What Makes Consumer Goods Sales Teams Work?

stress-ballOk so it’s pretty tough out there just now – driving sales is a corporate imperative but for many I speak to the first quarter of the year has been like wading through treacle with sluggish demand and customer reticence. Consumer goods sales teams have never been busier but what will make the difference for the rest of this year? Here are a few thoughts about how to improve total sales team performance:

Prioritize – sales growth doesn’t come from just anywhere, it comes from those accounts that fall into three groups:

    1. Those who could buy more but don’t
    2. Those who could buy more frequently but don’t
    3. Those who just don’t buy yet

In a tough sales year it’s essential to understand your customer base and focus. Most customer’s fall into one of the first two groups, so now is the time to take a long hard look at the missed opportunities in the customer base. Do you have customers with major distribution gaps or customers whose shopper base is not fully tapped? If so prioritize these. Avoid efforts with customers who are quick to say ‘yes’ but slow on delivery in favor of those who take action and deliver results.  Equally take another look at those customers you don’t service and look to activate a relationship with them. A wider customer base now might pay back in the future.

Specialize – Focus your sales team on those customers with growth opportunities and ensure you have the right team working on them. Delivering results with these customers requires clear priorities and clear priorities require you to put the best guys for the job, on the job. Make sure that you allocate your best resources to the biggest opportunities and ensure they have they time to address the key opportunities. Now is the time to take away extraneous tasks and ensure your team can deliver what they are good at.

Train – The best sports teams in the world spend 90% of their time training and 10% on delivery. While your sales teams play more than one ‘match’ a week, it doesn’t mean that ensuring they are at their best when they perform is a bad idea. Focus your managers on coaching not selling; ensure that individuals are performing at their best so you leave nothing to chance.

Evaluate – sales teams need constant feedback, not everything works first time, take the time and apply resource to ensuring you know what is working and what is not. Establish a constant review process and ask yourself monthly – what should we keep doing? What isn’t working and should be done differently? What isn’t working and should be stopped? And what should we start doing that we are not doing now?

This year is not a year where busy fools will succeed. It is a year where leaders will be made so now is the time to step up!

The Future Of Shopping (Part 2)

the future of shoppingIn my last post, I discussed some recent retail casualties and covered just some of the reasons WHY shopping has to change in the future if retailers of tomorrow are to survive. Today, I’m looking into WHAT I believe that we will see this happening in 2013 and the years to come

If the future of shopping is more online, more globalized and more fun what are the implications for retailers and brands? 

 

Since we are still close to beginning of the New Year here are a few of my predictions about what we will see happing in 2013 as the future becomes reality.

Grocery shopping will move online significantly:

For most manufacturers ‘online’ is still a small share of total sales. Clients in China tell me that the proportion of sales online last year varied from 3% to 12% of total sales. This is similar for retailers. 7% of UK retailer, John Lewis’ sales in 2012 were online and nearly 13% of Debenham’s sales were online. But in all cases the growth in online sale is exponential. Grocery retail has been affected at much lower levels to date – this will begin to change this year.

Here in Asia I make a fairly unscientific prediction that by 2020, 20% of grocery purchases will be online. This is based on my view that roughly 40% of Asia’s FMCG sales will go through the 13 or so million local independent stores by 2020 and the rest will be split between chain retailers (who now hold in the region of 54% of FMCG sales) and online. This year we should expect WalMart’s investment in Yihaodian and Tesco’s launch of an online offer in Thailand and Malaysia to give online shopping a major boost towards this.

Big boxes will go into decline

The days of the hypermarket are numbered, even in markets where online will remain insignificant this year. People want to shop locally as time becomes more limited, this promotes an increasing shift towards local independent stores, convenience stores and supermarkets will see reduced hypermarket market shares. And as online really begins to bite, it will be the big boxes that start to suffer first. Expect major retailers to switch their focus towards smaller store formats to a greater degree this year.

Multi-channel will be the watchword for 2013

To those in the know this will see this statement as being desperately out of date but the idea of browsing in the real world and buying online will really take hold this year. Retailers who embrace this aggressively now via acquisition (note WalMart in China) and re-invention (note Debenhams in UK and Suning in China) will be more likely to grow through the changes in shopping habits.

Expect some major casualties

Some global players, especially in grocery retailing are really grappling with their offer and Carrefour in particular has been struggling with this for some years. It has consistently under-performed its peers in EBIT delivery,  is way behind in customer engagement (think loyalty programs and customer service) and in online offers. This year could see a major restructuring of Carrefour’s business especially as it moves into heavier waters in Asia where it’s failed to achieve critical mass and has had to exit key markets. I personally would not be surprised if we were to see another high profile exit this year.

Look out for new business models

There’s been a lot of hype about ‘pop-ups’, ‘virtual reality stores’, ‘magazine stores’ and the importance of show rooming. Many of these have yet to demonstrate that they can make money as well as noise. This year retailers, facing relatively grim trading environments will have to make this pay. Expect to see internet-based retailers creating showroom environments to engage untapped customer bases and expect to see retailers, particularly department stores in more traditional markets like Japan and Australia looking for opportunities to re-invent themselves online. Most interesting though will be the confluence of entertainment and retail, a good example of this is  Chefday.com launched recently in New York. We should anticipate more innovations like this in the coming year

Shopping behavior is changing dramatically and retail in general is going through a major shift. 2013 is likely to see acceleration in the rate of change and could prove to be a transformative year. For those businesses planning for the status quo this could lead to unexpected consequences and a need for major re-structuring in advance of 2014. Those who are already acting to engineer shopper solutions that embrace the changes ahead could well be smiling broadly next New Year.

So those are my predictions for 2013, what do you see as most important in your markets? I’d love to hear alternative views

The Future Of Shopping (Part 1)

the future of shoppingThis week one of my favorite retailers died. I used to love HMV! When I worked of Piccadilly Circus I spent many happy lunch hours checking out movies and music. But that was in in 1997 and the way we shop has moved on. Today my kids and I browse movies and TV shows on Netflix and Singapore’s pay-per-view Mio TV system, we sample tracks on YouTube and download what we like from iTunes.

It’s pretty clear now that HMV’s demise was predictable as entertainment shopping has moved from the high street to the super highway. HMV is the last of the big UK brands to go (after the demise of Tower Records, Virgin Megastores, Borders, Woolworths and – in the same week as HMV –  Blockbuster Video). It’s also true that HMV did too little too late to turn its offer around.

But what does this latest high-profile closure tell us about the future of shopping?

1) The future of shopping is online, or more accurately will have a significant online component. It seems impossible to imagine, now that so many have embraced online shopping, that shoppers will give up the convenience they now enjoy. It’s also pretty clear that no category will remain entirely immune – let’s just look at the history: first travel went online; then insurance and banking; then entertainment; and now then home appliances and computing, grocery shopping and fashion are all seeing a significant shift. China’s e-commerce rise  proves that this will be a global phenomenon and it’s fair to presume that emerging economies may embrace online faster than developed ones.

2) Shopping in the future will be even more globalized.

The internet knows no borders and even as legislators and corporations seek to limit the availability of products and services, innovators (sometimes also called criminals) are constantly finding ways to circumvent these barriers. Again I look to the entertainment industry as proof of this. Deliberately or by accident, the industry has always been stymied by limited availability. Peer-to-peer sharing was a response by high-school kids to not being able to afford to own as much music as they wanted to consume (just as home-taping was for my generation). Piracy of music and film in the developing world is most probably caused by a shortage of cinema screens and official music stores that could serve huge untapped demand. The current boom in downloading is simply the next response to limitations in content availability. In future shoppers who want global brands, major movies and access to the best insurance deals will find ways to buy them regardless of their country of origin and they’ll use the web to do this.

3) Shopping will become more interesting. Let’s face it, supermarkets are boring places. Even in emerging markets the appeal of big boxes is waning as they become a normal part of people’s lives. Globally, grocery shoppers complain about long lines, poor product availability, wasted hours and so on. Online shopping should make many of these complaints a thing of the past. Yet people still love shopping as a social experience, recent data suggests people want to go to stores to touch and feel actual products. For millions, shopping is a pastime to be enjoyed with friends and family, it’s therefore fair to predict that the relatively mundane act of paying for goods may become divorced from the relatively pleasurable act of shopping for goods. It’s likely to that in future the opportunity to experience products and services through retail spaces as well as online and in virtual reality environments will stimulate innovation in these environments that will simply make shopping much more fun.

With so much changing in the world of shopping, the shape of retail is likely to change dramatically in the coming years. I believe that we will see these major structural changes starting to have a real impact in 2013. In my next post, I’ll share how I believe this is going to affect retailers in the coming year.

Christmas Wish: Better Trade Terms Next Year

 christmas-header-trees-on-white-background-1
 
Mr. W. Thorpe
Acme Inc.
909 Neverland Road
Hopewell, USA

2nd December 2012

Christmas Wish: Better Trade Terms Next Year

Dear Santa,

I have one Christmas wish: that my trade terms with leading retailers would work better for me. I’d like to feel that I’m investing in my retail partners and not subsidizing them. I wish that the money we spent could be focused on activities that really drive sales rather than buying more of the same activities that seem to deliver little or nothing. And Santa, above all, I wish that when I invest in in retail, I would actually get what I pay for 100% of the time rather than just 80% of the time.

Hopefully  yours,

Billy Thorpe

Sales Director (Acme Inc.)

 

37523

 
Mr. S. Claus
1 Northridge
North Pole
 

3rd December 3, 2012

RE: Christmas Wish: Better Trade Terms Next Year – The Gift Of Conditionality

Dear Billy,

Thank you for your Christmas wish, which was rushed to me by one of my elves. Here at the North Pole we work all year long to grant the wishes of little boys and little girls at this special time of the year. I know that many of their mummies and daddies are also busy at this time of the year trying to meet the demands of their major customers.

We know that many people like you, Billy, have spent the last few months working hard on business plans and presentations, laying out all the wonderful things you have in-store for retailers in the coming year. We also know that about now, many of you will be busy negotiating your trade terms. So this year we’ve decided to give you all an early Christmas gift. We call it the gift of “Conditionality”.

“Conditionality” helps you to get what you want from your trade terms, it makes trade terms performance-based and it changes ‘Trade Spend’ into ‘Trade Investment’.

Here’s how it works:  you decide, based on your target shoppers’ behavior, what you wish for in the store, then you make that wish a condition of the money you pay to retailers.

Let’s say for instance that your shoppers buy to a plan and will shop elsewhere when products are out-of-shelf, then wish for availability. Ask for commitments to minimum order quantities, shelf inventory and shelf space in exchange for financial support. Or pay an incentive in return for compliance to plan-o-grams in-store.

If your target shoppers might switch from a competitor they understood more of the benefits you offer then wish for communication. Tie retail terms to the execution of signage, in-store activations, compelling shelf layouts or the use of mobile technologies.

And if, like many brands at this time of the year, having your product in the pantry will lead to greater consumption, wish for more effective offers. Make payments to retailers conditional of execution, off-take, redemptions by target shoppers and focus investment on key consumption occasions.

The gift of conditionality works for everyone: shoppers get what they want in store; retailers get focused investment and you get real returns. All you have to do to give this gift is to make your wish list before you negotiate with your retail partners and exchange what you want for what they want.

Don’t wait ‘til Christmas to enjoy this gift though Billy, you can benefit right now, just remember to say “If you invest in me, then I’ll invest in you!”

A very Merry Christmas to all…

Santa Claus

P.S. Do remember to wait until you’ve got what has been agreed before you pay your trade partners!

 

What Carrefour’s Exit from SE Asia Means for CPG Profits in Asia

This month Carrefour completed its exit from South East Asia. Following the 2010 sale of its Thai business and the closure of Singapore earlier this year; the transfer of the Malaysian business to Japan’s Aeon group and the sale of its remaining holdings in Indonesia last week closes a chapter in South East Asia retail. 

I doubt many manufacturers will rue the loss of this often difficult trading ‘partner’ in the region and I’m fairly certain that there will be many sales teams breathing a sigh of relief that they won’t have to face another round of annual terms negotiations with Carrefour in the coming months.

Early celebrations may be uncalled for however, particularly in Malaysia. Carrefour’s new operator there, Japanese retail giant Aeon, has been established in Malaysia since 1984. Starting out as a high-end player under the Jusco brand, more recently the group has expanded into multiple formats and online and has ditched the Jusco branding in favor of Aeon for its shopping center and wellness offers whilst developing the Max-value discount brand. The acquisition of Carrefour will enable Aeon to strengthen their position in the market and extend their offer further. It will also create some interesting trade terms discussions.

What does this mean?

One manager recently characterized the situation this way; “We are worried, Carrefour is our least profitable customer in Malaysia and Aeon is our most profitable”. I suspect this will be true for many: Aeon has often been seen as the ‘good cop’ operator to Carrefour’s bullying ‘bad cop’. Many manufacturers have seen terms escalate with Carrefour dramatically despite only being fourth in the market. So with Aeon taking over shortly, there is cause for concern.

Regional observers should know what to expect as Carrefour’s sale in Thailand has already created a case study: when Casino acquired Carrefour at the end of 2010, they were able to compare terms. At the time Casino was the larger of the pair and used their understanding of terms to Carrefour to extrapolate what would be ‘fair’ on a larger business base. For many manufacturers this lead to higher levels of investment for no net change in business base and lower margins overall!

Were Aeon to put aside it’s ‘play fair’ approach it could easily secure Carrefour’s level of trade terms across the total business base and legitimately demand more – a conundrum for manufacturers indeed! I would therefore hope that Malaysian key accounts terms have been pressed into action. If not here’s four things they should start doing now:

Establish the risk – Before entering panic mode, it’s really important to clear understand whether or not there is an imbalance in terms between the two companies and if there is to ensure there is a degree of defensibility in the disparity. Where disparity does exist evaluating the upside and downside risk is a must.

Develop a clear plan – Aeon is about to become a bigger, more important player with new stores and with developing store concepts. This is likely to re-invigorate the lulling hypermarket sector in Malaysia and may press other competitors to become more aggressive. All of which should be viewed as an opportunity to enhance sales of brands where big-box retail is important. Plans should consider how the likely disruption in the supply chain will be managed as well as how to harness growth opportunities. Plan for competitor’s responses too, during the Thai transition, Tesco promoted heavily to grab shoppers. Now is the time to redefine customer priorities and re-write business plans to reflect the new reality. These plans will equip teams negotiating with Aeon and others.

Prepare terms negotiations carefully – it’s tough to get terms back from a key retailer so a slip now will cost money in the future. I believe that in these situations companies should press for a ‘start from zero’ approach and develop a new terms deal from the bottom up, based on a clear plan to drive growth and increase efficiency. In the very worst case every potential concession should be carefully evaluated and tied to the execution of activities which are proven to drive sales or save costs. Beware Aeon’s competitors as well, like circling sharks they will smell blood in the water and may use this as an opportunity to seek greater concessions.

Seek help – most key accounts teams will not have had the experience of negotiating these types of deals in the past. This is where regional or global teams can help and support and where those who were involved in negotiations in Thailand in 2010/2011 can add value too. If this level of support isn’t available easily, then contact engage in Malaysia, we will be holding a workshop on this in mid-December to support Malaysian managers and can provide specialist expert support in the market.

All of this may seem very “Malaysia” focused but I believe there are significant regional implications in this. In every market and across every market there will be disparities in trade terms which present real business risks as retail in the region continues to consolidate. In the first decade of the century (according to Nielsen) ‘organized’ retail’s share of FMCG sales in Asia grew from 35% to 57%. In many markets consolidation is far from peak potential levels so we can expect more acquisitions in the future. This being the case manufacturers should take this opportunity to recognize the potential implications of consolidation and act definitively to protect future profitability across Asia.

Reducing Trade Expenditure – Think ‘Consumer First’ Not ‘Store First’

In 1995 POPAI told the world that 70% of purchase decisions were made in-store and in May this year they announced their latest research showing that this number had climbed to 76%. Manufacturers around the world have seized on these figures to justify progressively higher levels of expenditure in retail.

Today, “trade spend’ is one of the highest single costs borne by consumer goods businesses after the cost of goods. A recent report by AMG Strategic Advisors, shows that American Consumer Goods companies now spend 13.7% of gross sales on ‘trade funds’. The same report suggested that 77% of these companies plan to increase trade promotions funding in the coming years.

For many manufacturers, trade spend has become a cost of doing business. As major retailers continue to grow (the top ten have more than doubled in size since 2000), teams can expect these costs to escalate further. The problem with this is that much of this money delivers a negative ROI. We’ve found that returns are on average 30 cents on the dollar, which means we conservatively estimate that the top 250 consumer goods manufacturers lose nearly US$200bn per annum through ineffective trade spend.

Most manufacturers would like to see reduced trade costs and better returns on their investment but many struggle to figure out how they might do this. In my experience the first major step to take is to change the attitude your company has to retail investment.

Many manufacturers have been influenced by Proctor and Gamble’s “store back” approach. P&G created this approach to ensure they understood everything there was to know about “the first moment of truth” – the point when a shopper buys the product. P&G seek to understand what triggers purchase in-store and work back to consumer stimuli to ensure each trigger “fires” at the right time. The problem however is that many disciples misinterpret ‘store back’ as ‘store first’.

‘Store first’ thinking puts the power into the hands of big retailers by focusing investment on the biggest customers in order to drive sales. Retailers use this power to encourage greater volumes of investment from their vendors, thereby driving the escalation of trade spend.

I believe this is a damaging and costly approach so my teams and I suggest a different way of thinking – ‘consumer first’. A ‘consumer first’ approach focusses on the key consumption priorities and then seeks to identify target shoppers whose purchase behavior can deliver that consumption. This allows you to prioritize channels based on their ability to deliver the right shopping patterns (not just based on size) and to define the right activity plans in-store before writing a cheque to a retailer. You might think of this approach as almost being ‘store last’.

For some this might seem like a lot of extra work, but think about it, if you are spending 13.7% of sales in-store and 70% of this is wasted, a ‘consumer first’ approach could increase profitability by nearly 10 margin points. The average consumer goods business makes only 8.5% profit so this approach could double the profitability of some businesses.

We know this approach works, we’ve seen teams who insisted it was ‘impossible’ to reduce trade spend saving millions of dollars by taking the ‘consumer first’ approach – isn’t it time you do too?

 

Feature image from Flickr

China – the next multi-channel frontier

Pioneers of the past were told “go west”. In the world of multi-channel retail, this has been very much the case in the last few years as the US has seen an explosion in online sales. Like most pioneers many have ended up with arrows in their backs so now, as China’s retail world is rapidly swinging towards multi-channel formats, the opportunity to take what has been learnt into a new frontier is huge.

BCG believes China has the potential to offer 200m online shoppers within the next 5 years – a bigger and considerably richer online market than any other on the planet. The rate of adoption of online retail is already impressive, in the last four weeks; every educated, high-income manager we have met in Shanghai has claimed to buy “at least” 90% of their groceries online. One mother enthusiastically spoke about how her eight-year-old son actively searches the Tao Bao malls for his next birthday present. For these kids toy stores are no longer physical environments.

Global retailers see this. In August Walmart snapped up a 51% share of Yihaodian – one of China’s leading online players. Yihaodian themselves have opened “QR stores” in the southern cities of Guangzhou and Shenzhen where shoppers scan products on their phones for delivery later in the day (yes in the day!).

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Manufacturers are also beginning to feel the pinch: Sony has seen its sales in physical retail decline as TaoBao malls have grown and as the traditional leaders in the market Suning and Gome have shifted sales online. Even dairy companies recognize sales of milk online have reached notable levels.

This is provoking huge changes. Gome and Suning (mentioned above) have been hit hard by online retail. As sales have shifted onto their own websites and others like 360buy.com, stores have been hit hard. Gome put out its second profit warning of the year. Four weeks ago Suning (China’s largest retailer), in perhaps the bravest retail strategy move ever, have announced a wholesale change in their retail philosophy. Sun WeiMin, Suning’s president and head of Suning.com, recently stated the intention to re-position the appliance retailer as “A combination of Amazon and Walmart”. If this is successful this will be the first time a 1700-store retail giant has dramatically changed its offer, solely in response to pressure from the online world.

Multichannel retail has three major implications: firstly it democratizes demand, making wider ranges available to a broader base of shoppers faster than bricks and mortar can possibly deliver; second it demands a complete re-think in shopper engagement, requiring greater consistency and continuity throughout the path-to-purchase and; thirdly it dramatically changes the supply chain, requiring absolute levels of product availability that go way beyond the current expectations of traditional retail.

These implications affect the operations of retailers, manufacturers and agencies alike.

Retailers will face enormous financial pressures as stores become less competitive. Retail is a low-profit model that depends on massive returns on capital employed in bricks and mortar and inventory for its survival. Those who will survive will not only have to re-engineer their marketing models to keep stores attractive whilst capitalizing on online opportunities but also they will also need to re-invent the underlying financial models they use to stay profitable.

Manufacturers will come under massive pressure as the demands of retailers increase to match online prices and to meet shoppers’ expectations for product today. Traditional mass-marketing models are becoming irrelevant as personalization drives shopper choice and as the line between “above-the-line” and “below-the line” disappears.

Agencies will have to respond by thinking ‘beyond 360’ and into the creation of contiguous shopper journeys – the rules for which are only just beginning to be written.

With all this change happening in the world’s largest emerging market multi-national players have some tough questions to answer:

  1. Do we understand the implications of the shift to multi-channel retail in China? If not, now is the time to understand which consumer groups will be served by online shoppers and how to maintain and grow sales to these groups in new environments.
  2. Do we have the right talent in China? If the leading thinkers in online currently reside in the US or Europe can this talent be leveraged in China or is new talent required. If so how can this talent be developed now?
  3. Do we have the willingness to embrace change? The status quo is always attractive but expecting the future to emulate the past is the easiest way to wholesale collapse. Organizations need to embrace the potential changes rapidly to get ahead in China.

For the last twenty years China has been the game changer for many companies, now is the time for multi-channel pioneers to “Look East”.

Featured Image: Ogilvy Shanghai

What Wal-Mart’s Latest Acquisition in China Tells Us About The Future of E-commerce

I’m not a gambling man but I’m prepared to bet that many people who read of China’s approval of Wal-Mart’s acquisition of 51% of Yihaodian this week probably said “who?”. They would most likely be readers from outside China who have never heard of this super-star of e-commerce.

Yihaodian is only four years old and in the last three years it has grown by over 19000% and employs 4200. It sells over 180,000 products which can be delivered within 24hours to the residents of 30 of the largest cities in China (which represent some of the world’s largest cities).

But above all its cool – it has marked its territory with an outstanding Ad Campaign, created by Ogilvy and Mather Shanghai which encourages shoppers to ditch traditional retail in favor of the ease of shopping at home. (1)

For China’s young, educated professional class Yihaodian is the only way to go. Irene Luo, a member of our team at sums this up, “Now I buy 90% of my groceries from this e-retailer except fresh food (but they do sell fresh food as well).” She goes on to say “You just need to buy over RMB 100 stuff, then you can get free delivery next day. So you can see how popular Yihaodian is here [Shanghai]”

Wal-Mart’s purchase of conditional control of this player is therefore big news in China. It should be big news worldwide and here’s why:

1) e-commerce is a global story

For most of the last decade most of the big news in eTail has come out of the US and South Korea where great logistics have been matched with great Internet infrastructure. Yihaodian’s success shows the potential for e-commerce in not just in the mega-cities of China but across the emerging economies of Asia and beyond. China’s e-commerce market is set to be the world’s largest by 2015, according to Boston Consulting Group and this demonstrates that the new generation of shoppers markets can easily be served, even in environments where logistics and broadband infrastructure remain a challenge. The days when nay-sayers claim ‘it could never happen here’ are numbered.

2) Global retailers now see e-commerce as the next channel for expansion

Major grocery multinationals have, for at least the last decade, sought new channels to expand into. Many have realized that the time of the hypermarket format is over and many have sought new growth in convenience retail and speciality stores. Some, such as Tesco in Korea and the UK, have made successful forays online already. But what’s happening in China is new, in that it indicates the potential for offline retail consolidation (2) to go online. Such expansion is, in effect borderless, which may lead to retail brands, whose global expansion has been stymied by geographical barriers to entry, launching into markets without the need to gain critical store mass.

3) If you can’t beat them, buy ‘em

Let’s be really clear, Yihaodian has been winning battles in China with younger shoppers. Its cooler, easier, better stocked, more reliable and altogether more attuned to this generations shoppers than the big boxes like Carrefour (3). In other sectors 360buy.com has been kicking bricks and mortar’s ass over the last two years (4) and the potential for grocery to go this same way has clearly been recognised by Wal-Mart. The great lesson here is that with mammoth cash piles the potential to buy upstarts to mitigate the downsides of e-commerce cannibalising existing store sales is absolutely here.

4) Manufacturers, globally, have got to take note

Consolidated retail is a problem for manufacturers now, it will be a greater problem for them in cyberspace. Greater choice will put pressure on brands; global price comparison and competition will force prices down; whilst marketing complexity will increase. Today’s consumer goods companies still rely on marketing models created in the 1950’s for the run of the strategic thinking and these models were never meant to cope the realities of media fragmentation and retail consolidation of the 90’s – let alone the challenges that e-commerce poses. Addressing both the opportunities and the issues will require some major re-calibration of the way people think about marketing and selling consumer goods and time is running out.

Ok so I’ve said this before (5) BUT this not just about the boardroom setting up a task force in key markets, it’s really about operational units addressing the e-commerce potential directly too. How many sales directors have this on their agenda now? In many markets, these guys have not yet got beyond ‘modern trade’ and ‘general trade’. That thinking may cost company’s big time, especially in markets which have avoided the onslaught of global players to date.

Wal-Mart’s move this week is probably not high on the agenda in many HQ’s this week but it is a major shift – it is likely to be the beginning of a new wave.

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How Retail Consolidation Wrecks Consumer Goods Markets

 

I’ve been reflecting a lot on the similarities between the retail markets in Singapore and Australia. Both are dominated by two key retail players and both suffer similar issues as a result. Looking at these provides a great illustration of just how retail consolidation can wreck a consumer goods market.

1) Retailers get complacent

The lack of significant competition makes retailers complacent and perhaps more problematic limits the development opportunities for people working in retail which sustains the status quo.

The grocery retail sectors in both markets shows this. Both Singapore and Australia lack innovation and dynamism. In both markets grocery stores are dull and disappointing. Fresh food offers are surprisingly limited and packaged grocery fixtures are poorly merchandised. In both markets retailers claim to offer keen price points and yet Singaporeans and Australians alike pay more for food than most shoppers in the western world. In Singapore in particular online offers are poorly configured and many orders are poorly filled.

2) Consumer goods companies get stuck

With only two retailers to work with, both Singaporean and Aussie consumer goods companies have few places to go to distribute their brands. The big retailers therefore force the agenda. As they push price hard and limit the scope for inventive in-store activities sales and marketing teams get increasingly despondent.

As a result manufacturers’ creativity ebbs and talent moves elsewhere again sustaining the status quo.

3) Marketing expenditure wasted.

Sales teams in both markets complain of increasingly unreasonable demands for promotion support. Money is pumped into activities, such as poor quality press pullouts and in-store flyers which erode the equity of CPG brands whilst doing little to enhance the retailer’s positioning as anything beyond “cheap”.

One Australian sales manager complained to us recently that trade spend in Coles easily exceeded 25% of sales (the point at which most companies start loosing money). Whilst research we conducted in dairy showed less than 5% of the target market even read retailers’ ads or brochures.

Our research shows that up to 70% of trade expenditure could be wasted globally – nearly $200 billion a year for major consumer goods companies. Retail consolidation is likely to lead to this number growing in the future.

Consolidation is a global fact which affects every market to varying degrees and it requires marketers to do things differently. It’s time marketers stopped looking at trade spend as a cost of doing business and start think if this as a marketing investment.

To get a real ROI, this money needs to be focused on changing shopper behavior to drive greater consumption. Marketers need to focus on unexploited consumption opportunities and define the purchase behavior needed to realize these. Channel teams need to be far more granular in their identification of priority retail environment and spend in-store needs to be focused on behavioral change in these key environments. 

 

Why Carrefour Could Fail In China

Whilst busy setting up our new office in China, my team and I have spent several days walking stores. Last week we focussed in on one major global retailer, Carrefour to get a sense of their relative positioning in China.

Carrefour was one of the earliest global players to enter China, founding its first store in 1995 and within 12 years had reached 100 stores. Rapid development and early success made the  company one of the major retail players in the market and an important customer for nearly 22,500 suppliers. In recent years it has been buffeted by bad press, pricing scandals and increasing pressure from rebellious shareholders. The recent offer for sale of South East Asian business units and the resulting closure of the company’s Thai business and restructuring in Indonesia leave many analysts asking whether Carrefour has lost its way in Asia. Having spent many hours wondering around the aisles of stores in Shanghai its increasingly apparent to me that there is a real potential that Carrefour could also fail in China.

I believe there are three major reasons that suggest this could quite easily happen.

  1. Carrefour no longer appears to sustain a coherent market position.
  2. Stores seem to be overlooking the fundamentals of efficient retail operations
  3. Carrefour runs a serious risk of losing supplier’s goodwill and support.

Let’s think about Carrefour’s positioning – Carrefour’s name in Chinese can be loosely translated as “happy and lucky family” and the company’s early success in both mainland China and Taiwan was based on its ability to deliver a localized hypermarket solution that met the needs of Chinese families. The company employed a number of strategies to deliver this, but two positioning approaches that were particularly resonant in China were a compelling fresh food offer and a keen focus on price. Looking at stores today, there’s no doubt that price has become the major strategy. It is impossible to ignore the massive volume of ‘yellow tickets’ used to communicate price promotions throughout the store but the enormous volume of price deals available makes it impossible to determine what is on offer and what is not. I suspect that the net effect is that shoppers ignore these messages – certainly in our observations, major off-shelf promotions and gondola ends are poorly shopped – one massive display in “the power aisle” remained untouched for the entire 90 minutes we were in store – despite being passed by 288 shoppers.

What’s perhaps more concerning though is the retailer’s complete dereliction of its fresh offer. Carrefour’s original concept was to bring the benefits of wet markets into a hypermarket environment – the original concept offered an excellent range of market-fresh veggies, meats and particularly fish. In the early days, stores offered a mix of live and recently caught fish in attractive displays which delivered on Chinese shoppers’ demand for super-fresh product. Fast forward to today and you’ll the tanks which once brimmed with live fish now often contain a few decidedly unhealthy looking specimens floating belly-up and beside this an attractive display of recently defrosted Norwegian salmon – hardly fresh by anyone’s standard!

Overall there’s little doubt that the business has lost its edge with shoppers in China.

The next problem Carrefour faces is that store managers appear to be ignoring the fundamentals of profitable retail. In a nutshell you make money in retail by selling out stock before you have to pay for it; efficient retailers balance shopper demand with lean stock holding and careful ranging. These principles appear to be completely lost on Carrefour’s store managers – the range of product on offer is staggering but so is the sheer volume of stock and the shambolic fashion in which its merchandised. We found Lipton’s tea in 8 locations throughout the store, breakfast cereals in five locations, a huge variety of locally manufactured dairy products in a chiller labelled ‘imported goods’ and a mountain of promoted paper tissues filling an escalator well. Almost every aisle was filled with additional promotional displays adding further confusion and stock weight.

My simple conclusion: the stores  are massively over-stocked and what I infer is that the only way the stores can be making money is through forward buying gains (where a retailer buys stocks at a reduced price for a promotion and sells what is left over at the normal retail price, hence increasing the margin on these sales). Which brings me to the last reason why I feel Carrefour’s business in China is under threat – the risk that the company will lose supplier support.

According to Deloitte,  Carrefour’s net operating margin globally is 0.62% as compared to an industry average of 3.8% – not a great performance for the second biggest retailer in the world and a very poor performance when one considers Carrefour’s ability to extract funding from its suppliers. With such a fine margin, its relatively easy to infer that Carrefour is highly dependent on suppliers’ funds as a source of profit. In China, this presents a major risk: if the retailer continues to lose its way with shoppers, market shares and like for like growth will wither, making the business a less attractive investment proposition. Add to this what appears to be a fairly cavalier attitude to suppliers’ funding, apparent forward buying of promoted stock and low-levels of in-store execution and pretty soon you would conclude that continuing to support Carrefour in the medium term is unlikely to deliver significant value. As a result Carrefour can expect to see less funding from vendors in the future regardless of how hard its buyers bang the table.

It seems to me that the world’s second largest retailer is at a turning point in China  – either the business will re-invent itself and its relationships with vendors or its shareholders will seek to divest. In either case, manufacturers in China should be extremely reticent in their approach to Carrefour; unless there is a wholesale turnaround ROI will remain in negative territory and growth will be poor. Manufactures should be seeking to build relationships with retailers who have a clearer connection with Chinese shoppers and greater potential for growth.