The ‘Game of Thrones’ series is an unlikely metaphor for Australian FMCG retail. There are however commonalities. Intrigue, politics, intense competition, vendettas, invasion by ‘wildlings,’ dumb decisions motivated by ego, desperate defence of the status quo, and more.
However, the world of retail is changing around us, just as did the world around Westeros, and potentially with similar bloody results.
The business model that has served so well since Piggly Wiggly invented the supermarket in 1916 is becoming redundant.
The incumbents are fighting to save the status quo, the invaders are looking everywhere for weaknesses to exploit, and the natives are restless, irritable, and open to offers.
All retailers, from the corner store to Walmart, Amazon, local farmers market, and the two Australian FMCG gorillas, Coles and Woolworths, work from a similar business model. All that changes in the model is the emphasis put on the different components.
StrategyAudit.com.au
All retailers are facing the pressure of change from the digital transformations of our world, what interests me specifically is the manner in which the Australian retailers are adapting, specifically Coles and Woolworths to the changes.
The gorillas consolidated their market power, still somewhere north of 70% by the relentless growth of market share through competitive pressure, and ruthless optimisation of their supply chains over time, leaving consumers with little option but to shop with them.
However, optimisation has a down side.
It breeds resistance to change, a dismissal of the minor disturbances that happen on the fringes, which are seen as little more than an irritation, unlikely to have any impact, and complacency. Just as Netflix was an irritation to Blockbuster, unlikely to be relevant, until it was, and then it was too late for Blockbuster.
It seems to me that the incumbents in Australia are paddling the same boat. Woolworths opened, then closed down Thomas Dux, in what I regard to be a great example of short sighted strategic stupidity, but at least they are consistent. Then they botched in spades their foray into hardware with Masters, closing it down ironically as Wesfarmers buys into Homebase in the UK in an effort to spread the gospel of Bunnings. That did not turn out too well, Wesfarmers taking a $1.3 billion hit in February, and more recently announcing that the Coles business, apart from Bunnings and Officeworks would be flogged off into a separate listed entity.
In other words, the incumbents are paddling around in the same warming pot as interlopers turn up the fire.
There is a lot going on at the fringes. Companies and technologies as varied as Amazon, Costco, Farmers markets, Harris Farm, Kaufland, various ‘pick your own’ schemes, organic, home delivery, and all the rest interrupt if not disrupt the market, and around the corner you have Alexa, AI, AR, Blockchain, personalised communications, Robomart, and who knows what else knocking at the door.
Optimising the existing model is coming to the end of its usefulness, the gorillas need to get out and get a bit messy. They do not need to make huge bets as with Masters and Homebase, but they do need to clean out their own business model to make them easier to deal with, thus prolonging the profitability of their current investments, while building the retail model that will sustain into the future. If the best they can do is remodel an old crappy store into a very nice new one with better ranges, layout and lighting, as Woolworths has with Marrickville, then they are in trouble.
This is a big call, telling the future is not a productive pastime outside the circus tent, but having a lot of small bets on what it may look like would be useful. Take a long view, nurture some of the more looney ideas, and assume that the march of technology will not stop at a point of convenience for them, and one or two of the bets might turn out to be trumps. (whoops, not sure of I should use that word any more)
When I can help you consider the impact of all this change on your business, its profitability and longevity, get in touch, and I will be delighted to apply my knowledge and experience to solving your challenges.
