Is the supermarket model being disrupted, and nobody is noticing?

Posted by AFN Staff Writers on 2nd May 2016


Trolley 5Business models are being disrupted all over the place, but ironically the new business model is a case of back to the future.

The new business model disrupting the scene is a new focus on the customer and the way that product value is perceived and received.

It was supposed to be this way in the pre-digital days, but really was not, because the sellers held all the cards. Now however, the power has really reverted to where it should be, to those who drive the value chain by their purchase choices.

AirBnB has become the biggest single retailer of short term lodging on the planet, and they do not own a room, Uber is the biggest taxi service on the planet, and does not own a car, newspapers have been replaced as sources of news. There are many examples, and all are of business models that have arrived in the last few years with a common theme.

They have replaced the linear, sequential business models of the past, where there was always a choke point dependent on physical infrastructure that exerted control, with a model where the physical infrastructure is simply a logistical resource to be deployed to deliver a service. The real product is information. Information on availability, product provenance, performance, and many other factors of value to customers, including, you guessed it, price.

It is a two sided model, enabled by technology that is making the logistical control of the infrastructure redundant in the face of consumers having information at their fingertips. The competitive advantage has moved from the physical infrastructure to between the ears of employees and consumers equally.

Employees create and deliver the information that enables consumers to make decisions, which then dictate the physical logistics driven by those decisions.

Meanwhile, the supermarket retailer model has not changed much.

They have huge amounts of capital invested in real estate and physical assets, it has made them really successful, so the tendency is naturally to do more of the same, just try and do it a bit better.

They have chased, very successfully, productivity of the assets, a financial measure of success not a sustainable measure of success with customers. As a result they are losing their customers to discounters, specialist retailers, and various direct models that offer an alternative value proposition.

It seems to me that Woolies have walked away from, or simply not understood this evolution of their business model.

Their Everyday rewards loyalty card was gathering momentum, building a picture of their customer base and their individual behaviour, critical information that would over time deliver a capacity to engage on a highly individualised basis. However, it was clearly costing a bit, so they took the short term route, and reduced the cost to them, and therefore value to their customers, gave it a new name and sat back thinking consumers would not notice.

They did, and nobody came.

Woolworths took a short term financial decision that has apparently bitten them in the bum. A bit like the ones they took that killed off Thomas Dux, and led them to misunderstand the market when they bet the back paddock on Masters. Pretty clearly someone in the top floor of the majestic head office out in the hills, can read a spreadsheet, but probably does not know what goes on inside customers heads when they are contemplating a purchase, and making a choice about the manner in which that purchase will be made.

Perhaps new CEO Brad Banducci will claw back some of the customer centric culture that gave Woolworths the wood on Coles for so long, but he better move quickly, as the momentum has shifted against them, and it will be hard to regain.


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