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Eggs, bread, milk… and a new checking account?

By Kevin Barth 29 Mar 2018

Many moons ago I started my financial services career… in a bank, as a branch manager.  The branch was located in a local supermarket in my neighborhood. It was a full service branch offering everything from the simple teller transaction to a complex commercial mortgage application; and anything in between. I think I had a total staff of four, maybe five people, and the entire branch size was no bigger than my bedroom… actually, come to think of it, my bedroom was bigger!

Throughout the workday at the branch we would attempt to grab the attention of grocery shoppers by making random (scripted by corporate) announcements over the PA system bestowing a product or service we offered.  Another “novel” idea that this financial institution championed was “aisle time”. And yes, its practice is as goofy as it sounds. Imagine if you will, random bankers walking up and down the various aisles of the supermarket, with a shopping cart mind you, trying to engage grocery shoppers in banking conversations. This “sales” tactic occurred daily by my staff and myself.

To this day, I can count how many successful sales conversations and/or closed sales came from those daily “sales” behaviors… can you hear the crickets chirping in the background?

Now do not get me wrong, these supermarket bank branches are good transactional machines that provide an extra convenience to the customers that they serve, but when you assume that they should generate sales numbers that are equivalent or follow close behind of their traditional (brick and mortal) counterparts… well, that’s where problems arise. Most of my colleagues shared these opinions fifteen years ago, but it looks like financial institutions are still hoping that after you pick up tonight’s dinner you also won’t mind bringing home a fresh money market account as well.

In a recent article, Why In-Store Supermarket Branches Are a Bad Idea written by The Financial Brand, they shed some more light on the perceived benefits on these branch types and the data that suggests otherwise. Consider these statistics from the FDIC:

 

 

An average deposit base can serve as a good predictor of branch profitability, and as evidenced above, those totals are very low when compared to traditional branches as shown below:

 

 

I do not think it is a coincidence that all ten banks have a wide margin between their traditional and super market branches. Now, an argument can be made that the cost that goes into putting up a super market branch is significantly less than building out a new traditional (brick and mortar), and for that reason alone, will produce a profitable branch quicker. However, as The Financial Brand pointed out, total operating expenses for super market branches are not reduced as much. Leases are usually higher, but these branches are much smaller than the traditional model so that expense should be lower. However, staff costs are the real driver in bringing down the overall profitability of the branch. The super market branches don’t need a lot of staff (as said, I only had about 4 people at my location), however, they do need to cover longer hours and weekends to take advantage of the foot traffic coming into the grocery store. Also, the financial institutions usually paid (and probably still do) a premium salary to those employees that were willing to work in the super market branch (they’ve got to compensate for “bankers hours” I guess).  Taking all of those factors in these branches can have staffing costs comparable to or even higher than that of traditional branches! Adding up the higher lease rates, longer operating hours, and salary premiums, the super market branches can have 65 – 75% expenses that the traditional branches have. Couple that with a deposit base that is ¼ of a typical traditional branch, and ask yourself… is this really a good use of a financial institution’s capital?

Ultimately, this is for the financial institution to decide based on what they are looking to achieve in their branch network. But, in a world that has become very customer-centric, especially in the financial services industry, maybe, just maybe the customer doesn’t want to talk about their private banking matters next to the fresh produce. Today’s customer wants that “wow” customer service experience in every interaction they have.  Traditional branch banking can easily foster this individualized and specialized approach every time a customer walks through their doors. Creating those wow moments is what is going to drive them back into the branches to expand those relationships.

So, the next time you are running in to the grocery store for a couple of things you forgot from your weekend shopping trip, skip the “savings account of the week” and head straight to the checkout.

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