Sep 26, 2013 | Branding, Demand chains, Marketing, Strategy
A couple of days ago I did a presentation at the University of Western Sydney to a group of academics, farming advocates and farmers. The presentation addressed the challenges of agriculture in Australia close to the major cities, specifically Sydney. Peri-urban agriculture to invoke the jargon.
In preparing the presentation, it seemed sensible to define the genesis of the challenges faced by peri-urban agriculture to ensure that we were addressing the right problems, not the symptoms of the problem. I came to the conclusion that there are 6 forces at play here that need to be considered as we deliberate about any remedial action:
Retailer power. Australian food retailing is the most centralised in the world, effectively a duopoly. This scale of operations enables considerable efficiency, and coupled with an aggressive strategy to reduce transaction costs in the supply chain, small suppliers have been squeezed into the 25% not controlled by the majors, and alternative channels like food service.
Food security. This is not just some jingoistic response to Chinese ownership of land, although you are forgiven for thinking that, it is more about the capacity of Australia to feed itself in the face of a dying industry sector. When you look at the data, we export lots of “food”, but look closer and most of it is commodity grains and meat, the other side of the equation, processed food, we are a net importer, reflecting the decimation of the processing industry, and what is left is largely owned internationally.
Urbanisation. Our cities are sprawling, gobbling up land that has fed us for 200 years, and the pace in increasing. To my mind, it is at its roots, an economic argument between the immediate value of a series of short term transactions that turn land into housing estates, and the long term value of land as a productive asset that just keeps on producing. This equation, the data driven ROI calculations of the developers Vs the more qualitative long term value of land as a producer of food for decades and longer, usually falls on the side of the developers. We really need an analytical framework that does a better job of putting a quantitative floor underneath the long term value of being able to feed ourselves, and that value is reflected in the somehow. It is not just a matter of price, Value is a much wider, more encompassing term. Perhaps the current debate around Coal Seam gas ripping into agricultural land will drive some of this analysis.
Agricultural land as a social asset. This notion can be a bit controversial, but bear with me. Humans evolved over millions of years to live on, and “off” the land in small groups, not congregating in cities disconnected from agriculture and foraging. 200 years ago this changed pretty rapidly in the now developed world, and the trend is accelerating. In the developing world, 2/3rds of the world, the move has been explosive for the last 50 years. What anthropological impacts this is having we can only speculate, but my contention is that this disconnection is at the root of much of the social dislocation we are seeing around us. Assuming this notion has any validity, it gives a social perspective to the use of the land around us.
Emerging consumer concerns. Consumers are the beneficiary of the huge amounts of information now available to them, and they are using that information to make their own decisions in defiance of much marketing orthodoxy. They are informed, cynical, and self reliant, and we now see a strong undercurrent of individual decision making based on freshness, product provenance, sustainability of farming practices, taste, and an individual view of value. This is requiring a revolution in marketing thinking, and is being reflected in the growth of channels outside the retail duopoly, farmers markets, farm to home delivery, and resurgence of specialist fresh retailers. The 25% left over after the duopoly share is taken appears to be reversing, and rather than becoming 24%, is more likely to become 26%.
Information transparency. The explosion of our capacity to capture, organise, analyse, and transmit data is as significant a development as the printing press, and harnessing of steam in the impact on our lives. That capacity has turned supply chains where growers simply grow, and throw the produce over the fence, hoping someone buys it and pays them a fair price, to a demand chain where the drivers of demand, what consumers want, is now transparent. The whole chain can be now reconfigured to reflect that demand, and costs are only incurred where that add value is greater than the cost.
The strategies to be employed if you want to navigate through he shoals of the 6 forces outlined above can be broken into three:
- Increase the perceived “value” of products in consumers eyes.
- Engage consumers.
- Outflank the retail duopoly.
In other words, build a brand.
Easy to say, hard to do, and to be done, it needs to be commercially sustainable, not something that relies on public funding.
Sep 16, 2013 | Change, Collaboration, Demand chains, Operations, Strategy
Most of the really great innovation that happens has as a core component, a re-definition of what the future should look like.
From Orville and Wilbur Wright, to Henry Ford, Martin Luther King and Steve Jobs, the words they used explained why they were doing something, and how they believed it would change the future.
They defined what the future would should look like, and the similarity to the present was only by exception. Then they got on with delivering.
On a more mundane level, lets consider the future of agriculture as a component of our modern lives. We have cities now that were unthinkable a generation ago, Tokyo’s urban area contains 37 million people, Jakarta 27 million, Seoul 23 million, and so on down the list.
Mans evolution seems to be grounded at the points where he first domesticated some animals to serve as hunters, food, and companions, then domesticated wild grains, and settled down to grow them rather than moving and harvesting as they went. A similarly monumental change is happening around us now, as we leave the land and cram into cities. Initially we fed ourselves with factory farming monocultures replacing natural environments, and we are only just starting to realise the ecological impact of this social change as a few experiments in “rewilding” progress.
This increasing disconnection from our roots I believe is being felt at a subconscious level, and we are reacting, demonstrated by the sudden popularity of cooking and gardening shows in the media, the growth of farmers markets, “pick your own” trails run by local farmers, the resurgence of specialist retailers who provide product provenance, and the nascent groundswell of interest in urban agriculture.
Degraded urban areas are being re-greened, and the thinkers amongst us are slowly recognising the extent and power of the changes, and reporting the changes, as with the” Urban food security, urban resilience and climate change” report.
So what next?
Technology will play a huge role in enabling “vertical” agriculture, a capital and technology intensive idea, but the bridging stage is to retain agriculture as an integral part of our urban landscape rather than removing it under the short term pressure for housing and industrial development.
The exciting part of all this is not just the revolutionary agricultural practices that will emerge, but the opportunities for the ancillary industries and services to evolve, providing jobs, education, and some reconnection with our evolutionary ancestors, whose DNA is hard-wired in us, but recently ignored to our social cost.
Sep 11, 2013 | Branding, Change, Marketing, retail, Strategy
As our cities continue to suck people off the land, and grow bigger, swallowing adjacent farm land, we face the challenge of how we feed ourselves into the future.
It may not be a problem now, or in 5 years, but it will be a problem. China’s urban middle class is currently around 400 million out of a 1.5 billion population. 20 years ago, there was little if any middle class, so the move has been dramatic, and is not slowing.
China is an extreme case, but one we need to consider in Sydney as we look to the future of our children. Marrying agriculture with urban living, figuring out how we can feed ourselves without destroying the landscape should be on the planners radar, so for those thinking about the challenges, here is my “two penneth” worth.
- Personalised. We are in a world of “i” one in which consumers expect to be addressed and marketed to on a personal level for clothing, cars, even shoes, so why should it be any different for the food we consume? Indeed, the food we consume is arguably more relevant to us than almost anything else. As I observe the strategies of the major supermarket chains, they are hell bent on removing consumer choice as a cost reduction strategy. This is working currently, but the rise of farmers markets, resurgence of specialist retail, and new net based business models may indicate a stirring at the edges that will at least partially disrupt this “efficiency over choice” business model in time. The opportunity for intelligent values based branding of food products has never been greater.
- Localised. As a kid in the late 50’s and early 60’s (yes, I am that old) there were a number of southern Mediterranean migrants living in the local area. Every single one of them had a back yard garden producing an array of vegetables and fruit for the table. I came to realise it was not a matter of cost, but availability, freshness, and a cultural imperative that drove them to grow in their backyard. Their children, the ones I grew up with, did not follow their parents, sacrificing the back yard garden for the convenience of the supermarket, but the pendulum has swung back, and our children, the grandchildren of the migrants, are returning to the notions of freshness, combined with low food miles, minimum chemical use, and product provenance that their grandparents had. The reasons may be a bit different, and more considered, but the preference for local product, with the inherent freshness and provenance is the same.
- Efficiency. The world has moved from being a place of plenty to increasingly a place of scarcity. Water, energy, labour, and available land are all becoming scarcer, and the increasing price of these resources is reflecting that scarcity. For many, the efficiency of their use of resources is often the difference between profitability and bankruptcy. The side benefit is that efficient use of natural resources also makes ecological sense.
- Intensity. We are seeing increasing intensity on every operational parameter you care to measure. Capital, IT, production, labour, all are far more intensely utilised than just a few years ago. In addition to the operational end, consumers are increasingly scrutinising the product they buy, looking for confirmation of the explicit and implicit claims made, and are unforgiving in the event that they smell a rat. This intense consumer scrutiny and selectivity that is emerging I have called elsewhere the ‘Masterchef effect”
There is considerable overlap between these four factors, and they are mutually supporting, but it seems to me that they reflect the foundation challenges faced by successful urban agriculture.
Sep 3, 2013 | Governance, Innovation, Marketing, Operations, Strategy
I have just been a part of a post investment review with a client, looking at what a significant investment in capital equipment has delivered, compared to the planned outcomes, that underpinned the Capex.
Not a pretty sight, and now they have to learn the lessons to avoid repeating the mistakes.
Over the course of the exercise, the marketing manager consistently blathered about the accountability of the engineering staff in the process, but when cornered on marketing accountability to the product and market specifications against which the investment was made, and the effectiveness of the launch, and post launch activity, he had nothing.
Marketers have cried forever that the money spent on marketing is an investment, not an expense, but often this has a hint of self preservation about it.
However, if we are fair dinkum (Aussie for honest with ourselves) we should also be prepared to undergo a rigorous process to measure the effectiveness of our marketing investment.
Marketing however, has substantial elements of the “qualitative” about it. Creativity, being different, a better approach, all of which are best measured in hindsight.
Having measured, and with the benefit of hindsight seen a better way, surely the gap could be termed a “Marketing Debt”, the amount pissed away because the idea, execution, CVP, or something else was not up to scratch.
If we figure out how to keep a running score, weighted by hindsight and the continuous improvement enabled by the analytics and A/B testing now possible, we might even convince the beanies that marketing really is an investment.
Aug 29, 2013 | Collaboration, Governance, Leadership, Management, Strategy
Everyone knows herding cats is impossible, right?
Quite often this is a metaphor used to apply to NGO’s and voluntary organisations, bureaucracies, particularly local government, farmers, and children. Getting them to one place, at one time, in an organised and disciplined manner seems impossible.
I have used it plenty of times, not always kindly.
However, a recent experience has led me to a different conclusion, cats are actually pretty easy to herd, it just requires a bit of good management.
- Make sure they are hungry
- Show them a feed.
Done, herded.
It is the same with any of the metaphorical cats. Make sure they are hungry for what you have, can deliver, or represent, then demonstrate how to get to the prize.
Mostly people are motivated by things other than money and rules that dictate their behavior, offering responsibility and accountability for their actions, and a reason why things need to happen in a particular way goes a long way towards herding them. However, it is not really herding, as you need to be out in front persuading the “cats” by one means or another, to follow.
It is simply called “leadership”, and leaders are not always the ones at the top of the now almost redundant, formal, old fashioned management pyramid. Now they are those that care, put themselves out beyond their comfort zone, confront scared cows and take a photo of the elephant in the rooom and throw darts at it.
Aug 20, 2013 | Collaboration, Demand chains, Marketing, retail, Strategy
This is a far longer post than normal, motivated by some very sensible feedback from the previous post. Bear with me.
The “tools” that add value to management of any supply chain, playing a role in the transformation into a demand chain are relatively simple to list, but extremely difficult to implement.
I have seen, and worked with many over the years, largely based in agriculture, but the lessons are widely applicable.
The difficulty of implementation is why there are so few successful agricultural demand chains, but those that are in place, at least the ones I am aware of, deliver enormous long term value.
In addition, the classification of something as a “tool” usually creates debate, as it can also be an “outcome” of a successful initiative.
For example, is the “Shakedowns” brand of baby carrots from Bolthouse Farms in the US a marketing tool, or an outcome of a successful marketing and demand chain initiative? Truth is, that it is both, but the debate can become excited.
Following are what I see as the six key components that are the characteristic foundations of successful initiatives, but having them in place is not a panacea, as like any tool, the use remains in the hands of people of varying skill, motivation, and outlook.
- Appropriate scale, and the supporting processes to manage that scale. The scale and supporting processes needed to be successful in the local growers market are very different to those necessary to be successful in Woolworths, Tesco, or a major food service distributor. It is not just a matter of size, it is largely a matter of alignment. At one extreme we have growers market customers, who value product provenance to the point of wanting to communicate with the grower personally, and to know all about a particular piece of produce, and price is not all that relevant, so long as it delivers value. At the other end by contrast, a supermarket customer is way more focused on price, availability and convenience. To be successful with a supermarket chain, you need:
- Working capital reserves, as the margins are thin and payment terms long.
- Data capability. Supermarkets are run by data, and category management, and not having the capability is as good as going to a shootout with a penknife.
- Low cost. A necessity if you are to survive the pressure on operating margin, and marketing investment necessary to combat increasing penetration of housebranded substitutes.
- Operational scale to be able to service a chain nationally, or at least throughout a state.
None of these factors matter a whit in the local farmers market.
- Chain Transparency. Transparency drives accountability, surfaces market and improvement opportunities to every point in the chain. Of increasing importance, transparency also delivers product provenance. This is critical in a farmers market, and branding initiative, and rapidly becoming a marketing tool in supermarkets, but more importantly, is a critical component of controlling a chain. Without transparency, you cannot have control beyond your immediate domain, and thanks to the net there are now fine tools available to suit every situation, the standard setter being an Australian home grown product offered by GFA .
- Collaborative structures and processes. Arbitrage margins are made possible in a supply chain by a combination of lack of transparency and a culture resulting from the old way of “information is power”. This dying a difficult death, but dying it is as the communication tools now available provide the opportunity to collaborate as never before, and as a result the nature of organizations is evolving rapidly. A great example is the wool supply chain, 2 years from sheeps back to a consumer article, a production process that involves at least 7 product transformations which are typically highly competitive, and involve inventory, risk, and time, all of which add substantial cost. A collaborative structure that creates a forum of all the chain players can cut that time, risk, and cash tied up by a factor of 2/3. The poster boy in Australia is Woolconnect, a collaboration all the way through the chain that delivers product from farm to the consumer in 4 months. This did not come about easily, or quickly, but as a result of the vision and determination of a few people over 15 years.
- Contract capable. Customers need certainty, they need to be able to rely on undertakings given, and part of that is a single contract capable party with whom you do business. In simpler times, a handshake was sufficient, and as relationships evolve, it sometimes evolves back to that level, but for the most part, certainty involves a contract. Weather that is with an individual, Pty Ltd company, a co-operative or public company is not relevant, it is simply an agreement with consequences.
- Business model. Success requires the combination of a sustainable commercial business model with an attractive value proposition to the end user, and all points in the value chain. The “business model” represents the combination of all the points where costs and revenues are generated through the chain, mixed with where and how “value” is created. “Value” is the key component in a business model, often missed with traditional thinking. The business model also incorporates a capability to balance supply and demand transparently through the whole chain, not just at any individual point in the chain. Amazon creates value not only by selling books cheaply, but by having an inventory hundreds of times bigger than any bookstore, and offering a crowd sourced rating system. What they cannot offer is the personal and often emotional experience some have with browsing in a good bookstore. The supply chain models and resulting business models are very different quantitatively, and they create value in a different manner. I suspect there are enough bibliophiles for bookshops to survive and prosper against Amazon, but they will no longer be in every shopping location as we have been used to, and will not be a shop-front for recent releases and best sellers, but will be something entirely different.
- Marketing. There are as many definitions of marketing as there are consultants and academics. Mostly they talk about the “4 P’s” the mediums for communication, the need to focus, but my take is both simpler, and more strategic. To me, marketing is all about the definition, building, leveraging and protection of competitive advantage. The way enterprises go about this task is almost infinitely varied, and over the last few years has become increasingly fragmented and confused. However, really good marketing always has a simple, clear articulation of a value proposition that motivates action.
You got this far, well done.
Perhaps it should be an e-book, as there is plenty more to say.
