This month’s guest is a grocery veteran of 40 years, with a clear and straightforward message for retail businesses who are facing the most testing trading conditions in a generation.
If you’re over 40, you’ll remember 1991 when interest rates hit 18%, causing property prices to slump and along with it retail spending. So what’s different about the present situation, and what are the implications for retailers?
Who better to reflect on these questions than a stalwart of the grocery industry, nearly a decade of these as the CEO of Woolworths: Roger Corbet AO. Roger retired a few years ago, but now enjoys several high profile directorships – including Fairfax and the Reserve Bank of Australia. Therefore, he is well qualified to comment on retail issues. I caught up with Roger at a Marketing Institute function recently, where he was speaking on the future of retail.
Economists have been waxing lyrical about the so called consumer spending strike lately, so I couldn’t wait to hear a retailer’s perspective, as I imagined it would be like a dreary farmer who’s never happy – bleating about how unfair the world is. Then he drives off in his new Mercedes.
The perfect storm responsible for consumers zipping up their wallets and purses is due to several factors. In the last 12 months, wages have increased by 3% to 4%; however, household costs have increased more, thanks to higher interest rates and water and electricity and food prices having effectively reduced our disposable income. Then add the bad news surrounding the carbon tax and flat or slightly declining property prices, and you have a well documented record low consumer confidence – and it’s here that Roger makes a good point.
“The Australian shopper has a fragile yet well developed sense of knowing when there is a good time to spend and when not to. As a retailer I hate elections, because they stop spending then, as it seems that right now they have shifted into conservative mode.”
Clearly the most high profile threat is the internet, and Rob acknowledges that online retailing is taking away sales in some areas, but overall “the sooner retailers wake up to the internet, the better. It’s not a fad that will disappear soon. It’s here to stay, and it will change ways we buy goods and services more than we can ever imagine – but there is no denying it,” he says with blunt accuracy. But he quickly adds, “Retailers can and should use it to their advantage, to reinforce their brand message, reach new customers, provide extra services and even reduce their purchasing costs.”
In the emotion of the moment, some retailers claim that the ‘net is taking all the sales, but this can’t be taken seriously. Respected business analyist BIS Shrapnel estimates that online sales account for between 4 – 6% of the entire sector, and Corbett agrees that retail bricks and mortar will be around for a long time, because as consumers we like to see, feel, touch and evaluate merchandise before we buy it. Retail these days is actually a form of recreation; who of us hasn’t indulged in an afternoon of shopping with a coffee break in the middle? Can the internet replace the experience of shopping?
While this is true, but having selected an item, what’s to stop us searching the net for the best price and buying it there? Not much, except in cases where some after sales service is needed; now, doesn’t this apply to many products? Again, common sense argues that smart retailers should have the sales skills to close the deal while the customer is in the store.
Aside from the internet and economic factors, Rob believes that the biggest challenges retailers face are of their own making. When you look around at retailers, so many of them are running their stores the same way they did 15 or 20 years ago. When there is no service or experience, it’s little wonder they have to compete on price. But price is the worst thing you want to rely on, because the big guys can always buy cheaper than you.
After reflecting on retail history, it’s clear that no competitive threat is insurmountable, and the implication is that retailers need to differentiate their brands. Rob agrees and adds that it’s the only way for smaller retailers to survive, with the implication that the difference must be demonstrable or obvious. If the difference is too subtle, then it will be overlooked. An example Roger loves to give was Big W in the mid ‘80s, that had not made a profit in 25 years and had been languishing well behind KMart and Target. One of the key issues identified was that the Big W brand did not stand for anything. A solution was found in the idea of ‘Big brands at low prices’. But still, the idea did not gain traction until after extensive negotiations resulted in Revlon setting up cosmetic counters in all Big W stores, which gave the brand positioning promise and put the chain on the road to growth.
A more recent example is the change by NAB realising that consumers lumped all the banks together in a group. Desperate to differentiate their brand, NAB launched an advertising campaign where they ‘broke up’ with the other 3 banks. The response to this has been encouraging in gaining market share.
The classic case study that any business person would love to have on their resume must be Woolworths, which in the late ‘80s was a distant second to Coles and not much ahead of Franklins. The turnaround came about largely because of two main strategies.
Firstly, management knew they had to control costs of the system, by finding supply chain savings, reduced property costs, better supplier negotiations – and that’s where they started. Within 2 years a competitive cost base was achieved, and Woolworths was ready for the second strategy: a compelling new brand positioning.
I can’t comment on Woolworths’ efforts to reduce their operating costs, but every marketer applauds ‘The Fresh Food People’ brand positioning launched by Leo Burnett in 1992 as setting the benchmark. It ticks all the boxes, being clear, simple and meeting an obvious need. But to Roger and the team, the new slogan was more than advertising; it meant a change in the Woolworths value system.
“We were blasting our Fresh Food message out everywhere, but we still had a hell of a job to teach our staff how to deliver the promise in purchasing and in the produce section of the stores, because it would take only one rotten peach and we would have broken our promise,” says Roger, concluding that the task of changing the staff culture took much more effort than they originally planned.
It’s always easy to look back on success stories but turning to the future, what will next year bring? Roger’s response is quite simple: “There are two drivers in the economy: one is consumer demand to purchase goods and services; and for businesses to make investment decisions. The government’s stimulus packages have created demand in both areas, but they are now running out. And if they’re not replaced with demand from both areas, then the economy might remain quiet.”