There is a whole lot of discussion around the progressive closure of Thomas Dux stores by owner Woolworths, and the assumption that it will be closed down if a trade sale does not evolve.
Maybe there is a plan to save it, but I cannot see it, and having bought some rubbish grapes at an inflated price in the Lane Cove store during the week, I do not know what it might be.
Not a lot of the discussion actually addresses the strategic failure that is the foundation of the commercial failure, just its superficial symptoms.
Strategic failure seems to have found its way into Woolies DNA over the past 15 years or so. They became so financially dominant in supermarkets that they forgot that they still have consumers to keep loyal, suppliers to keep in business, and competitors very keen to eat their lunch. They have done OK in petrol, well in liquor, absolutely bombed in hardware, poorly in general merchandise , and missed office supplies, electrical and furnishings completely, and are fiddling around with odd things like pet health insurance. Not a lot of logic in that mix.
I have watched Dux closely since the launch, had a number of clients products listed, and visited all the Sydney stores multiple times since the first Lane Cove store opened. Until a short while ago, I really thought they would defy the corporate odds, and make it work.
The apparent failure is a sad day for the specialty end of the Australian food manufacturing industry, what is left of it, one less way to reach consumers.
So, with the clarity of (almost) hindsight, where did they go wrong?
Confused business model.
Whilst Dux had separate management, they operated out of the Woolworths warehouse, using the WW back office systems and presumably KPI’s which are all focussed on mass merchandise, stock turn and margin. This makes sense to the accountants who seek efficiencies but in the end forces the big brother behaviour on the upstart sibling who needs to do things differently to survive and prosper.
They forgot their “Why“.
Perhaps they never had it beyond a kneejerk response to an upstart competitor. The slogan “Inspiring your passion for food” is at least a half way decent one, until you see packets of mass market products available in the Woolies and Coles stores next door at lower prices. As a consumer, going into Dux , the presence of such items is inconsistent and diminishes any claim to a differentiated and valuable consumer value proposition.
Value delivery.
Consumers are not stupid, there is a limit to the price they will pay for something with a fancy name, fuzzy claim and benefit, and not much else. Pushing the prices beyond that limit in order to boost the GM% is pretty silly, because you do not bank percentages, just dollars. It is a fine line, but by observation, they got it wrong as much as they got it right, which is not enough.
Discounters are not the competition.
Giving in to the accepted wisdom that discounters are winning and that Dux is competing for the same consumer dollar is nonsense. Consumers are looking for an experience, for specialist products not available in mass retailers. They started well with their “foodies”, in store chefs available to give advice and recommendations, but the enthusiasm for this potentially differentiating strategy seems to have waned over time. Behaving like a discounter in some Sku’s but like a high end, fancy pants deli in others just confuses consumers, and I suspect their own staff.
What you will not do.
Strategy is, amongst other things, about what you will not do, as much as it is about what you will do. Thomas Dux seems to have forgotten this lesson and succumbed to the temptation to stock SKU’s that did not add to the positioning of Dux as a retailer on whom you could rely on to deliver quality and differentiated specialist food products along with a level of service well beyond the usual expectation. This confuses and devalues the brand. Thomas Dux is like any other brand in a development phase, it requires absolute focus on what makes you different and better. So why can I buy Kelloggs Corn flakes and Blend 43 coffee there?
It takes time.
Dux has been around for a while now, perhaps 10 years? That should have been enough time to establish a defensible place in consumers minds when it is clear there is a segment looking for an alternative to the mass market supermarkets. I suspect that the financial pressure has increased markedly over the last few years as Woolies excursion into hardware drained group profitability. The net result was that the quarterly numbers mattered more than the long term, so savings were made by management, the sort of savings that delivered me the rubbish grapes the other day. If the grapes were not good enough to justify the price, they should not have been on the shelf. That sort of challenging culture requires time and continual effort to reinforce, and a reversion to a quarterly focus removes the management incentive to not sell grapes this week because they are not good enough, they need the margin today at the expense of tomorrow.
Meanwhile Harris Farm, the original target of Dux appears to be powering along. Perhaps Woolies will rue the day they did not buy Harris Farm when they were still young and vulnerable. I understand they tried, but were given the finger by the venerable Mr Harris. Perhaps they should have tried again, it would have been less costly to both their coffers and their reputation.
What do you think?
Hey Allen, Great article with some good insight. Even post their demise it holds a lot of weight in lessons to be learned. Thank you.
Adrian, I am glad it struck a chord. As I re-read it, not a lot has changed. Amazon is powering along, Aldi seems to be sneaking market share every day, and Coles and Woolies seem oblivious. I am sure they are not, but changing course is hard, and they seem to lack the will. Complacency born of incumbency?
Great Article, As a former casual/part-time employer whilst studying it was a wonder why the majority of stores didn’t close earlier! TDG’s problems started in the employee hiring phase, instead of hiring workers who had some actual passion for food and high end offerings they followed the typical Woolworths model of employing workers with no experience and desperate for a job, happy to split their time working as a front end cashier, deli worker and forklift driver (mostly workers who were immigrants or those undertaking uni studies).
A majority of those employed had no knowledge of the product offerings nor were they educated in selling the right product, This is where TDG failed to convince the customer that by buying the $38 dollar honey they darn well want to know how it differs from normal $6 Capilano Honey! Good Employers went out of their way to research and understand why, most would shove it on the shelf hoping it would sell itself, The concept of the TDG Foodie was basically non-existent and wasn’t executed to full effect – as the customer become better educated the customer themselves were the ‘Foodies’.
By the end of the stores lifetime it seemed as though Woolworths didn’t care about the TDG brand, It neglected facilities to the point it would be unsafe (Our Produce section never had a refrigerator for dispay), Stores were understaffed during peak hours and we constantly had managers switching between stores in aid of plugging the holes on a leaking ship, Often we would have head office staffers from Sydney surprise visit and want answers as to why their allocated stock hasn’t moved? What irked me the most was that TDG and Woolworths were both treated equally from a strategy sense but never tailored its marketing approach to suit TDG’s customer target base or brand themselves correctly, The moment customers began to realise we were basically a Woolworths store nicely wrapped up is about when it all started to unravel.
Jason,
Thanks for those insights, I must admit the rot as it applied to the staffing was not something I had thought of in any depth.
My interaction with the store ‘Foodies’ started when they opened Lane Cove, which I think was the pilot, and it was clearly working, but quickly, as you say, the Woolworths DNA took over.
A great pity, they were onto someting that could have been very good indeed.
Merry Christmas
Allen
Biggest issue was their Sydney/Melbourne plans ignoring the growing Brisbane market. It was not economics it was snobbery. They had a great idea and it would have taken time but to just be in two cities, big as they are, no.
Mick, I would suggest it was not snobbery, rather than time caught up with them.
Both Sydney and Melbourne had huge potential for expansion without the logistical challenges of adding Brisbane as well, and concentrating resources is usually a good strategy.
Arguably, they should have built scale in either Sydney or Melbourne before they opened in the second state.
Seems to me that the results just announced tell all. Woollies are taking the hits to long term prosperity in order to satisfy the shorter term demands of investors and atone for the errors that came from their complacency in the face of a renewed Coles and Aldi brought, and hardware misadventures.
It is however, pretty easy to be wise after the event.
Location may be involved as well. Crows Nest is not the most affluent part of Sydney, and there is a Woolworths just around the corner!!
John,
Location is always a complex question.
In my view, the key to Dux was that it was different to Woolies, in all sorts of ways, they set out to make it an experience as much as a place to shop, the essential differentiation.
I was in Lane Cove again yesterday, and went to both Dux (no grapes this time) and Woolies, 3 minutes walk away.
The woolies store is one off the best I have seen recently, well stocked and merchandised, good range, in store deli, bakery and even a sushi bar. lots of staff and no holes on the shelf.
The reasons to go to Dux had been almost eliminated.
I believe it is strategically essential for Woolies to compete with Dux, but hobbling the smaller sibling with the rules and processes of the bigger entity is stacking the deck against the upstart, and they will never win.
It was not like that at the start, Dux were innovating and doing well, filling a significant gap in the market in competition with Harris Farm, but as woolies adjusted their offer upmarket, Dux has been left with nowhere to go but down.
Aldi must be laughing their heads off as Woolies compete by fighting on two fronts at the same time, just as Harris Farm will be.
Great article. I did wonder why!!!
John,
From the mouths of ‘babes”.
It is Saturday morning, I was just talking to my 30 year old son about the apparent impact of this post on the failure of Thomas Dux. He is supremely disinterested in anything to do with marketing and strategy, seems to think it is completely unproductive. When I finished babbling, he just looked at me and said
“That is all fine, but I just thought it was just bloody woolies biting us in the pocket”
I guess that is what it became, certainly not what it started as.