Where now for the two big supermarket retailers?

Where now for the two big supermarket retailers?

Oct 10, 2016 | Marketing, retail, Strategy

What a fascinating time to be an observer of FMCG.

The speed of strategic evolution is ramping up, and the risks to the investors in the two retail gorillas must be increasing as a result.

15 years ago FMCG retailing in Australia  was a two horse race. Coles or Woolies, there seemed to be no other options. While there were other options, independent retailers of varying types, particularly in SA and WA, their profile and strategic relevance was generally lower than a dwarf in a game of basketball. They could be annoying, and occasionally useful, but would never change the outcome of a game.

The net result is that Coles and Woolies concentrated on their short term game, with Woolies winning hands down in the shareholder returns stakes until recently. However, in the process, they lost sight of those who made a difference to their strategic numbers as distinct from their immediate financial ones: Customers.

They used their power to belt suppliers, and ignore customers beyond the land grab to put stores in every place where more than a footy team could congregate.

They ignored the opportunity to innovate beyond optimising what was already there, in other words they ensured innovation could not happen, or at least, ensure they carried absolutely no risk in the process.

The world has evolved since then, and panic has set in.

Woolworths botched Hardware in spades, demonstrating an astonishing lack of strategic insight, closed down Thomas Dux after strategically emasculating it just as it was gaining traction, is closing the Metro stores, and now it has been reported over the weekend, that they are considering selling the petrol retailing business. All that and declaring a $1.2 Billion loss for the 2015-6 year.

Meanwhile Coles has renewed itself, and announced a $1.86 billion profit for the year amongst some large write-downs in other parts of the Westfarmers group, particularly worryingly, Target.

Relative newcomer Aldi has upset the comfortable duopoly by grabbing market share and shopper penetration at a rapid and continuing rate. On top of all that you have alternative and web enabled retailers taking an increasing share of mind and attention that will over time convert to sales share. 15 years ago you could not find a Farmers Market, now they seem to be everywhere, and doing great business, and the net retailers seem to be able to actually deliver, sometimes.

For Woolies and Coles to fight each other, and invader Aldi on price makes no sense at all. The logical outcome of a battle on price is that Aldi will win simply because their business model is aligned to accommodate low margins and the gorillas are not, but if they do win that race to the bottom, the real risk is that they will go broke in the process.

No joy there.

So Woolies and Coles are left with where supermarkets started back in the thirties, delivering value to customers.

What an interesting notion for the gorillas, to be competing on the basis of the total value they deliver to customers, not just on price.  They might even have to collaborate in a meaningful way with suppliers, invoking  Joy’s Law, named after  Sun Microsystems co-founder Bill Joy who noted ‘No matter who you are, most of the smartest people work for someone else’.

Clearly, very few of the smartest people work for the gorillas, although there are some more left in their supplier base. However, those suppliers of any real scale who remain locally owned could together just about fill a phone box.

There is plenty of room in the demand chain left for innovation. The first step is to recognise the necessary change from a retail optimised supply chain that implies screwing suppliers for margin in any way you can dream up, while maximising margins at the checkout, to one that puts the consumer front and centre.

A demand chain.

This change requires recognition that the consumer has a reasonably certain amount of money to spend on groceries and household supplies, and will allocate those dollars in the ways  that best suits them and their circumstances.  Economists will call this phenomenon ‘Customer demand”. The name of the game then is to share out those consumer dollars in the best way that serves the whole supply chain based on that actual and latent demand.

Plenty of room for collaboration through the chain, enabling innovation and sustainable profitability. You just have to see the competitive game completely differently. I wonder if the gorillas are capable of that sort of strategic renewal or if I should sell my (very few) shares ASAP.

 

 

October 5, 2016. Five years on.

October 5, 2016. Five years on.

Oct 8, 2016 | Leadership

Last Wednesday, October 5 was the 5th anniversary of the death of Steve Jobs, on October 5, 2011, aged 59 .

How time flies.

The words of the great Apple ad that started the ball rolling again when he returned from exile in 1997 to the company he created with Steve Wozniak on April fools day 1976 are  reproduced above by Hugh McLeod, the sage of the Gaping Void.

Having read Walter Isaacsons terrific biography of Jobs, I am glad I did not know him, but the world is a different place, and most would contend a better place,  as a result of him being here.

Not many of us can say that.

It is pure fantasy, but I wonder what else would have changed that now remains the same had he lived to the ripe old age of 65, which would only be a couple of more months from now, February 2017.

He has been missed, even by me, and I do not use Apple products at all.

Is ‘Proprietary Housebrand’ an oxymoron?

Is ‘Proprietary Housebrand’ an oxymoron?

Oct 4, 2016 | Branding, Marketing, retail

Is this range of McWilliams wines a housebrand or not?

it is exclusive to Dan Murpy’s, so ‘yes’, but it is a proprietary brand, so ‘no’. At the very least, the trading terms conversations would have been interesting.

It is also claimed to be an ‘Innovation’ which redefines my understanding of what that word means. Housebrands do not innovate, they copy, some may say act as a parasite on the innovation activities of proprietary brands.  Product innovation is one of the two key competitive options (the other being the opportunity to now connect with their consumers digitally) available to FMCG suppliers by which they can differentiate their products from their housebrand competition. Supermarket chains have done well squeezing costs out of their supply chains with process innovation, usually to the cost of their suppliers, incapable to this point to be effective with product innovation.

Exclusivity has always been a demand of retailers, difficult in Australia with just the two of them having such overwhelming dominance, but in unbranded categories like produce, they have successfully developed strongly preferential supply arrangements. But wine? one of the most brand sensitive categories around?

From  Woolies owned Dan Murphy’s I got the above offer the other day for an exclusive to Dans branded McWilliams Bagtown range, from the Griffith area. All the hyperbolic language and story telling that goes with the wine category, but an exclusive range to Dans. it seems Woolies have started something I have not seen before in Australia that has the potential for wider use. For years in Hong Kong, you dealt with one or the other of the two major FMCG retailers, but not both. Problem here with that strategy is that there are only 24 million of us, and widely scattered so the twisted economics and trading term requirements surrounding proprietary branded retail chain distribution have simply not allowed a similar development here. Till now?

The McWilliams sales manager will be having an interesting conversation with the Liquorland buyer the next time he visits, although it is reasonable to expect he will get a phone call, and probably lose either some distribution or a promotional slot, or something that reflects that McWilliams have crossed a line, and Liquorland will not be left out.

As an aside, the Dan Murphy’s 90 point label badge borders on the dodgy. You can expect a 90 point wine (Silver medal) judged at one of the major shows to be pretty good, warranting a place in any cellar. The wine in this case might be OK, but it has not been judged by anyone outside Dans staff, and they are unlikely to tell the boss that his choice sucked. Griffith is not known for its cabernet, the climate is all wrong for the grape variety, and the few I have tried were well short of 90 points. Hopefully this one is an exception.

The compelling essence of leadership demonstrated yesterday

The compelling essence of leadership demonstrated yesterday

Oct 2, 2016 | Leadership

Yesterday the Western Bulldogs won the AFL grand final.

I am not an AFL fan, my game is the one they play in heaven, sadly not much down here any more, but that game yesterday stirred emotions in even one who really did not care about the outcome.

For the Dogs to win they overcame the odds in all sorts of directions, too numerous to list. However, in overcoming the odds they clearly demonstrated the truth of the old cliché about the team of champions vs the champion team.

There is one word that describes how that phenomenon is achieved:

Leadership.

The single act of the Dogs coach Luke Beveridge putting his premiership medal around the neck of injured club captain Bob Murphy embodies all it means to be a leader.

The work of Simon Sinek in articulating this stuff is to my mind the benchmark. Do not bother reading the libraries of dusty academic tomes written, just watch the Sinek presentations to hear all you need to know.   The one linked above titled Leaders eat Last is a great story, distilled into one 30  second act by Beveridge yesterday.

If you were an aspiring AFL player, why would you want to play anywhere else?

My apologies to readers outside Australia, you will have no idea what AFL is. Does not matter, just watch Sineks presentation.

How will Australia regulate for ‘Culture’

How will Australia regulate for ‘Culture’

Sep 28, 2016 | Governance, Leadership

As a Fellow of the Australian Institute of Company Directors, I look forward to the events put on by the institute, and attend when I can, when the topic of discussion is of particular interest.

Annually there is a general ‘Director Update’, the 2016 version is currently rolling out, and I attended in Sydney last week.

Amongst the items of interest, one particularly took my attention. The emerging focus on ‘Culture‘, has belatedly come onto the radar because the legislators are beginning to use the word.

This begs the question of how you define ‘Culture’, certainly those in Canberra writing the rules have no idea, despite setting out to legislate for it. It is a bit like legislating for ‘Motherhood’. Everyone agrees it would be great to have it, successful people have benefited from it, but definition is a bit tricky.

“Culture eats strategy for breakfast” is now a commonly used phrase, shortened from the original by Peter Drucker who wrote: ‘Culture eats strategy for breakfast, technology for lunch, and products for dinner, and soon thereafter, everything else too’

Lou Gerstners view expressed in his terrific insiders view of the turnaround of IBM  “I came to see in my time at IBM that culture isn’t just one aspect of the game – it is the game. In the end an organization is nothing more than the collective capacity of its people to create value.”

Building a positive culture depends on leadership, not regulation. Absolutely not regulation.

This remarkable TED talk by Simon Sinek is talking about leadership and the culture good leadership builds. I think anyone in authority should watch it and absorb the message, and set about trying to articulate what it means in their context.

ASIC (Australian Securities & Investments Commission) Chairman Greg Medcraft in his speech opening the 2016 ASIC Annual forum failed to give any hint about the definitional questions around Culture, simply pointing out that it led to good commercial and social outcomes. He did add that “We are incorporating culture into our risk based surveillance reviews’ which is terrific but it would be nice to know how one of the key regulators is going to measure it. Back to the politicians?

On occasion I have been critical of the AICD for its focus on the compliance issues of listed companies and their directors, often seen as the ‘big end’ of town. This focus is not unreasonable given that every organisation has to focus on what is seen as the main game in one way or another. However, it does tend to marginalise the unlisted and family company block which constitutes the vast majority of enterprises, and the overwhelming majority of those in the role of ‘Director’ often without knowing anything about the fiduciary responsibility that goes with it.

However, in this case, starting to talk about Culture, the Institute has kicked over a rock that requires a lot of consideration and debate, so well done.

I look forward  to that conversation.

Credit: Thanks once again to Hugh McLeod for the inspired cartoon.