Apr 14, 2014 | Branding, Customers, Marketing, retail, Sales
Walking into chain retailers these days you are inevitably confronted by displays of product, usually at a discount.
Most people seem to think that it is the retailer doing the promotion as a means to attract added sales, which is true, but the reality is that the promotion is funded by the suppliers, and it is a competition for the retail space that is generally won by those suppliers with the deepest pockets, and best information.
Retailers are in two businesses, selling stuff to consumers, and renting retail space to suppliers. Chain retailers business model relies on a formula that accommodates volume, revenue, and total margin over the space allocated. This can get very complicated, as the number of variables is enormous.
For a supplier to a chain retailer, the challenge is to balance the complex and competing demands of enterprise profitability and investment in the future against the need to meet retailer margin demands necessary to retain access to the consumer via the distribution controlled by the retailer.
Of real significance is the difference between sales that would have been made irrespective of promotional activity the “base sales rate” and sales made in a period as a result of promotional activity, “incremental sales”.
The need to fund retailer margin via promotional allowances is universal, but the sales that occur as a result of the activity may not be there when there is no activity, and are therefore” rented” sales. The effectiveness of the activity has many measures, but to the supplier two measures only are of any real use.
- The real cost of the promotional activity including all discounts on deal volumes and associated co-operative advertising.
- The number of consumers who convert over time from being a rented consumer to one who becomes a part of the base sales volume.
If you are not making these calculations, and adjusting the mix of your expenditure programs accordingly, and are prepared to make some very tough choices on the basis of the information gathered, chances are you are going broke being successful, a very common complaint in the Australian FMCG market.
Feb 25, 2014 | Branding, Change, Collaboration, Demand chains, Marketing, retail
A pilot program I have been recently involved with, setting out to assist the evolution of a” Sydney Harvest” brand of local produce has not delivered the results hoped for.
After years of agitation by produce growers in the Sydney basin, beset as they are by aggressive competition from the chain stores, lack of scale and high operating costs as a result of being in semi urban areas, governed by urban concerns, the pilot was created. It was a collaboration between a small number of Sydney basin growers, and specialist retailers aimed at delivering the freshest and best possible produce to those discerning and demanding customers who choose to shop at the specialist produce outlets.
The value proposition was simple : “You know it is fresh, because it come from down the road, you know the retailer, and here is the grower, guaranteeing product provenance and farming practice sustainability”.
In considering the reporting of the exercise, part of the shortcoming of the pilot was that there was little commitment beyond the verbal from the participants, even though the verbal commitment was strong. This is very common in the early stages of collaborative exercises, everyone says “yes” and waits for others to do the lifting. The emergence or otherwise of a “champion” someone who takes on the challenges at a visceral level, can be the main bellwether of success.
Watching a presentation by Seth Godin last night, he articulated just the situation we had.
There was no “connection” between the participants beyond the superficial, the human connection was not there.
Godin calls Connection “The asset of the future” and in a connected world, it would be hard to argue against this proposition. He further identified 4 pre-conditions of connection occurring.
- Co-Ordination. There was co-ordination in this pilot, but it was managed from the outside, by me, there was little skin in the co-ordination part of the game by participants.
- Trust. Trust evolves over time as a result of behaviour, it is never given, it has to be earned. In this case, we underestimated hugely the role to be played by trust, and the preconditions necessary for its evolution.
- Permission. Seth is talking about permission being given by the subject of a marketing effort, so this pilot is a different set of circumstances, nevertheless, whilst” permission” was given in the sense that all signed up to the pilot knowing exactly what was going to happen, and the role they were expected to play, when it went away, nobody missed it. The “permission” whilst given was nothing more than a superficial “OK”
- Exchange of ideas. In this case, whilst there was superficial buy in, the subsequent behaviour did not include interaction amongst the participants. They were too busy and pre-occupied with the normal business to put the time aside to exchange ideas, and get to know on a human level the other participants ,exchange ideas and experiences, and learn from each other.
This stuff is really, really, hard, and the only way we learn is by jumping in and having a go.
Dec 4, 2013 | Branding, Change, Marketing, retail, Sales, Small business
The produce branding model used by the agricultural so called marketing programs run by industry bodies all fail the basic test of being consumer centric. Generally they are retailer centric, using grower levies to fund discounts, and sometimes display space, never brand building. ”
“Australian tomatoes” is not a brand, it is simply a description.
Besides, the major retailers are exercising their control of the supply chain by not allowing proprietary brand building marketing anywhere near their stores.
The major retailers hold varying shares of produce categories. I suggest that hard vegetables like potatoes and carrots are in line with their overall share of around 75%, but their share of sensitive, seasonal fruit is probably more like 40%, with everything else falling somewhere in between. Where they fall depends on the “commodity” status of the produce, and consumers view of the trade-off between convenience and freshness, taste, and the more subjective things like customer service and product provenance.
Sydney Harvest is determinedly consumer centric. It is an evolving business model that creates a collaboration between the best growers in the Sydney Basin ands specialist produce retailers in Sydney to deliver field fresh, best quality, provenance assured produce to discriminating consumers, turning the usual supply chain into a demand chain.
Currently in pilot, the initiative is setting out to determine if there is a market in the niche, as there is certainly a niche in the market for such a collaboration.
Nov 27, 2013 | Change, retail, Sales, Strategy
The verb that describes the process of retailers ignoring the shift to digital: payment, e-shopping, mobile selection of destination, on-line reviews, and so on.
The business model is rapidly evolving, whatever your current model may be, nothing is set in stone, or even rubber. To survive, business models need to be granular pieces of collaborative capability that capture the instantaneous, mobile, web-enabled future.
Currently, our esteemed political leaders are debating how to extract GST from net sales, bleating about the lost revenue that should go to hospitals, schools, and perhaps overseas study tours. It has happened for the last few Christmases; the retailers’ association generates some on-line sales numbers, then applies GST, hyping up the lost revenue to pollies who are too silly to recognise the flaws in the logic:
- Not all sales over the net are “lost” sales to bricks and mortar retail: the net is a demand generator, it does not simply suck sales away from retail.
- Not all net purchases are from international sellers: many are domestic, on which the GST is collected.
- On-line sales are growing strongly, but are still a modest 6.3%, according to the latest NAB survey. Optimising the other 93% would seem more productive than bleating about the little they lose.
- The compliance costs will be huge. Irrespective of how many economic models are generated, common sense would lead to the conclusion that a significant percentage of parcels would need to be opened, and heavy fines imposed, to put a brake on international purchases. If Customs cannot stop the flow of drugs, guns, and such by post, what makes them think they can be more effective slowing the flow of Barbie dolls and books at Christmas?
- Our retailers have the perfect right, if not the capability, to sell internationally, boosting their numbers. Obviously, boosting capability would seem sensible.
The world has moved on. Being “netf…ked” is optional – a choice in the hands of management. So, why not set out to be the netf..ker” rather than the” netf..kee”
Nov 6, 2013 | Alliance management, Branding, Marketing, retail, Small business
The agricultural supply chain that has dominated the way we get our food has evolved as a fragmented, opaque series of transactions that occur to fill the gap between the producer and the consumer. Many of these transactions add no value to the consumer, rather, they serve to capture value for some link in the supply chain.
As they add no value, it is fair to ask “are they necessary”, and in many cases the answer will be “No”, in others it will be that whilst it may add no value, it is a necessary cost, like transport.
Were we to set out to re-engineer the supply chain with consumer value as the driving force, what would we change?
Well, a fair bit, much of it as a result of the communication and data transfer capabilities that have exploded in the last decade. There is now absolutely no reason a grower cannot see where his product goes, each transformational stage, every point at which it is moved, and the costs and margins involved.
Whilst there are sensitive commercial implications in all this, the technical capability is there, and using those capabilities to eliminate costs and margins that do not serve the consumer will increasingly become the focus of competitive activity and innovation.
Wool is the archetypal Australian commodity, and it is also representative of the worst of commodity “marketing” where each link in a very complicated operational chain is a set of strand-alone transactions. However, even in this conservative, institutionalised chain, there are rays of light, enterprises like WoolConnect that have evolved over a considerable period, to deliver a transparent, collaborative chain that has eliminated much of the cost that adds no consumer value, becoming far more productive in the process.
I am working with a small group of horticulture growers and specialist retailers in Sydney on a pilot, a transparent, demand driven chain that responds to consumers, not what growers have on the floor, or what wholesalers think they can squeeze a good margin out of, but real demand. It is a fascinating exercise, one that is hopefully successful and commercially scalable.
This will deliver tree ripened fruit to consumers the day after it has been picked, and similarly, veggies harvested this morning, on your plate tomorrow.
“Sydney Harvest” brand, get used to seeing it in your greengrocer.
Innovation in a horticulture supply chain, who would have thought??
Oct 1, 2013 | Category, Customers, Demand chains, Marketing, retail
It is pretty trite to point out, again, that the reason businesses survive is to satisfy customers.
In fresh produce markets, this has been pretty much forgotten as the share of the consumers dollar that ends up in the farmers pockets has progressively dropped over the last 50 years from around 50% to now 10% for the lucky ones.
This is below in many cases the cost of production, so there goes food security, at least at the prices we have become used to!
This squeezing of farmers has evolved as retailers have built scale, and managed their logistics to deliver margin from produce, and consumers have favored convenience and price over product “eatability”.
Now however, it may be that the worm is turning.
Some consumers, certainly a marketable proportion, are turning back to favour freshness, product provenance, and taste, and are finding those characteristics in farmers markets, direct home delivery, and the few specialist retailers who have survived. These consumers are driving the evolution of a transparent “demand chain” which is putting some leverage back into the hands of farmers, if they can figure out how to remove the impediments to transparency, and the ticket clippers who inhabit the chain.
The tools of the web are slowly turning the supply chain of old into a demand chain, a supply process that responds to consumer demand, preferences, and habits. Farmers being able to communicate with those who consume their produce, and respond accordingly disappeared when we moved en masse to the cities, as no longer were we living in the small communities that enabled the communication.
Now however, that ability is back, so use it, and eat better!
Walking into chain retailers these days you are inevitably confronted by displays of product, usually at a discount.
