I have been around long enough to see Coles and Woolworths swap places a couple of times. It seems that just like most blood sports, there is room only for one at a time at the top. This is understandable given that between them they have 70% plus of grocery sales, depending on whose numbers you use.
While Woolworths are still on top by most measures, Coles are rising like a phoenix from the ashes, and Woolies are desperately trying to halt the slide they embarked on several years ago.
Mondays announcement of job cuts, store closures, and a $967 million write-down has been a while coming, and must be a bitter pill following on the heels of the decision to exit the Masters hardware business after incurring significant losses.
They have been progressively winding down the Thomas Dux, business, which in my view will prove to be a short sighted decision, symptomatic of the strategic malaise that has haunted Woolies after a decade of stellar performance.
The announcement also indicated 4 of the ‘Metro’ branded stores will close, presumably because they do not deliver the required return. While those stores, like Thomas Dux, might not be performing to expectations, they should both be seen as experiments at the edge, in anticipation of the acknowledged trends slowly transforming our lifestyle. In the case of Dux, a desire by a small but growing number of consumers for the unusual, products of superior quality, with clear provenance, and for Metro, the convenience for commuters, and CBD dwellers. The potential strategic research value of both, assuming they were well managed (which Dux was not towards the end) would be well worth the slightly less than benchmark returns, as in reality the absolute numbers would be tiny.
Nipping on everyone’s heels is Aldi, whose success over the last 15 years or so has been substantial. There are now 423 stores, and Aldi is currently opening 4 or 5 new ones a month. The Aldi business model is hard for Woolies and Coles to beat with their current set-up, so they probably should stop trying, and find another way. 1000 Aldi Sku’s vs 12-20,000 in Woolies and Coles keeps Aldi transaction costs low, as does the uncomplicated trading terms with suppliers. In store, Aldi pay far fewer staff very well by comparison, and by observation lead and motivate them very well, benefiting from the resultant productivity. Meanwhile they generate store traffic with the low prices, and quirky weekly specials that promise to be sold out quickly, creating a sense of shopper urgency. In addition, their fixed overheads on stores would be much lower than the two gorillas due to the smaller floor space, and less expensive locations.
After all the financial engineering is done, I trust that Woolworths management and more importantly the front line staff will remember that it is the little things in the stores that really counts to their customers as they spend their money. They could not care less about the head office shenanigans, they can always go down the road when they see better value for their ‘hard-earned’.
Thanks for that Rory.
Both pieces of research are interesting, putting numbers around what has appeared to be the case from the anecdotal evidence of my eyes.
A while ago when Woolies took some of the key benefits out of their Everyday rewards, I wondered about the strategic impact, http://tinyurl.com/hjdrmpo and the ‘Loyalty’ research result seems to confirm what I suspected.
I am however a bit surprised at the growth of IGA in the Morgan research. While it is off a small base, it perhaps shows the value of being different, having a range of less generic (in the real sense of the word) range, and a marketing story that connects on a level other than price.
Thanks for the reminder about the Everyday rewards “currency devaluation” – interestingly, despite the ongoing digital disruption in cards and payment systems, we’re currently seeing a reining in of certain “cash back” rewards programs based on POS transactions (e.g., ING Direct)
As for IGA growth, it’s probably a combination of knowing their customers well, sticking to their knitting, and delivering on customer expectations – what you see is what you get, etc. – plus taking a greater share of those second and third (both “last minute essentials”, and “discretionary/convenience”) weekly grocery trips?
Finally, reading about the own-brand cheese wars in the AFR today (Bega vs Murray Goulburn) reminds us that not only do we have a supermarket duopoly, we also have supplier duopolies – $1 milk sounds like a good deal for the consumer, but leads to lack of choice and a consequent lack of innovation….
Absolutely. The lack of innovation in FMCG is disturbing. Suppliers trumpet a new flavour of something as an innovation, and sometimes I think they believe it.
I have written about the challenges quite a bit over the years, this one specifically http://tinyurl.com/okzookn .
It comes down to the transactional nature of the business at the coal face. Buyers have short term KPI’s, as do the supplier sales people, and it does not matter a toss what the bosses in their ivory towers say about strategy when there is this fundamental misalignment.
Innovation takes time, an acceptance of risk and commitment, and the lack of time kills the others.
I am afraid I am a bit of a pessimist,and I do not see much motivation to change in any meaningful way. .
Nice analysis. At times, the Woolies v Coles consumer brand rivalry has all the hallmarks of Ford v Holden…. and look at what has happened to car manufacturing and domestic market share.
When I was doing some work with Roy Morgan Research last year, there was some really interesting consumer behaviour data which the supermarkets need to digest properly. This suggests that Woolies and Coles have taken customer loyalty and store visitation for granted. (It also revealed considerable “leakage” between stores):
http://www.roymorgan.com/findings/6442-supermarket-loyalty-whats-that-201509072312
Your points about Thomas Dux and Metro stores are well-made. Other data from Roy Morgan shows that customer psychographics are critical to understanding why, where, when and how consumers do their grocery shopping. Failing to serve the needs of specific yet significant customer segments will cost brands dearly.
Finally, watch out for some interesting research from another of my clients, The Loyalty Point. Their 2016 report on customer loyalty programs is being prepared for publication, and will reveal some interesting data on program rankings and the key drivers of loyalty:
http://www.theloyaltypoint.com.au/