The Next Ten Years of Grocery Retailing?

Given we are less than 10 weeks away from Brexit and the possible end of the grocery world as we know, writing a post about retailing a decade ahead seems foolhardy (spoiler alert; it is).  But bear with me.

Let’s assume that our UK politicians stop behaving like village idiots before March 29th. (yeah, I know). Perhaps for example they could, just for once, heed the voices of those who know what they are talking about.  In this case the retailers staring at the destruction of their supply chains with no alternatives being put in place that don’t jeopardise product supply and raise costs and prices, perhaps significantly.

So let’s forget Brexit and assume grocery retailing as normal is to continue.  The Asda-Sainsbury merger decision is due in late Spring now, but otherwise let’s assume things are as they are now.  Which is not a good thing! Food retailers are in quite a lot of difficulty; not across the board but in many cases. There is a sense that the “legacy” retailers need reviving. The question is how?

I recently read a December 2018 report by McKinsey on Reviving Grocery Retail (in the UK and the US).  To some extent it covered known ground, but it did it quite succinctly.

McKinsey note that the mainstream grocery retailers have been in an era of value destruction brought on by changing consumer habits and preferences, the emergence of aggressive competitors and of ecosystems (Amazon, Alibaba) and the onslaught of new technologies.  They recognise such trends are often present but point to the sheer pace and intensity of their interactions at this current time.

For McKinsey there are six areas where legacy mainstream retailers can fight back:

  1. Define a distinctive value proposition; convenience, inspiration, value for money
  2. Shape your ecosystem – and either go big or get out
  3. Put technology to work in every part of the value chain
  4. Win back lunch and dinner
  5. Rethink all of your real estate
  6. Innovate ten time faster.

Again, to a degree, there is nothing that new here, but instead it is the combination of these that is critical.  These six areas are really responses to the three drivers mentioned earlier.  And it would seem that for long-standing retailers it is much harder to adjust than for new and more focused retailers.

So what we seem locked into in the UK is a downward spiral of cost-cutting.  Where Tesco and its delicatessens and fish/meat counters being cut back and indeed the whole rationale for the Asda/Sainsbury merger. We have endured this cutting over quite a number of years now. Yet after all of this can we really say that any of our ‘leading’ food retailers has yet made real inroads to the competition or to these six imperatives? To some extent they are still in the denial game and playing the tunes of the new competition.

Are any of them inspiring, truly convenient for consumers and with innovation for the customer at their heart (and innovation which actually helps the customer rather than being for technology or cost cutting sake)?  I struggle to see where?  Even on real estate and the store portfolio where there has perhaps been the the most movement, has this been clear or focused enough yet?  Or simply rather serendipitous?

There is  a long way to go, both in terms of the actions needed by the leading players and in the freedom of action currently allowed to the discounters and others.  That’s why ten years ahead is foolhardy – we might just be at the tipping point for radical reinvention.  But only if we have the retailers able to grasp the existential threat they are under.

Now we just have to get out from under the other existential threat of Brexit and the harm it potentially can do.

Posted in Amazon, Asda, Brexit, Competition, Consumer Change, Customer engagement, Food Retailing, Property, Reinvention, Retail Change, Retail Failure, Sainsbury, Store Closures, Tesco, Uncategorized | Tagged , , , , , , , , , | Leave a comment

Yours for £1 (not really)

It was an eye-catching gimmick, and it did the job, getting media coverage (and me onto the radio (again)). In early February, at a London auction The Postings shopping centre in Kirkcaldy was put up for sale with a reserve of only £1.    Was it outrage, amusement or a wry shaking of the head that followed?  Or simply, well that’s Kirkcaldy  perhaps?

But, as the pension fund sellers were quoted: “The reserve price of £1 is generating significant attention and we expect to get a considerable amount at the auction.”

The fact it was Kirkcaldy does not really matter though and there are good and less good things about Kirkcaldy, as there are with all towns.  And this shopping sale was being sold as a development opportunity that could help the town centre strategy. The point really was about another milestone in the change sweeping retailing – a 1980s shopping centre for £1.  In the event of course it went for a lot more than that (£310,000 with apparently 12 bidders interested), which suggests someone has an eye for an opportunity in Kirkcaldy, even though the same day the Marks and Spencer in the town closed.

More interesting though was the story of another retail sale at the same auction.  This time in Dumfries where the Midsteeple Quarter project are hell-bent on taking over what they can in the town centre and reinventing and running it for the good of the local community.

Fed up with absentee and/or indifferent landlords, the plan has been to buy back the high street and establish a properly based mixed economy on local talents and needs.  Negotiations with the owners of two high street buildings in the Midsteeple Quarter had apparently been well under way, but suddenly the site was put up for auction. Yes, the sellers were the same pension fund as in Kirkcaldy.

With only a week or so’s notice, the Dumfries folk set about building a fund to bid at the auction.  Perhaps this was always doomed to fail, but the energy it released will build momentum for other things of a similar ilk.  In less than a week, a crowdfunder raised over £23,000.  This proved to be insufficient as bidding quickly rose over £100,000, settling on £142,000. A currently mystery bidder now owns these two buildings.  It is to be wished they have the good of Dumfries at heart, but there is something more important underneath this as well.

At one level this story is a failure – the idea for the community to buy these buildings did not work.  But, such energy and enthusiasm (and money) in such a short space of time bodes well for the future.  The funds will be repurposed to another community venture in the high street. The whole saga (can sagas be 5 days?) demonstrates the local desire to see places reinvigorated by and for the local community.  We need to make it easier to do this and to ensure town assets are actively used for the good of the local community.

But more than that, landlords and property need to begin to work more closely with local community groups and understand the desires and talents that are around in all of our towns. We are not short of ideas, but are often short of the right opportunities. Community involvement, and community ownership are vital components of the future of our places – but that sense of pride and energy to do things also underpins existing owners and operations, and it needs to be engaged with and not fought.

Go and take a look at the Midsteeple Quarter Project and what they want to do for Dumfries. And if you are local think about getting involved. If you are not local then seek out what is happening in your town.

Posted in Buildings, Community, Community Development, Creative Places, Dumfries, High Streets, Kirkcaldy, Landlords, Localisation, Places, Property, Regeneration, Retail Change, Scotland's Town and High Streets, Scotland's Towns Partnership, Shopping Centres, Town Centre Living, Town Centres, Towns, Uncategorized | Tagged , , , , , , , , , | Leave a comment

#Woolies10

I was out at the country on the tenth ‘anniversary’ of the closure of the last Woolworths store in the UK – 6th January to be exact.   I had already contributed to an element of the ‘celebration’/‘remembrance’, so didn’t feel too left out.  In my case, any thoughts I had were rather put in the shade by the publication by – amongst other things – Woolworths expert Graham Soult (@soult, www.cannyinsights.com) on “#Woolies10 – Ten Years On: What has become of Woolworths’ Former Stores?” (Available for free download from www.cannyinsights.com).

Woolworths closed in the UK in 2009, some 10 months short of what would have been a centenary of operations in the country at the heart of Britain’s high streets.  I have covered aspects of this before, and in particular how the company came to occupy a cultural and social place in the shopper’s psyche.  Britain’s streetscape owes a debt to Woolworths as Kathryn Morrison’s excellent book shows, but it is far more than the physical buildings, as grand as many were.  The nostalgia for Woolies demonstrates the affections held for it by many – though we should note that these people (me included) are probably (in some cases substantially) the wrong side of 50, as the company’s heyday was in the early 1980s at the very latest. I have noted their customer numbers before:

This nostalgia formed the basis of a half-hour radio programme on BBC Radio Scotland on the 23rd December.  In it Kathryn Morrison, myself and employees, managers and customers of Woolworths explored the memories it evokes (see the BBC video teaser).  As Kathryn noted on Twitter, nostalgic but also poignant.

So why does Woolworths continue to fascinate?  Graham Soult in his report points out that the 807 stores that closed in the 2008/9 collapse are equivalent to 2500 Tesco Express Stores or 63 John Lewis stores.  This was a collapse of a big retailer with a particular place in society (even if that place was a shadow of its former glories).  That place was physical but also social and cultural. Most retailers never attain this combination of reputations.

woolies ten report

#Woolies10 brings the story of this collapsed store estate up to date.  I can not do justice to the effort and insight involved in preparing this short report.  I would encourage anyone with an interest in Woolies or British high streets to read it.  A few things were reinforced for me.

  • The vast majority of stores remain in active use – the closure was not a location issue but a trading issue
  • Almost half of the occupiers are those who to some degree have an offer similar to Woolworths – it was performance and operations that was the problem
  • Churn is found in over a third of locations i.e. current occupiers are not those that took over the sites initially. A number of these are pound stores where the occupants have themselves collapsed or been taken over.  Change is a retail phenomenon and indeed the sites have proved resilient.

There are many other points that the report notes, but space precludes coverage of all of these. The detail is well worth reflecting upon, including the relative small numbers of stores that have been demolished, been subdivided or gone away form retail use. The insight it gives to change over the last decade is fascinating.

There is also a nice coda on the ‘ghostsigns’ of Woolies.  This is of course written in the shop architecture which often remains, but some more transient physical signs or fascias still exist or get uncovered.  I was particularly pleased to see that one sign from a store has been incorporated in a bar/roof terrace now on the previous site!

Finally, and this is not a challenge to @soult to document all Woolworths everywhere!  I was actually in South Africa on the anniversary date.  Woolworths as the photos below show is alive and kicking there, though it bears no resemblance to the UK operation, sharing more than a little of its DNA with Marks and Spencer.  But that as they say is a very different story.

woolies franschhoekwoolies hermanus

Posted in Architecture, Buildings, Churn, Closure, Consumers, Corporate History, Ghost Signs, Heritage, High Streets, Historic Shops, History, Pound Shops, Poundland, Retail Failure, Shopfronts, Store Closures, Streetscapes, Towns, Uncategorized, Urban History, Woolworths | Tagged , , , , , , , , , , , , , | 1 Comment

Retail Disruptors – the spectacular rise and impact of the hard discounters

Retail Disruptors

The rise of the hard discounters is a well-observed phenomenon of continuing research endeavour and commentary.  In the UK, as is well known, Aldi and Lidl have captured considerable market share over the last decade.

UK Grocery market Share

‘Retail Disruptors’ by Jan-Benedict Steenkamp and Laurens Sloot is a new addition to the literature.  It focuses on the rise of the discounters generally and the reasons for and impact of their success.  It is very accessibly written, targeted mainly at the trade and professional audience.  The three sections of the book cover the strategies of the hard discounters followed in turn by the potential counter strategies for retailers and manufacturers respectively.  It attempts to adopt an international perspective and broad coverage, though inevitably this is a little partial. It is an easy and enjoyable read with the added benefit of being informative and at times thought-provoking, probably especially for practitioners including manufacturers.  These are often ignored in the consideration of the impact of discounters.

I did enjoy a reminder of the quote by the Tesco Chief Financial Officer from 2008 saying that ‘discounters were only having their moment in the sun’.  A decade on, sunburn must be an occupational hazard.  The reasons for this continuing success is well explored, but I do wonder about the constant refrain in the media (and this book) that even those with Audis and BMWs now shop Aldi/Lidl.  Car ownership is not what it was and many such vehicles are leased/rented, and so that much more prevalent than in previous decades.

I was also taken by the strong arguments for consumers welcoming the reduction in choice (as well as price) offered by Aldi/Lidl, and I would link this to the disruptive impact this has on local markets.  In the same way as Wal-Mart did in the US/Canada 20-30 years ago the arrival in an area of Aldi/Lidl recalibrates the local competition expectations.

The book concludes that discounters have a natural share of 20-25% but the exact outcome depends on the competition and the fight back.  For existing retailers a number of strategies are outlined (fightback, downgrade, value improvement and value redefinition) depending on the situation.  Details of these are well worth exploring.

If 20-25% is the natural share in the UK, then Aldi/Lidl will double in size in coming years.  That is enough to keep any Jack’s up at night!

Reference

Jan-Benedict Steenkamp and Laurens Sloot (2019) Retail Disruptors. Kogan Page. ISBN 978-0-7494-8347-0.

 

Posted in Academics, Aldi, Competition, Consumer Choice, Discounters, Food Retailing, Jack's, Lidl, Market Shares, Pricing, Retail Change, Retailers, Strategy, Uncategorized | Tagged , , , , , , , , , , , | Leave a comment

Food, health and data: developing transformative food retailing

Byrom and Medway

In early November 2018, a book on Case Studies in Food Retailing and Distribution was published, edited by John Byrom and Dominic Medway.  Amongst the very wide ranging and interesting chapters, was an effort by myself and two colleagues from the University of Tampere in Finland (Hannu Saarijarvi and Sonja Lahtinen).

Our chapter, entitled “Food, health and data: developing transformative food retailing” analyses the developing relationship amongst food retailing, consumption and diet and health, reflecting on this intersection between health policy and retailing.  Retailers often view themselves as being under threat from this increased interest in health policy, perceiving ever tightening restrictions as the only likely outcome.

However the chapter argues that whilst this may be true to a degree (and we see this in recent proposals in Scotland), it is also the case that food retailers have an opportunity to take on a greater role and a greater responsibility regarding consumers’ health and wellbeing.  Digital data of various forms suggests a new proactive, transformative role for retailers, arising not only from the weakness of current practice but also the opportunities of building a closer, more helpful, relationship with consumers’ lives.

There is a revolutionary opportunity to reconfigure the food retailers’ role, not only competitively but also societally.  This brings implications for consumers, companies, academics and society at large.

Implications of transformative food retailing

Stakeholder Implications of transformative food retailing
Consumers Enhancing value creation; increasing human agency; elevating identity projects; creating a sense of safety and certainty; granting access to information; assisting in informed choices; improving dietary intake; promoting healthy lifestyles
Companies Offering a way for differentiation; establishing new markets for new start-ups; motivating role reconfiguration; initiating strategic changes; inspiring new service design; reformulating service offering; engaging with different stakeholders; innovating new marketing processes; humanizing brand image; cultivating social responsibility
Academic community Stimulating new retailing research avenues; advancing multidisciplinary collaboration; spurring new research methods; bridging the gap between scientific knowledge; business practitioners and society; increasing research relevance and social impact
Society Increasing the role of businesses in solving societal challenges; capturing societal potential of retailing; altering dominant social structures; stimulating social action; informing decision-making; raising public awareness of the impact of dietary choices for health; addressing socioeconomic differences; improving public health; providing new retailing-led public policy guidelines

Our chapter concludes:

“Food retailing is at a crossroads. It is viewed increasingly as part of the problem of health and diet in society.  It need not, however, be like this.  There is a choice to be made between a battle over regulation or an embrace of digitalization, data availability, and health concerns.  Transformative food retailing offers new venues for value creation, both for firms and customers, and points toward potential areas of strategic differentiation. New uses of customer data play a pivotal role and provide a new means for building customer loyalty. Changes in consumer behaviour toward healthier food consumption at the individual level contribute to potentially major impacts at societal level.  Taken together, transformative food retailing has multiple value potentials and can extend the food retailers’ role from supplying products and services toward facilitating consumers’ personal and societal transformation toward healthier lives. This redefines and concretizes the importance of food retailing in contemporary society.”

 

Posted in Academics, Behavioural Economics, Books, Data, Diet and Health, Digital, Ethics, Food, Food Retailing, Health, Loyalty, Loyalty Schemes, Retailers, Social Change, Uncategorized, Well being | Tagged , , , , , , , , , , , , , | Leave a comment

Brexit and the ‘F**K Business’ Approach

Boris Johnson’s view of the importance of business to the economy and to the care and concern he gave the business view on Brexit was well covered at the time.  Dominic Raab’s more recent revelation that Dover was actually quite important to trade as an island nation also received some attentionMichael Gove has now joined those who realise that negative impact that Brexit will have. But the real questions that should be asked have not seen the light of day:

“What planet are these people on”? and “How the hell are they qualified to make decisions for themselves let alone the country”?

The recent pathetic shennanigans from the two “main” parties in Westminster would be comic if it was not so tragic for the economy and therefore for people’s lives.   The drift to a “No-Deal” Brexit and the cavalier approach to people’s lives by Government ministers (Minister can’t guarantee no deaths because of no-deal Brexit) is simply unfathomable. 3,500 troops on standby – presumably not all will be burying the bodies?  We are simply unprepared for what could be the biggest disruption to the supply of products, including medicines and food, that we have ever seen. but worse than threat, there are some politicians that seem to be actively advocating and embracing the potential chaos.

We joined the “Common Market” in 1973 in order to gain trading advantages and benefits for the UK.  This over a period of 40 plus years has seen the removal of trade barriers, the sharing of standards and approaches and the development of seamless, frictionless supply chains.  Concepts such as just-in-time and quick response have been built on this pan-national and trading group approach. Retailers, and especially UK retailers, and through them consumers, have gained enormously. Much of what we take for granted in our retailing is based on this frictionless supply.

Putting all this into reverse and placing barriers on trade and supply will have an immediate effect.  In due course this will be worked around, probably at considerable cost and effort, and with a more expensive outcome than at present. But in the short term there is likely to be massive disruption to the ’flow’ (the clue is in the word) of products.  We can not replicate the set up nationally without years going by.  Amelioration by stockpiling will work for some products (if there is any space left).  We can wait it out at the ports and the airports and hope things move (good luck on the M20 by the way).  But all remedies add cost and operational implications and make it less likely products will be supplied when they are needed.

And this is before we consider exports. And the tariffs that will be placed on our products going to Europe (and those coming here). Guess who ends up paying? Or an immigration policy that runs the risk of denuding warehouses and distribution centres of their staff. There is a good bet that things will simply grind to a halt.

Longer term there could be other supply chain considerations. In the 1970s, and for some time after, Britain maintained its own standards and systems.  In logistics for example we had the British and the Euro pallets.  Different sizes and shapes (just like the passport).  Handling systems could not cope with both sizes seamlessly and multiple handling was required. Inefficiencies abounded. Standardising reduced costs and sped up processes.  Going back (even accidentally) to such differences is a massive risk. And now we are in the computer age so it is not just physical handling.

For almost 40 years I have been researching and examining supply chains in retailing.  A particular focus has been Tesco and the changes they brought to product supply since Operation Checkout almost destroyed them in 1977.  A chapter in our recent book summarises these changes and the benefits to consumers and the company that have resulted.  Brexit (especially if No Deal) runs the risk of reversing such changes, company by company.  The net effect will be an inefficient, broken supply system incapable of delivering what consumers want, and at an increased cost/price. And if we can mend it some way down the road and build the alternatives, it will inevitably come at a considerable price.

“F**ked business” indeed. And “f**ked customers too”. I just hope when the next elections come by, those who have suffered take it out on those in Westminster who have caused it. Don’t blame business or retailers; they are every bit as much victims of the politicians.

A longer, slightly more considered piece of mine on Brexit and retailing appeared here just after the referendum. 30 months later and little if anything has changed, and much has got worse. Is it any surprise given the Westminster politicians we have?

For the avoidance of doubt, the views above are personal (and professional).

Posted in Brexit, Consumers, Disasters, distribution, European Union, Frictionless, Just in Time, Logistics, Politicians, Resilience, Retailers, Supply Chains, Uncategorized | Tagged , , , , , , , , , , , , , | Leave a comment

HMV – predictable or what?

125 stores, 2200 direct employees, an unknown number of individuals and businesses also linked to, and supplying, the company;  the administration and likely demise of HMV would be problematic at any time but between Christmas and New Year it has a special resonance perhaps.

Much has already been written about the situation so what follows are some figures and comments that attracted my attention, with some added thoughts of my own.

The BBC News coverage was nothing if not predictable; some vox pops with people under 30 outside the Oxford Street ‘flagship’. Do you buy CDs? No. Dvds? What are they? Do you go into HMV? Why would I? Whilst predictably partial there is a truth underlying this. For many, especially young, consumers of music and films, the purchase has nothing to do with physical product, but is online and is likely via a digital streaming service such as Spotify or Netflix.

A tweet by Patrick O’Brien from GlobalData Retail captured this shifting market. Whilst a rough calculation of mine, the figures below suggest that the market is now only 60% of what it was five years ago, That is a precipitous decline.

HMV1

The Times followed that up by providing the figures for HMV sales over the last five years. Whilst they may have gained market share over this period, it was of a rapidly declining market. Sales decline at a time of cost pressure and margin erosion is not a good look – though underlying performance might still be positive, just (though sustainable, no).

HMV 2

A couple of components of costs have emerged in the coverage on twitter and the media. A particular focus has been the £15m per annum paid in rates by HMV and the c £50m fees taken by HILCO (who took HMV out of its first administration six years ago) over the last five years. A rising rates bill on a declining sales base – anyone should be able to see the problem.  Plus the fact that competitors such as Netflix and Spotify don’t pay rates at all and thus do not have this cost. And whilst it is easy to criticise HILCO, without them would there have been any HMV over the last 5 years? (and the fees do seem to move in line with sales).

HMV Rates

It is also easy, and virtually all the media did this, to see HMV’s demise as the final nail in the “high street” coffin.  But a retailer selling something that increasingly consumers do not want (the physical product) and which can be obtained more cheaply and easily from other channels, is not a great advertisement for the high street, or any other retailing. This market is becoming niche and specialist in physical spaces (and seems to be working there), and digital elsewhere.

Some final and not purely HMV thoughts. Springboard said that footfall was down on Boxing Day this year; something reported as a negative performance. But, given the structural changes in retailing, was this a bad performance? Online sales are increasing annually – ONS say they are c16% market share, but over 21% in Nov/Dec. Given this substantial and ongoing shift, why should we be expecting footfall to stabilise rather than continue to decline?

Next week will see some of the larger retailers report on their Christmas trading. In all likelihood it will not be pretty, but does depend on what sales over what period at what level of margin, something that will not be clear for some time yet. Yet, at the local level some retailers (often independents) and places are reporting strong sales  and through a focus on the distinctive and service are providing things people want. There is light within the restructuring underway and this is often forgotten.

timpson

We need to recognise the imbalance and societal impacts and disparities that we are exacerbating by not guiding the scale, scope and pace of this change. Leaving it solely to the market, ignoring our dysfunctional rates and tax system constrains people who do not have money and access to physical stores and diminishes us all.

Happy New Year!

 

 

Posted in administration, Amazon, Boxing Day, Closure, Competition, Consumer Change, Customer Service, Government, High Streets, HMV, Internet shopping, Local Retailers, Online Retailing, Rates, Record stores, Retail Change, Retail Failure, Tax, Technology, Timpsons, Town Centres, Uncategorized | Tagged , , , , , , , , , , , , , , , , , | Leave a comment