The rise and rise of the digital milkman

The rise and rise of the digital milkman

Mar 8, 2018 | Change, Marketing, retail

The retail gorillas, Coles and Woolworths may still have 75% of grocery market share, but they are in the gunsights of a horde of hunters, all using new fangled weapons developed from the base of ‘Digital’ in a myriad of ways.

Meanwhile. The gorillas are acting like frogs, quietly doing backstroke across the pan, and back again, as the digital hunters pile wood onto the stove. They do have some digital services, order and delivery, order and pick up, but all suffer from the disease that eventually killed Thomas Dux, they are an offshoot of the current model, not an experiment  designed from the ground up to disrupt and destroy the current model.

In the future, the business model we are all used to, the suburban or mall based supermarket carrying anything from 1,000 Sku’s as does Aldi, up to 12-20,000 as do the biggest Coles and Woollies stores will decline significantly in importance. In the future, the  supermarket as we see them currently will be a much smaller part of the revenue pie, for a number of reasons:

  • Cost of entry is reducing. Cost of entry into FMCG has been, and will be further, eroded. From global sourcing from low cost non proprietary manufacturers, to the ability to cut out the retailers with direct to customer channels. These days, all you need is an idea, a little working capital and youtube channel. This may be a radical over-simplification, but there are now products and brands we have never heard of that are selling successfully using this direct model. There have been some notable successes, like Dollar Shave club, a 2012 start-up recently sold for a billion dollars to Unilever, after becoming the second largest shaver brand in the US. No supermarkets. I have read commentary that a $billion hugely over values the purchase, but given it gives Unilever an entry point into a category where they had no offerings, that is adjacent to their mens grooming and personal care business, it makes a lot of sense. Similarly, Procter and Gamble, not known for knee jerk marketing, is trialling a laundry pick-up and delivery service branded ‘Tide Spin’ in Chicago,  and is experimenting with Amazon Prime, and IoT  again using the Tide
  • Availability is the new benchmark. The gorillas have up to 20,000 SKU’s on their books, most individual outlets will not have more than 10,000 on shelf, available, after local conditions are accommodated. Digital retailers have hundreds of thousands of options, all available within a very short time. If you need it right now, immediately, go to the local store, and if they have it, so can you, but if you can wait a day, you can have whatever you want delivered. It seems to me a that consumers are prepared to pay a premium for convenience, simply an anagram (almost) of ‘Availability’.
  • Customer loyalty is dead. Loyalty to a channel, and individual retailers in the channel has been eroded terminally by the range of purchase options opening up. Coles and Woolies compete on price, and parking, only two of a wide range of options consumers now have available to them to determine ‘Value’  of a purchase channel.

 

The complication for digital ‘mass grocery’ has been that challenging ‘last mile’. How do you get the products to the consumers efficiently, and cost effectively. It can work pretty well for high value dry goods, perishables present  their own particular problems nobody has solved yet. Indeed, Aussie Farmers Direct, one of the groups that seemed to have survived the start-up phase, and had built a customer base and presumably processes to manage customer relationships went into administration on Monday, March 5, citing competition from the supermarket chains as the reason.

However, autonomous everything powered by data will deliver us models that work, just as Uber cracked the taxi industry, and is now moving into home delivery for restaurants with UberEats, Supermarkets are an easy next step.

As I reflect on my commercial history, part of it was in the dairy industry, where there were milkmen calling on pretty much every suburban home every day. There was a ‘Depot’ system covering the country, and every milk company tried hard to get the ‘milkos’ to deliver more than just milk. After all, they were there anyway, so the marginal cost was low. Hindsight, and we knew it at the time, tells me that the communication and payments systems were not up to the job 30 years ago.

They are  now, so I predict the return of the ‘Milko’ just the digitally enhanced model. Pity the dairy companies all took the short term view and flogged off all that real estate with the depots on them!

Photo credit: Ben Watkin Via Flikr.

Do we still need book stores and publishers?

Do we still need book stores and publishers?

Feb 23, 2018 | Change, Marketing, retail

 

I love books, real books, items where you physically engage with them, turn the pages, scribble in the margins, pass them onto friends with a handshake and a ‘you will enjoy this‘.

Behind me (chronologically) are those who have grown up with e-books, blogs, podcasts, and all the other digital distractors, who have missed the joy I have always had in a bookstore. Instead they browse the Amazon catalogue and recommendations, and look up ratings by people they do not know on sites that have no interest in being transparent.

Very efficient, but to an old fart, not always a substitute.

Despite the gloomy outlook, I still think that the few bookstores still around will survive, having identified a clientele who like me values a real book. Stores like Berkelouw books in Sydney  with 10 stores, and 200 years plus in the business, where a book is more than an item in a catalogue, where the staff live and breathe books, and communicate the passion.

Perhaps not, the numbers seem to be against them, although Amazon opening bricks and mortar bookstores should tell you something. There are also a few specialised book publishers around, those with a deep knowledge of their topic domain, that seem to be hanging in there.

Authorearnings.com has a database that records all book sales, a treasure trove of information if you are a book tragic. Here are some highlights from the January 2018 report, and some thoughts.

  • Amazon sells half the ‘books’ in the US. That number is made up of e-books 55%, print 39% and fast growing audio books making the balance.
  • The dollar shares are very different, print sales make up 63% of the value, unsurprising when you consider the relative value of a $3 e-book and a $100 textbook, which are still largely print. How long this print bias in textbooks will last is anyone’s guess, but mine is not too long.
  • The sales split in categories of books, unsurprisingly, is very different. Digital has consumed fiction, with 90% of romance purchases are e-books,  while poetry and drama are still overwhelmingly print, albeit off a way smaller base.

Books are the original long tail business, millions are ‘published’ and most sell only a few copies to their friends, colleagues, and mum. However, some are still of great value to a few, and we would be diminished by their absence. Digital has made the long tail accessible to us all, suddenly those lost gems are easy to find, even if you do have to read them on a ‘device’

The strategic question is will there still be a need for publishers in a decade?

I think the answer is ‘Yes’ but not like  they  are currently and have been in the past. They will become more like collaborators, and business partners, than just another cog in the supply chain as they have been. Publishers play an important role in the curation and editing of books. Authors  want to write, and often do not want to be bothered by  the commercial end of  the business, and in any event often have little marketing and commercial skills, so need a third party to help.

Editing is also a must, if a book is to be more than a jumble of words. Steven Pressfield in his great ‘Writing Wednesdays‘ blog makes it clear that he could not do what he does without his editor Shawn Coyne. If a writer of the skill and experience of Pressfield needs help, the rest of us are in real trouble without it.

Photo credit. Geoff Roberts. Goulds Books Newtown Sydney.

PS. After posting, a friend referred me to this video of the 6 most beautiful bookstores in the world. Suck it up Amazon!

 

 

 

‘Organic’ investment should be the saviour of (some) retail.

‘Organic’ investment should be the saviour of (some) retail.

Feb 16, 2018 | Customers, Marketing, retail

I went into a retail store last week with a problem, not really expecting to find anyone or anything that remotely met the immediate need I faced.

My web search had revealed many solutions, none of which gave me much confidence for one reason or another, but it had sparked a few ideas.

Lo and behold, the store I went to, (after a bit of web research) an independent store that clearly understood the niche it was servicing, had made a significant ‘organic’ investment.

They had several people who understood my problem, and were able to offer several sensible alternative solutions, one of which was perfect.

When faced with the same or similar challenge again, guess where I am going!

It may not be for a while, but inevitably it will happen again. Meanwhile, guess which store I am touting to my friends and colleagues.

Ironically, it seems that the most successful retailer on the planet, when measured by the standard retail sales/sq foot, and margin/square foot metric is one of the tech disrupters: Apple. They have redefined bricks and mortar retail by adding ‘organic’ sales staff to the best long term branding job ever seen, except perhaps for a couple of the major religions. At the end of 2017. Apple had 499 stores worldwide, and not content to leave well enough alone, are continuously investing and experimenting with formats, layout, branding, and the important ‘organic’ part of this hugely successful bricks and mortar puzzle.

On Wednesday (Feb 14, how appropriate) the Myer CEO was dumped by the board for failing to turn the ship around. The last time I was in a Myer store, admittedly some time ago, as I have no wish to repeat the experience,  there was no staff anywhere to be seen. My intention had been to buy a suit that had been advertised as part of a sale. Good price, good brand, I was in the store to buy, but no sale for Myer, although I did buy a similar suit elsewhere. Firing the CEO will have little impact on my future purchase intentions, without the long term investment in one of the the foundations of successful retail, good people at the customer coal-face, and a management culture that recognises and nurtures those people.

Digital is great, the convenience, price, and range are seductive, but there is no substitute for a person who has deep domain knowledge, has seen the problem before, and who is happy to help, and clearly gets a kick out of doing so. After all that, price does not matter so much, it just needs to be in the ball-park.

Just ask Apple.

Photo credit: Harry Pappas via Flikr

The downside of FMCG retail scale.

The downside of FMCG retail scale.

Feb 14, 2018 | Innovation, retail, Strategy

Woolies and Coles have around 75% of FMCG sales in this country, depending on whose numbers you believe, and which categories are included.

They have huge scale, from the farm gate through the supply chain to the consumers wallets. As a result, their cost of capital is low, as lenders, both cash and equity see the risks as being low. When you add in their ‘trading terms’ as a component of  their cost of capital, as it should be, the numbers would look even better. Pay your suppliers in 90 days, having used your scale to reduce the price to subsistence levels or lower, minus  the deductions for whatever you can dream up, during which time,  the stock has turned over several times.

Bargain!

By contrast, the small suppliers, those few that are left,  are seen as poor risks, which in fact they are being an endangered species. Their costs of capital are high, as are their operating and working capital costs, which leaves little to nothing to be invested in the future of their businesses.

That is why they have mostly disappeared. Their management has been unable to balance the competing demands of low price and increasing operating costs, such that even large seemingly successful businesses became smaller unsuccessful ones to be sold off to whoever had the cash. Consider Goodman Fielder, SPC, Dairy Farmers, National  Foods, CSR, …… need I go on?

The long term problem that this trend delivers is that innovation, the creation of new value for customers, and the lifeblood of retailers comes from the edges, from outside the  status quo. It is usually those smaller, entrepreneurial businesses that get in there and have a go, take a risk, and survive on their vision, wits and determination, that deliver the category makers.

Pity they are almost all gone, and what we have left is a number of ‘traditional’ retailers seeking to optimise their existing operations, while having nothing to fight the well-funded disruptors coming to eat their lunch.

Woolworths emasculating and closing Thomas Dux is the classic case of corporate strategic blindness. Now they have backtracked with the very well thought out new Marrickville Metro store, which is not Woolworths, but the ghost of Thomas Dux back to haunt them. Meanwhile, Amazon is really innovating, taking their pilot Amazon Go store public a couple of weeks ago, in a move that goes well towards defining the store of the future.

The downside of scale is the conservatism and lack of real innovative and strategic vision that comes with a business intent on optimising the current model. If that worked, Olivetti would  still be a significant player in the document creation business, Kodak would still be creating memories,  and Microsoft would still be a near monopoly.

Header credit: apologies to Monty

Is Amazon Go the supermarket of the future?

Is Amazon Go the supermarket of the future?

Jan 25, 2018 | Innovation, retail, Strategy

Amazon has been experimenting since December 2016 with a concept store ‘Amazon Go” in Seattle. It has been a ‘Beta’ store, open only to Amazon employees, as they set about solving the obvious wrinkles in an environment with no cashiers, and no self-serve cashier machines, just a ‘walk in walk out’  App that manages the whole process.

Oh wonder of wonders, no queues!

Amazon Go opened to the public  on Monday this week. The key question is what are they going to do with it?.

It seems to me there are two basic strategic choices:

  • Roll it out via their own stores, an Amazon Go expansion,  and/or via Whole Foods, which gives them an immediate footprint of 470 stores in areas with higher income, and tech savvy consumers
  • Sell the technology to other retailers,  just as they have with Amazon Web Services.

Of course, they are also able to do both. Amazon is perhaps the most agile large enterprise the world has ever seen, able to manage multiple lines of concurrent innovation that would choke every other business.

For what it is worth, my bet is that Amazon will progressively roll out the technology into selected Whole Foods stores, the ones surrounded by higher urban densities, in what will be a ‘mass beta’ of the technology, then sell the technology to others as they have done with AWS. This would enable them to capture a slice of the installation costs as well as ongoing software subscription revenue and a percentage of sales.

A goldmine amidst a disrupted retail business model and consumer experience. Not since the first Piggly Wiggly supermarket was opened in 1916 have we seen the potential for retail disruption on such a scale, and at such speed as I suspect we will see.

I do not know what is happening in the executive suites of Coles and Woolies, but if they are not deeply concerned about their current business model in the face of this coming Amazon tsunami, they are truly short sighted.  My instinct is that the strategic deficit of Coles and Woolies is just too wide to be easily bridged by the tactical stuff they have both used with varying success for the last 30 years. It is not as if they are alone, major retailers worldwide will be in trouble, Tesco, Wal-mart, Carrefore,  and all the rest will be on life support with them without radical change. I suspect the only one capable of that scale of change is Wal-Mart, run by a Kiwi expat Greg Foran, who missed out on the top job at Woolies a few years ago.

I have previously suggested that Amazon might reach out to Harris Farm as a way to build a footprint in Australian retail, by leveraging the lessons that will emerge from Whole Foods. This now seems even more likely than it was 6 months ago when Whole Foods was acquired.

Amazon is going gorilla hunting.

Addendum April 2024  It seems the answer to the question, asked way back in 2017 is ‘NO’ According to this report in 2024, the technology, even with the addition of AI which has exploded onto the scene since December 2022, the AI is really a bunch of Indians sitting at desks annotating video feeds. https://www.businessinsider.com/amazons-just-walk-out-pullback-shows-ai-way-to-go What a let-down!!!!

 

 

 

The evolving Push & Pull of the supermarket business model.

The evolving Push & Pull of the supermarket business model.

Nov 30, 2017 | Change, Marketing, retail, Strategy

Established supermarkets around the world work from a pretty similar, well-honed playbook. The current business model of supermarket retailers is all about scale and leverage applied to their supply chains, and offer of range and price to consumers. While there are many variations in the detail, in principal  they  are pretty much the same, a ‘Push’ business model.

By contrast, the rapidly evolving ‘E-Tailers’ exemplified by Amazon and Alibaba are pull models, relying on customer engagement to activate the sales process.

When you look  closely at the business models of Amazon and Alibaba, the gorillas in the E-tailing space, there are significant differences. Amazon still at some point in the chain physically handles the products they are selling, and they do often take ownership at some point, while Alibaba at no time touches or owns the products, all they provide is a platform for the exchange to take place, and they make a commission on the transaction.

The established retailers are driven by the core assumption of the 20th Century that price of the product, range, and location of the store will be the dominant factors in determining customer loyalty, which are both supply chain factors. By contrast, the models of the e-tailers are truly customer centric. The value chain is driven by the demands of the customer, which can be influenced, if not completely managed once enough data on the individual is available.

The difference from a strategic perspective is the technology required to drive them both.

It seems to make sense that the existing supermarkets will be setting out to match the customer centricity advantages of their digital competitors, while retaining the advantages bestowed by their control of the supply chain.

How do they do that?

Not easy, but increasingly becoming not just possible, but a reality. By combining their supply chain knowledge with the customer information being collected on store cards, the geolocation capabilities of mobile devices, and social ‘Big data’, supermarkets could find themselves in a position to ‘flip’ some of their revenue from Push to Pull.

Imagine the situation where Mrs Bloggs is driving on her way to pick up the kids at after school care  having finished work at her part time job.  She sometimes stops at the supermarket to do a top up shop for the household commodities, and to buy some fresh produce to cook for dinner. The supermarket  data base knows this routine, and what Mrs Bloggs usually buys from the information collected via the store card she uses.

The algorithms in the store database sends a message to Mrs Bloggs informing her of the price discount they have on a product she may not usually buy, but which they have a surplus at her local store, and the dinner prep bundle for a meal for which she sometimes buys the ingredients. In one case, there will be no discount, why discount something that is a normal sale, keep that discount dollar for a situation where it will generate incremental sales, or can be charged back to a supplier.   The alternative offer is discounted based on the stock turn and availability of the product that needs to be sold quickly. The algorithm also sends a complementary message to Bill and Betty Bloggs, waiting to be picked up, as it knows Mrs Bloggs is driving, so kid pester power is engaged.

Push to Pull.

The strategic development of our grocery markets has been cyclical.

I can still remember as a very young boy going with Mum to a number of stores to buy the groceries. In each one there was a counter and someone who took the order and assembled it from stock to which the customers had no access.  Then came the steady development of the supermarket, which increasingly leveraged the scale of the stores and their control of the supply chains to push product at consumers, and making a margin from the suppliers via retail shelf ‘rental’ and pocketed promotion fees.

The emergence of Amazon et al over the last decade has put some power back in the hands of the consumers, and they are using it, with many households now combining a visit to the supermarket with various forms of on line purchase and delivery. We are going back to the one on one model, but replacing the trip to the store, pantry management, and all the other things my mother used to do, with technology.

Those combinations will continue to evolve, driven by consumers.

Pull winning out over push.