CASH FLOW IS KING!

1. CASH FLOW IS KING! Understanding the Retail Environment Bill Hall, Modoc County Tobacco Education Daniele Minock, Siskiyou County Tobacco Education

2. What is cash flow? • Definition in Business WorldA measure of a company's financial health. Equalscash receipts minus cashpayments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization¹. 1:cash flow. InvestorWords.com. Retrieved July 15, 2008, from InvestorWords.com website: http://www.investorwords.com/768/cash_flow.html Real World Definition:The positive and constant flow of spendable cash.

3. Typesof “Cash” • Checks • EFT (Electronic Funds Transfer) • Credit Cards • Food Stamps • Vouchers • Local Charges • Old Fashion Greenbacks (orange or purple?)

4. Checks • Deposited following day, takes 2-3 days to fully access money. Strong businesses usually have a business float of 2 days that covers all deposits made via checks. • Banks charge businesses $5-10 per returned check as well as charging the account of the bad check.

5. EFT (Electronic Funds Transfer)Debit Cards/Check Cards • Monday through Thursday, next day access • Friday through Sunday, two to four days access • Handling fee from bank ranges from .75 cents per transaction or up to 2.5% per transaction. • Some banks charge additional fees if debit is from a different bank.

6. Credit Cards • Monday through Thursday, next day access • Friday through Sunday, two to four days access • Handling fee from bank ranges from .75 cents per transaction or up to 2.5% per transaction. • Some banks charge additional fees if debit is from a different bank. • Credit Card fees are assessed weekly vs debit fees added to monthly statement.

7. Food Stamps • Next day payment Monday – Thursday • Weekends 4 days • System has to handle advanced new food stamp technology, such as balance previews, cash back etc. • Workers cannot call it “Food Stamps” anymore, you have to use the term EBTcard.

8. Vouchers • WIC Vouchers are the most common, and have to be redeemed by phone or electronically separate from regular checks. • Takes 4-5 days to have payment. • Other vouchers may include Salvation Army, Red Cross or local Social Service programs, all take 30+ days to process.

9. Local Charges • Charge accounts to local customers, billed once monthly and gives a 10 day grace period. • Store waits a minimum of 40 days for payment. • Over 50% of local accounts take 60 days to pay and customer charges another 30 days worth of food while payment is being received. (80 days out)² 2-Based on 4-Corners, Holiday Quality Foods, California Market and Walt Market owners.

10. Cash • Good as gold, taken every day, deposits on Friday and Saturday not processed at the bank until Monday. • Banks no longer take mutilated bills, tarnished coins. • Coins in large amounts need to be rolled and verified.

11. Why is Cash so important?

12. When do stores pay? • By law all liquor, beer and wine have 30 days to pay for any purchase. So Budweiser bought on July 1 has to be paid be August 1st. Wine, Beer and Alcohol account for only 10% of grocery inventory sales (which is different then inventory dollars) • Items such as bread, meat, produce, dairy, deli and dry grocery and some taxable items such as Health and Beauty aids and cigarettes must be paid for within 6 days. This accounts for approximately 85% of all items in the store.

13. So? What does this mean? • Stores that have $100,000 in sales during week one, spend $75,000 of that to repay for the goods sold. That leaves $25,000. Industry average for employee wages is 8% of sales, subtract $8,000 for wages and now you have $17,000 for the remaining items such as rent, lease, equipment, supplies, maintenance, utilities, insurance and other items.

14. That is why Cash is King! Let’s look at tobacco sales and its role.

15. Tobacco Sales • 90% of all tobacco sales are cash only • Tobacco sales are consistent to daily averages and are not subject to newspaper ads, seasonal specials, and does not differentiate between men and women. • Almost all tobacco sales comes from disposable cash, not from weekly budgeted meal plans or money set aside for purchases. Customers will find money for tobacco and will not find money for cereal or dog food.

16. Maybe dogs will give up food for cigarettes?

17. Tight Margins? • Retailers have very tight margins, so how do they make it? • By taking money from Big Tobacco and here is how they do it!

18. Tobacco pays retailers for: • Signs on doors • Ashtrays • Handheld shopping baskets • Overhead racks • Displays that lock • Every inch of tobacco shelf space • Windjammer signs • Price signs in windows How much is all that worth?

19. Everyone guess? Per year! Closest one gets a prize! All together, I personally received a check once a month for $1,155.00 that means the winner guess the closest to: $18,600

20. Did you get that I said, “I personally got a check?” • Checks are made out to owners not the corporation or business. • Tobacco representatives deliver the check by hand to you, never by mail. Checks are not made out by Phillip Morris or Altria or R.J. Reynolds. They are always some other fringe company. Sounds fishy huh? My favorite name was PM Adventures (Get it, Phillip Morris Adventures!) • I also got checks in the mail made out to the store for ad rebates, off invoice details and volume discounts.

21. Truth behind tobacco sales • License is no big deal, $100 fee is paid by the tobacco companies, even little stores get at least $100.00 • When the state raises taxes on tobacco, cigarette companies discount cigarettes the same amount to offset consumers ability to correlate the tax with the new price. • Our press releases show consumers no difference in their disposable income. • Prices are then raised over time to compensate for the new tax with consumers chalking it up to current economic conditions.

22. Retailers do not want to sell to minors! • Most retailers understand the consequences of selling to minors, they do not want their disposable income cash flow to stop. No license, no tobacco, low cash flow! • They do not want to jeopardize their ability to fulfill their contracts with Big Tobacco and not receive their incentive money • Some retailers, so desperate to improve cash flow will sell to anyone.

23. What can we do? • Set up face to face meetings with store owners or managers. • Ask them about their relationship with tobacco companies, if they do not have one, then they are not getting the incentive money. The more you know the more willing they are to discuss the problem and solution. • Offer training on not selling to minors, for tobacco, alcohol and get involved in helping implement their own customer service programs. Remember they only have 8% of their income to devote to employees so they spend little time training or re-training. Offer to help. • Recognize through ads the stores that worked on the issue.