.
Half the respondents have had store branches for more than four years. They all knew about the need to hire bright, well-spoken, attractive nonbankers; in-aisle selling; and jingles on the public address systems.
The results, however, were disappointing. Only 16% of the respondents had more than $8 million of deposits and even fewer had more than $1 million of loans. More than 70% had fewer than two-and-a-half services per household per facility, indicating low penetration.
Overall, financial results were lackluster since most branches did not achieve the break-even deposit and loan goals that are essential to prosperity. The failure of supermarket branching is not just in the statistics. It is in the kind of customers attracted.
Great Financial, a thrift that successfully transformed itself into a consumer bank, measures the percentage of profitable households to total households in every one of their facilities.
That measurement showed striking differences between the stand-alone branch and the supermarket branch when it comes to proportion of profitable households. Though the stand-alone branches had a variance of up to 20% between the best and worst, none of the supermarket branches even got close to the stand-alone branches in percentage of profitable households.
We looked for root causes of the ho-hum results, and several emerged:
Nonaudacious goals. Expectations from the branches were too reasonable and did not stretch for optimum performance. More than 70% of the respondents expected deposits of less than $3 million at the end of the first year, assuring the branch would not break even. Relationships per household were not a stated goal for most respondents, but those that had them expected fewer than three.
Similarly, while the amount of time the staff spends in the aisles was recognized as a critical success factor by many, 60% of respondents had expectations for aisle time of less than 40%. Such low expectations assure nonperformance.
Not clearing up the decks. The need to remove operational distractions was mentioned frequently by the respondents. Salespeople are drowned in the minutiae of day-to-day operations.
Inadequate staff training. Hiring bright, well-spoken, attractive people is necessary but not sufficient. It's not enough to have the right people; they have to know what to do.
Poorly executed in-aisle selling. Everyone mentions in-aisle selling as something that needs to be done to improve the success of the branch. Though people know that in-aisle programs are critical, they do not execute them effectively and set their sights too low.
Wrong relationship with store manager and staff. The store branch is not a stand-alone unit. Its customers are not only the bank's customers but also the store's. Treating store management and staff as customers is an important ingredient in a successful operation.
No commitment from senior management. Taking an experimental view is a legitimate approach to the business but indicates lack of commitment. That translates into suboptimal results if the commitment of the staff is also half-hearted.
The overall lesson I draw from the survey is that supermarket branching is an excellent concept, but success depends on execution.