Where will the retail gorillas make profits tomorrow?

Posted by AFN Staff Writers on 18th April 2016

SupermarketColes and Woolies are locked in a battle for share of the customers wallets and throats that becomes more complicated every day.

The competitive landscape has changed. The old model of them against each other and independent wholesaler supplied groups, has been spiced up by Aldi, Cosco, and the tide of competitive business models evolving both in store formats such as the convenience small stores around commuter points, and digitally enabled sales. Those sales I call ‘Beyond Checkout’ sales cover everything from online ordering with home delivery to the evolution of old fashioned drive thorough pickup.

In my view the battle is a losing one for the gorillas without significant change to their operational culture. Their current business models are based on mass merchandising, not easily made compatible with the personalised service delivery and the lower volume specialised products now being sought. You need go no further than the disappearance of Thomas Dux for evidence.

Having said that, I see 5 general areas for operational innovation of both the gorillas that would deliver ongoing profits, and sensitise them to the changes happening beyond the walls of their stores.

In store technology deployment

Deploying some level of the data driven category management control to store level would greatly enhance assortment optimisation, out of stock reduction, and margin maximisation. The assumption of course is that there is staff in the stores with the nous to leverage the information they are being given.

There is also the juicy thought that stores will be able to connect to consumers in close proximity to stores via their mobile devices geo location capability and make them offers based on their purchase patterns. Then there is the option of instore kiosks harnessing the value of instore video and personalised advertising and promotion, again catalysed by your mobile device.

Leveraging existing assets

Reduction of maintenance and running costs with innovations like rooftop solar power, preventative maintenance programs, improved store security, and stores as the logistic base for home delivery. Home delivery will become more and more important to time constrained consumers, so developing a compelling offer should be high on their agendas. To date the penetration has been poor because the logistics, particularly for fresh and frozen product is really challenging.

Employee productivity improvements.

With better staff training, particularly in produce, customer sensitive opening and closing times, cash register  speeds (the Aldi insistence on prominent bar codes by observation speeds up throughput significantly), much can be achieved.

Self-serve checkouts currently rolling out with store renovation programs have clearly been a success with consumers, and offer significant productivity improvements.

Value chain optimisation

The use of collaborative technology that goes back into supplier production planning and collaborative volume management from the production line to the checkout has been around for years. However, there remains huge opportunities to extract benefits from inventory management for all in the value chain. The barrier is cultural, as the gorillas want all the benefit to come their way, removing the incentive for suppliers to take risks and innovate, except when under the whip.  Collaboration through the value chain can deliver great benefits when done well.

The customer experience,

What is retail about, if not customer experience? It is here that retailers can differentiate themselves in all sorts of ways.  What they cannot do is demand from head office that customers like them, and prefer their stores over the others, that is a personal thing, creating a store environment where the employees are pleased and proud to be of service. Long way to go there. What they can do is provide the infrastructure that enables that level of personalisation and service to be delivered in stores.

E-tailing is a threat to the gorillas, and while it involves capital to develop and deploy the technology, it is essentially an individual engagement and transaction. Online gets all the publicity, but still only accounts for around 6% (depending on whose numbers, and which categories you look at) of sales. The gorillas should see E-tailing as their next opportunity area, to be embraced rather than feared.


Allen Roberts is a guest contributor to Australian Food News. He is the Director of Strategy Audit www.strategyaudit.com.au and has worked in the food sector for more than 35 years. To read his full biography click HERE.