Oct 13, 2015 | Customers, Marketing, retail, Sales, Small business
Innovation in supermarkets
Small business suppliers to supermarket chains are substantially compromised by the lack of resources to innovate.
Peter Drucker stated 50 years ago that innovation is the only really sustainable competitive advantage, and the passage of events have proved him correct.
Commercial survival requires that you are able to continually innovate, or you rapidly find yourself left behind, simply because everybody else is.
Knowing this does not however, make the challenge any less daunting, especially in an environment like FMCG where the retail gorillas stamp on variation as a source of transaction costs, and are actively seeking to reduce SKU numbers by pushing housebrands.
Lets define what we mean by innovation for the purposes of this post.
It does not include business model and process innovation. Both are terrific ways towards commercial sustainability, are paths every business must follow, but have little to do with innovation from the customer perspective, at least in the short to medium term.
By contrast, product innovation is concerned with new stuff that adds value to consumers.
Pretty simple definition, that precludes line extensions, which are just a fact of life, and product changes, which are again a fact of life. We are seeking to talk about the things that really make a difference, and how and why that happens.
Following are some thoughts on the nature of the strategic environment we find ourselves competing.
Innovation Paradox. Big businesses get big by being able to reproduce things without variation, their processes ensure consistency, and reject the outliers. This goes as much for people as it does products, so generally large businesses have more difficulty seeing and acting on something new than small ones. There are obvious exceptions, and large businesses everywhere are seeking ways to overcome the innovative inconvenience of their scale, with greatly differing levels of success. Nevertheless, the generality holds, but the small business end of the FMCG supply chain has been decimated, perhaps almost eradicated by the scale of the supermarkets and the power of their business model. Where is the innovation going to come from I wonder.
Risk. The risk profile of every business is different, but as a generality small businesses have a greater capacity to take risky decisions, but a less capacity to absorb them when they go pear-shaped. Large businesses survive on consistency as noted, and success for individuals in a large business is usually counted by their successes, failures are frowned upon, so the tendency to take risks is reduced, hence, their inability to innovate. Again there are notable exceptions, but they always occur when there is a leader who mandates and lives risk tolerance.
Wide view. Any organisation, no matter how big, only has a small proportion of the people thinking about the categories they compete in, so why do you think you will come up with the great ideas? Those using what I have always called “Environmental Research” always do better. This has nothing to do with hugging trees, and everything to do with understanding the context in which the behaviour of your consumers happens. When you understand the context, and see shifts, the opportunities suddenly become more easily identified.
Habit. Consumers are driven by their own habits, and once formed, it takes a lot of effort to break them. Habits work because they make our lives easier, and we are loathe to risk what we know works, for that for which there may be a question.
Boundaries. Innovation efforts need boundaries, or they tend to wander off into irrelevancy. I have found it far better to provide those boundaries in the pre-workshop, if that is what you are doing, material. It is necessary to encourage people to as the cliché goes, “think outside the box” but it is counter productive to have people thinking outside the municipality. Far better to ground the process in a context that is familiar, where there is market and customer knowledge available to feed the process. Without such grounding you tend to get uncertainty and irrelevancy, and ideas and conversation that skates across the surface rather than digging deep to where the problems and opportunities that provide the fodder of successful innovation are buried. I love the metaphor of Classical music and Jazz in the context of innovation, the score provides the boundaries. To be a good classical music player, you need to be a master of your instrument, and be able to reproduce note perfectly what the composer has written, the allowable variation is very small, the emphasis is on technique. Jazz by contrast requires that you are a master of the instrument, as well as the music to the extent that you can take what a composer has written and innovate around the base rhythm and melody, so you need to be not just a master technician, but a master of the music. Great innovation in a commercial environment has exactly the same characteristics.
Think different. The great 1997 Apple advertisement said it all, but how many corporate entities will tolerate the crazy ones? Very few. If you are to truly be an innovator, somehow you have to accommodate some crazy ones. Generally they are tough going, irreverent, unconcerned with status and the status quo, constantly irritating the nice smooth flow of processes that deliver the consistency that corporates thrive on.
Problem definition. Innovation occurs when a problem is solved. Often it is an old problem solved in a new way, sometimes it is a problem unrecognised until the solution comes along, the classic example being the post-it-note. A huge part of the challenge of innovation is the identification of the problem. Rarely does a problem emerge with a fully-fledged solution, but as Einstein, in my view one of the greatest marketing thinkers who never receives any credit at all once said, “if I had an hour to solve a live changing problem, I would spend the first 55 minutes defining the problem, the rest is just maths.”
Margin maintenance. This is tangled up with risk profile, but is separate. Over the years I have done many proposals for new products killed at the gate by the margin problem. “If we launch this, it will erode our margins” often true, but the standard response I give is “better us than someone else”, but it is often a futile response when the ultimate decision maker is compensated by short term considerations. After all, Kodak managed to survive for 40 years after they invented the digital camera in1975, several generations of CEO had passed through in that time, all taking their packet, it was just the last in the line who had a problem.
Value not just price. Consumers look for “value”, but way too often that is translated by suppliers and the retailer into “price”. Price is just one way of reflecting value, but it is the most obvious, and easiest to articulate.
Barriers. Every industry has its own set of barriers to innovation in addition to the more general ones above. In the case of the Australian packaged goods industry, they are several, all associated with the concentration of power in the retail trade.
Margin squeeze
Speed of house brand copying the successful products
Timing of distribution and advertising
On shelf management of facings, cut in, position, promotional programs and stock weight
13 week “live or die” time
On shelf upfront costs
Category management if you are not the category captain, and few small businesses are, you are at a significant disadvantage
Risk averse retailers
Habit. Everyone is used to doing business in a certain way, so that is the way it is done.
Opportunities for suppliers.
Similarly to barriers, every industry has its own unique set of opportunities that when seen are open for businesses to chase.
Social media. FMCG suppliers have not yet solved the problems of how to best use social media to market their process in supermarkets.
Mobility. Engagement with the web and its tools is now mobile, a majority of net interactions are mobile, and most people have their smart phones with them all the time. Using this capability and the geo-location capability to foster a direct relationship between the brand owner and the consumer with the supermarket playing the distributor role is a real opportunity currently under-recognised and utilised.
Food service and ingredient. These are fragmented markets, where innovation, service and brand can still play a real role, and getting a return on your investment is still up to the quality of your business, not the whim of a buyer in a gorilla suit. Depending on whose numbers you use, sales outside the major chains of ingredient and to food service outlets from fine dining to fast food, is north of 60 $billion.
Digital coupons. Retailers in Australia have ensured that the redeemable coupon, so prevalent in the US does not get a start here, too much transaction cost, but a digital coupon? Why not? There have been several tries of various types, Groupon being the most obvious, but smartphones make it so much easier to collect coupons and redeem them in some way, not necessarily even associated with the retailer.
Range optimisation. Category management as it has evolved has always been data intensive, and from a retailers perspective, the objective has been margin optimisation. The next step I suspect will be range optimisation which is really just margin optimisation with a far greater understanding of consumer behaviour thrown into the mix. We have all operated with the view that our various research tools and their data gave us enough to work with, and they did, but suddenly there is the “big data” behaviour mining opportunity offered by social media and geo location, in addition to the fragmentation of times we shop, and how we place and receive orders. Range optimisation to accommodate all these changes just became in my humble view, the FMCG marketing challenge of the decade.
Innovation from the waste. Until very recently, produce that was outside the specs for appearance was consigned to the waste bin, juicing, and other marginal uses, it was not deemed good enough by retailers to sell, not because it was nutritionally or organolepticly deficient, but because it looked crook. Along came the idea of highlighting the products visual imperfections, “Imperfect pick” is the term Harris Farm have used, Canadian chain Loblaws has successfully rolled out “ugly fruit” in Canada, and both Woolies and Coles appear to be tinkering with the idea currently. There are a myriad of opportunities to utilise undervalued product to build a category, for example, shin bones are the foundation of Osso Bucco, many of us will sample great Osso Bucco at an Italian restaurant, but never cook it at home, when it is an easy, tasty meal with a very low meat cost. Pretty simple marketing I would have thought.
Innovation is tough, but it is also fun and makes the future. Those who just wait for the future to happen will be overwhelmed by it, those who take a role in shaping it will at least have the chance to do well.
This post is the 8th in the series examining the means by which small businesses can deal with the retail gorillas.
The one that started it, back in October 2014, is a summary of the 10 ways to beat the gorillas at their own game, a summary post that generated a lot of interest, so I expanded the individual points in subsequent posts.
The first expanded post was the 3 essential pieces of the business model
The second, 5 ways to compete with data
Third, 6 category management ideas for small business at Christmas
Fourth, 9 imperatives for small businesses to build a brand
Fifth deals with the reality for all supermarket suppliers, that they have two customer types, requiring different approaches.
Sixth, deals with the least understood large cost impact on small businesses: Transaction costs.
Seventh suggested ways for small businesses to collaborate for scale,
Sep 18, 2015 | Communication, Marketing, Small business, Social Media
Blogging is a journey
Writing a blog can be confronting, and often small business owners shy away for the commitment. Make no mistake it is a commitment, but so is anything worth doing.
After 6 years and 1400 posts, and a lot of reading of posts by others, I have learned a bit, I hope, and assembled a few tips:
Be selective. Starting out you cannot do everything, so pick the platforms that suit you. Logically this follows some thought about where your target market hangs out digitally. This particularly relates to those in your field who are influencers.
Create an engaging profile. Every platform offers the opportunity to create a profile. Do it thoughtfully, considering the things that your preferred readers might like to see. Too often I see profiles that are incomplete or look like resumes, in the latter case, unless you are actively looking for a job, it is not of much interest to anyone but your Mum.
Upload a photo that does you justice. Your profile photo is like the headline photo in the front page of a newspaper, and you only get one chance to make a first impression.
Background images. Again, most offer the opportunity for a background image, this is the opportunity to confirm your expertise, or the thing you want to be remembered for. Unless, you are a Vet, no cats allowed.
Understand the platform. Whichever platform(s) you choose to start with, spend a bit of time understanding how they work, the features, and how you might be able to use them. Just having a profile up is useless, you need to be able to actively engage in the features of the platform to be noticed.
Follow and comment. Engagement starts somewhere, in most cases following those with whom you feel you would like to share a coffee with in real life is a good start. Once following, make comments on their posts, refer to other things they may be interested in, link to your posts, and create debates, offer an alternative point of view.
Learn from others. Social media has been exploding for the last 15 years. There are some real gurus out there along with all the wannabe’s. By watching and listening you will figure out quickly who they are, learn from them, model your digital behaviour on theirs, without copying, as you need your own ‘voice”. One of the gurus I have watched is Jeff Bullas, a true guru who lives almost around the corner in Sydney. By simply watching what he does, I have leant a lot.
Endorse and share. Sharing is an endorsement, if you feel something, is worthwhile, share it amongst your networks with a short note. These days it is easy to share on all platforms, but taking the time to write and endorse a post makes a lot of difference. Just clicking the ‘like’ button really means little any more.
Join groups. This is a great way to come to know those in a market who are the opinion leaders, and make a thoughtful contribution. I much prefer the closed groups, firstly because the rules can be set and you are less likely to be bombarded by irrelevant advertising messages, but more importantly because there is a common reason to be a member of a group, and if the reason is at the core of your businesses, it is clearly a good place to be.
Consistency. This all takes time and effort, but you have to be in the game to win. Those who find you worth following will get used to a rhythm, so once that is established, do your best to keep it up. Consistency in tone of ‘voice’ is also important. A blog is a personal thing, that is why people have followed in many cases, so outsourcing it can be a mistake. By contrast, having guest bloggers can be a great way to add value to your readers, and for your it offers the opportunity to attract new readers, point is that the guest post is explicitly written by a guest. I guest post regularly in a food industry magazine, it helps them with original and relevant articles and thoughts, and drives traffic for me.
Don’t pitch. When you use blog posts to pitch, if you do it too hard, you will lose readers. By all means offer access to landing pages that do pitch products or events, but they should be elsewhere beyond a soft invitation to readers who may be interested to click and go there. Hard selling on a blog post is the quickest way to put off readers other than being irrelevant or committing the sin of bad writing, I have seen.
Be visual. Human beings are visual animals, we respond to visual stimuli. Look at the reaction around the world to the photo of the little drowned Syrian boy being lifted out of the water. 
He is not the first to have been reported to have drowned, this was not the first story, it probably ranks at a number well over a million in the words written, but it grabbed the attention of the world like nothing that has gone before.
Be visible. Use social icons at every opportunity giving people as many opportunities to sample and connect as possible. It is a numbers game after all, and getting them to the front door counts.
Extend courtesy to others. Digital interaction is no different to face to face, apart for the obvious . People like to be thanked, acknowledged for their contributions, and have their efforts reciprocated. However, being selective in the reciprocity can be useful. There are many tools out there that just automatically do stuff, like follow or like. Following back an automated system is not the same as following back a person, so be selective and be careful who you like.
Start. Always the hardest thing, to make the commitment to yourself, and get on with it, dismiss the voice in your ear that tell you that you do not know enough, it is too hard, or that nobody will come. As we all know, the journey stats with the first step.
Apr 13, 2015 | Collaboration, Small business
Collaboration
Small businesses have 10 strategies I have previously summarised, that they can deploy in various ways to build success with the retail gorillas. Collaboration is the 7th, and often the most challenging, as the other parties to the collaboration are not by definition, under your control.
Successful collaboration relies, when all the jargon is scraped away, on both parties recognising at all levels where the collaboration ‘touches’ each other, that their individual best interests are best served by serving the best interests of the collaboration.
Having just claimed to have scraped away the jargon, that is a mouthful. However, the idea of the ‘commons‘ must be central to any collaborative exercise.
A key component of supermarkets business model is the reduction of transaction costs. They only want to deal with large suppliers, as it reduces their supply chain costs per transaction, delivering substantial efficiencies. It therefore follows that suppliers collaborating to generate the economies of scale to enable them to play by the supermarket rules, makes sense.
The flip side of course is that supermarkets use their power to get the best deal for themselves, subjecting suppliers to an ongoing game best described by the prisoners dilemma. In effect, if you do not give them what they are currently demanding, they will find a supplier who will.
Small suppliers to supermarkets have to find ways to apply some leverage to their opportunities. Collaborating to reduce various forms of transaction and supply chain costs , and marketing, as well as pooling data and data capabilities are logical if challenging tasks.
Many produce suppliers have found ways to collaborate, but their produce is unbranded, and commoditised by retailers, so they lack the consumer leverage that is enabled by a brand.
Branded packaged goods may have some consumer leverage, but collaborating with their competitors for shelf space if not for the consumers dollar is enormously challenging, but nevertheless possible.
Digital tools now make the communication component of a collaboration, which is profoundly important, relatively easy if the will is there.
Opportunities fall in three main areas:
- Supply chain. Collaboration to buy common inputs like boxes, freight, and commodity ingredient purchases like sugar, are increasingly common, particularly in regional areas where you have a number of small suppliers close by, all subjected to distance loadings of some sort. Contract packing a complete product is increasingly being used as it removes the need for investment by the marketer, and utilises unused capacity for the packer.
- Data acquisition, management and analysis. Lots of variations here, but everyone needs data to participate, even in the most basic of category and performance reviews. Scan data acquisition is challenging as there are revenues and margins attached to both the retailers and their data wholesalers that will be protected. However, when that hurdle is run, managing data is an activity that responds well to scale as the costs are in the overheads, the marginal costs of data management are very small, and can all be outsourced. Data analysis is more challenging, but interpretations of data can be very specific. Turning data into useable market intelligence is the end game, and is not necessarily compromised by collaboration on the basic components, acquisition of raw scan data, storage and distribution of the data, and even generic information like market sizes, share movements, category drivers, and the like.
- Marketing. Collaboration in marketing efforts need to explicitly exclude any hint of price collaboration, collusion, which of course is illegal. However, there are numerous ways small businesses can collaborate in their marketing programs to compete, not only reducing their costs but also increasing their opportunity to appeal to customers. Complementary products, joint promotions of various types and locations, collaborative and complementary media placement, the list of possibilities is limited only by imagination. There are complications of packaging, product numbers, and the rest, but they can be relatively easily overcome.
The real challenge is to visualise the future, see industries and their structures in new and different ways, and to recognise the opportunities that are there, and find collaborative ways to leverage them.
Mar 2, 2015 | Uncategorized
Lyn & Steve Aspey
As a participant at the Techfest in Armidale this week, a regional effort to bolster the IT profile of the New England area, I was thinking about the characteristics of businesses I have seen over the last 20 years that have successfully navigated the changes to their competitive and strategic markets wrought by the explosion of digital capability.
All exhibit some or all of these 7 characteristics.
It also seems that these traits of those who successfully made transition, are made more obvious by those who had not survived, who had failed to navigate these hurdles.
It also seemed not to matter one bit if they were multinationals or the corner store.
- Pressure on prices and margins. The most obvious impact of digital is the relentlessly increasing pressure on prices and margins. Customer and consumers can check competitive offerings with a few swipes on a phone, and do research on the relative value to them, of competitive offerings with consummate ease. Inevitably, prices are pushed down, and margins are squeezed in all cases where a business has failed to clearly differentiate itself from its competitors.
- Power has moved from the seller to the buyer. I have written about this phenomenon in several places, as it is a profound change in the way markets work. The buyer now has all the opportunities they want or need to make judgements about competitive offers before the seller even knows they are in a race for a sale.
- New competition emerges from unanticipated sources. Who would have expected a computer company to disrupt the music industry, or the business travel sector being eroded by video conferencing. Emerging competitors also often have the effect of cherry picking, taking away the most profitable customer segments from incumbents, destabilising their position. Telecom is the primary example here, as private providers concentrate on dense urban areas, ignoring the “social compact” that existed previously of equal access. The incumbents are having a tough time.
- Business models have evolved very quickly. Not only are there new businesses models, but they evolve almost on the run, with new businesses iterating to new models as they “pivot” and find their way to markets that value what they can deliver.
- The war for talent. There are lots around who can do the simple stuff, and mouth the jargon, but a shortage of those who “think digital” but are able to translate that thinking into the sorts of innovations and processes that change customer and market behaviour. There is a substantial competitive advantage that can accrue to those who have in their teams just a few of these rare people, and the competition of their services is substantial. Never was the cliché “our people are our greatest asset” truer, nor harder to maintain than now.
- Supply chains are now global, and transparent. Digital technology is national border agnostic, resulting in the globalisation of supply chains. This simple factor has changed the manufacturing face of the first wold, and in this country led to the decimation of Australian manufacturing, something for which over time we will pay a very high price.
- Scale of operations has changed dramatically. It used to be that to build operational scale, you also needed a scaled management infrastructure to service that scale, but no longer. Scale can now be digitised, outsourced, and the capabilities of just a few people leveraged. At the same time the global nature of supply chains has strengthened large organisations able to make the global leap, but paradoxically, has opened opportunities for local businesses not there before.
It also seems to me, and I have no evidence beyond the anecdotal and that of my own eyes, that we have become a society where the value of personal relationships has been diminished, at the same time in theory they have been made easier to maintain. It seems that we have substituted numbers or breadth of relationships for the depth we used to have confirming again the theories of Robin Dunbar.
As I said, I am a participant at Techfest. This participation is via my 20 year old consulting business StrategyAudit, plus a new business in the throes of being launched, Intellicast, which is a partnership with Lyn Aspey of Imagehaven, and Steve Aspey of Aspey.com.au. In addition Lyn and Steve between them are prime movers in NETAG, the New England Technology Advisory Group, a small voluntary group of the aforementioned rare individuals who are prepared to offer their advice and experience to those in the area struggling with the digital revolution.
I hope the effort of a few deliver benefit to the region, and to the businesses in the region.
