Last week, we wrote about the ill-fated decisions made by Safeway several years ago to acquire smaller companies, believing that such moves would allow it to continue to dominate the retail scene and compete more effectively with Wal-Mart. As has been well-documented here and elsewhere, decisions to buy chains like Dominick’s and Genuardi’s have not worked out, as the challenges of serving local community interests have outstripped the efficiencies of scale that Safeway brought to the party.
In response to this piece, we got a thoughtful email from MNB user Glen Terbeek, author of Agentry Agenda, addressing these same issues:
In response to this piece, we got a thoughtful email from MNB user Glen Terbeek, author of Agentry Agenda, addressing these same issues:
”When I conducted strategy sessions for retail clients during my career, the following question always came up: Should we be centralized or decentralized? Being a typical consultant, my answer was always "YES!”", not to avoid the question, but; YES because there are two business processes required to make any retailer successful in today's marketplace.
“Since saturation, Wal-Mart's threat, increased Wall Street's ‘influence,’ and of course the encouragement of the manufacturers (efficient customers and trade dollars), the industry has been on a growth, consolidation, globalization, scale, and standardization track. This has resulted in an intense fascination with supply chain efficiency best documented in all the ECR rhetoric; at the expense of local marketplace productivity. Centralization became the ‘easy and comfortable’ way to manage this trend, since it is an extension of how most chains grew in the non-saturation, "virgin marketplace" era anyway.
“Unfortunately, the marketplace has changed since then, but the organizations and measurements of the past have not. Remember, the shopper's shopping decision is always based on what's best in her/his trading area, not the size of the chain. Centralizing after consolidation is particularly damaging because of the demoralizing effect on the local management, the very people competing in the individual shopper's trading area.
“It is more and more obvious (Safeway, Albertson's, Kmart as examples) that a retailers need to be both centralized around supply side issues, and decentralized around local market place performance. Somehow, many in the industry have forgotten the shopper in the last several years, chasing the last possible efficiency dollar out of the supply chain. Meanwhile, sales per square foot and market share of the supermarkets continue to drop. Why? As I have said before, the shoppers and the store's associates know!
“There is one opportunity for scale on the demand side, but it is rarely used. A large retailer has a natural marketplace exchange opportunity, in which stores with similar demographics and or competition could exchange successful ideas. This would be a demand side infrastructure that enables local market management (defined as similar type of stores, not necessarily geography) to beat the others in their market without it. There would be no need for headquarters involvement ("management") after the infrastructure is set up. The organizations and measurements built around a store's marketplace productivity would sustain its effectiveness.
“In the same strategy sessions mentioned above, two comments were always very self-incriminating. ‘We can't do that, we're too big!’ and ‘The franchise stores are always the better market performers!’ And when asked: ‘Who is responsible for a store’s market performance?", the answer always was, "Everyone is, and no one is!"
“It's time to change the organizations and measurements!
“I rest my case!”
- KC's View:
- Read Glen’s book, Agentry Agenda, available from Amazon.com. (We don’t make a dime from these plugs, We just think it sketches out a common sense business approach for the food industry that needs to be followed if it is to remain vital and viable in the 21st century.)
