by Glen Terbeek
As you know by now, for the past three weeks we've been co-sponsoring "The BIG IDEA Beat" Contest, in which the thought-leaders who make up the MNB community have the opportunity to share their perspectives on critical issues facing the industry and win a signed copy of Agentry Agenda: Selling Food in a Frictionless Marketplace.
We offer both a Premise and a Challenge, and challenge MNB users to respond to them by identifying the best ideas and examples that typify where the industry ought to be heading.
This week, to recap…
Premise:
The supermarket industry grew up through leveraging central buying and distribution to a "standard" store in a Greenfield marketplace. However, the marketplace dynamics have changed through the saturation of like stores and products exasperated by a slow growing marketplace if measured in population growth of less than 1% a year making this model less effective. Accordingly, significant false economics have developed using the current business processes, often estimated at 15% of the manufacturers’ sales or 7.5% of retailers’ sales. And new "alternative format" competitors have taken market share by exploiting these discontinuities. It therefore can be concluded that the current organizations, measurements, and business processes are out of touch with the marketplace realities of today and tomorrow.
Challenge:
What are you ideas for the organizational design of the future supermarket chain that will enable it to compete successfully in the very competitive marketplace of today?
Winning entries:
Unfortunately, there are none! (And not because I didn't want to send out any books this week.)
This means one of two things:
There were two entries that talk around the issues. Interestingly, they come from previous winners. Let me quote from each of them:
Ian Ricketts answered the challenge by defining the future store as follows:
"The store will be a conventional supermarket design with independent owners managing their own categories directing entire focus on customer wants and needs. One independent in the heart of the store will carry a traditional grocery mix that evolves on a one to one need with customers. The perimeter will be much like a mall food court with shopkeepers that cater to the market niches. Shops like Sausage maker, Local Fish Market, and all ethnic groups related to the area will be represented. People of those nationalities will sell East Indian and Mexican foods. So will Portuguese and other ethnic foods. The ability to get close to customer will be realized like never before. One body that sets direction and aligns all independents will govern the SOP’s from sanitation and food safety to OH&S and all policies. One merchandizing body will set direction and align all independents on sales, profit and service expectations. The brand will be very clear to consumers. Your very own personal store! With a passion for food! Customers will have the option of making purchase transactions at each shop or go through traditional checkouts in addition to self-scan, providing consumers with a multitude of choices. As the market place changes so will the mix, utilizing the ability of the independent’s one to one approach to respond with rapidity to customer needs. Supply chain will support the necessary items requested by the independents and have the same leverage of buying power that a chain store would have, something a small independent would never be able to achieve on their own."
What I like about Ian’s store definition of organization is that he implies the separation of the demand side activities (maximizing the return on each stores market potential), and the supply side activities (minimizing the delivered cost of product to the store). The "store design" suggests the "ownership" of the store’s market performance is locally "owned" at store level, like most independents. It obviously wouldn’t be necessary for financial ownership for this to work, just organization design and measurements. So often you hear retailers say when discussing a successful independent’s store; "We can’t do that, we are too big!" Remember, the shoppers only care about the stores in their shopping area, so how can someone many miles away address their needs appropriately?
David Hanneman contributes the following similar thoughts:
"More than anything else, the culture of these organizations need to radically shift from one that prescribes "All of the answers are in the headquarters. The execution is in the stores." to one that flips and twists the concept to "All of the answers are in EACH of the stores. The technology and facilitation to get at each of those answers is located in the headquarters." The headquarters of these behemoths need to become servants to each of their stores in every way. This requires the belief that each and every store is unique and no two are exactly alike. Each should be treated as an entrepreneurial engagement of the consumers it serves. "
What I like about David’s comments is the recognition of the organizational disconnect between the uniqueness of the individual store’s market and headquarters. He specifically mentioned technology and information all going to the headquarters. So often, retailers suck data out of the stores for headquarters use, when in fact it could be of use to the very people serving the shoppers of that store. Of course, independents don’t have a headquarters to worry about. They use store based "common sense" data to anticipate the shopper’s needs. Maybe that is why all the innovation comes from the independents. Are current organizations irrelevant to their shoppers and associates?
Summary:
It is hard to believe that the industry is so fixed on the current national brand, central buying and distribution organizations. There are so many signs that it isn’t working; from the failures of many of the retail consolidations, to the loss of market share to alternatives, to the sustained success of many independents in very competitive markets, to the false economics represented by trade dollars.
This complacency is dangerous. I'll bet if the challenge were to define the best category management idea, there would be an enormous number of entries simply bursting with ideas.
But isn’t the future all about marketing productivity, not logistics productivity?
One note about last week's contest…
Last week, one of our winners referred to "Branch Markets" as an example to be emulated. He meant to cite Ranch Markets, owned by Mike Proveziano and his sons, and with stores in California and Arizona.
We'll be back with an all-new contest on Monday. Have a good weekend…
As you know by now, for the past three weeks we've been co-sponsoring "The BIG IDEA Beat" Contest, in which the thought-leaders who make up the MNB community have the opportunity to share their perspectives on critical issues facing the industry and win a signed copy of Agentry Agenda: Selling Food in a Frictionless Marketplace.
We offer both a Premise and a Challenge, and challenge MNB users to respond to them by identifying the best ideas and examples that typify where the industry ought to be heading.
This week, to recap…
Premise:
The supermarket industry grew up through leveraging central buying and distribution to a "standard" store in a Greenfield marketplace. However, the marketplace dynamics have changed through the saturation of like stores and products exasperated by a slow growing marketplace if measured in population growth of less than 1% a year making this model less effective. Accordingly, significant false economics have developed using the current business processes, often estimated at 15% of the manufacturers’ sales or 7.5% of retailers’ sales. And new "alternative format" competitors have taken market share by exploiting these discontinuities. It therefore can be concluded that the current organizations, measurements, and business processes are out of touch with the marketplace realities of today and tomorrow.
Challenge:
What are you ideas for the organizational design of the future supermarket chain that will enable it to compete successfully in the very competitive marketplace of today?
Winning entries:
Unfortunately, there are none! (And not because I didn't want to send out any books this week.)
This means one of two things:
- Current organizations are perfectly aligned with today’s marketplace realities, and therefore not challenged and not out of touch.
- Or, it could mean that MNB users, like virtually everyone else on the industry, are worried about what might happen to them if we address alignment from the shoppers view.
There were two entries that talk around the issues. Interestingly, they come from previous winners. Let me quote from each of them:
Ian Ricketts answered the challenge by defining the future store as follows:
"The store will be a conventional supermarket design with independent owners managing their own categories directing entire focus on customer wants and needs. One independent in the heart of the store will carry a traditional grocery mix that evolves on a one to one need with customers. The perimeter will be much like a mall food court with shopkeepers that cater to the market niches. Shops like Sausage maker, Local Fish Market, and all ethnic groups related to the area will be represented. People of those nationalities will sell East Indian and Mexican foods. So will Portuguese and other ethnic foods. The ability to get close to customer will be realized like never before. One body that sets direction and aligns all independents will govern the SOP’s from sanitation and food safety to OH&S and all policies. One merchandizing body will set direction and align all independents on sales, profit and service expectations. The brand will be very clear to consumers. Your very own personal store! With a passion for food! Customers will have the option of making purchase transactions at each shop or go through traditional checkouts in addition to self-scan, providing consumers with a multitude of choices. As the market place changes so will the mix, utilizing the ability of the independent’s one to one approach to respond with rapidity to customer needs. Supply chain will support the necessary items requested by the independents and have the same leverage of buying power that a chain store would have, something a small independent would never be able to achieve on their own."
What I like about Ian’s store definition of organization is that he implies the separation of the demand side activities (maximizing the return on each stores market potential), and the supply side activities (minimizing the delivered cost of product to the store). The "store design" suggests the "ownership" of the store’s market performance is locally "owned" at store level, like most independents. It obviously wouldn’t be necessary for financial ownership for this to work, just organization design and measurements. So often you hear retailers say when discussing a successful independent’s store; "We can’t do that, we are too big!" Remember, the shoppers only care about the stores in their shopping area, so how can someone many miles away address their needs appropriately?
David Hanneman contributes the following similar thoughts:
"More than anything else, the culture of these organizations need to radically shift from one that prescribes "All of the answers are in the headquarters. The execution is in the stores." to one that flips and twists the concept to "All of the answers are in EACH of the stores. The technology and facilitation to get at each of those answers is located in the headquarters." The headquarters of these behemoths need to become servants to each of their stores in every way. This requires the belief that each and every store is unique and no two are exactly alike. Each should be treated as an entrepreneurial engagement of the consumers it serves. "
What I like about David’s comments is the recognition of the organizational disconnect between the uniqueness of the individual store’s market and headquarters. He specifically mentioned technology and information all going to the headquarters. So often, retailers suck data out of the stores for headquarters use, when in fact it could be of use to the very people serving the shoppers of that store. Of course, independents don’t have a headquarters to worry about. They use store based "common sense" data to anticipate the shopper’s needs. Maybe that is why all the innovation comes from the independents. Are current organizations irrelevant to their shoppers and associates?
Summary:
It is hard to believe that the industry is so fixed on the current national brand, central buying and distribution organizations. There are so many signs that it isn’t working; from the failures of many of the retail consolidations, to the loss of market share to alternatives, to the sustained success of many independents in very competitive markets, to the false economics represented by trade dollars.
This complacency is dangerous. I'll bet if the challenge were to define the best category management idea, there would be an enormous number of entries simply bursting with ideas.
But isn’t the future all about marketing productivity, not logistics productivity?
One note about last week's contest…
Last week, one of our winners referred to "Branch Markets" as an example to be emulated. He meant to cite Ranch Markets, owned by Mike Proveziano and his sons, and with stores in California and Arizona.
We'll be back with an all-new contest on Monday. Have a good weekend…
- KC's View:
