Joe Berry - 2015 AUSTRALIAN RETAIL EXECUTIVE AWARD - Joe Berry Award
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Joe
Berry
AUSTRALIAN
RETAIL
EXECUTIVE
AWARD
2015
AWARD PARTNERS
Born in England, Joe Berry came to Australia in 1919. From a
JOE BERRY PROFILE
varied career Joe became involved with Claude Fraser, generally
known as the father of self-serve groceries in this country.
Claude was the founder of BCC (Brisbane Cash & Carry) which
was later to become the backbone of the Woolworths growth
in the grocery markets.
Constantly looking for new ideas, Joe’s quest for information
took him on overseas study tours, particularly the United
States. He was always looking for modern fresh ideas to
implement in the Australian grocery scene.
Not only did Joe contribute to the growth and development
of BCC, his ideas and innovations dramatically affected the
Australian industry as a whole. Many practices taken for granted
today, such as the supermarket trolley, were initially developed
and trialed in Australia by Joe Berry in the early 1950s.
Open-topped refrigeration was first commissioned by Joe
Berry along with pre-packed fruit and vegetables and the
common “twist-tie”. Joe later developed self-serve wholesale
warehouses in conjunction with Tom Tickle from TWD (later
QIW). All of these innovations are now commonplace within
the industry worldwide.
Joe’s involvement in the grocery trade was continued by
his son John who, until recently, was a major part of the
independent supermarket scene in this country. John talks
proudly of his father’s contribution to the industry and it is for
this reason that the Joe Berry Awards exist, so that innovation
can continue through our young executives.
The support of the industry keeps this innovation alive. Having
your sponsorship and participation from the young executives
in your company will keep the JBA as a premier development
program for future leaders.
Joe Berry Awards 2015
1
The Joe Berry Award continues to change for the better. The level of entry
FOREWORD
continues to rise as we work harder to bring forward topics that reflect the
current industry issues. This drilling down to issues has been supported by the
industry with Nielsen and CitiGroup providing insight and advice to our panel.
The submitted essays for 2015 covered all the set topics and show that those
who choose to enter the award are both aware of the industry issues and
interested in having their say. The concept of this award is to do just that; to
bring the future industry leaders to the attention of those who currently own
that role. The six essays herein support that concept.
As always, the judging panel continues to be an annual must attend day for
all of our judges and they come not only to participate with their peers but to
observe the growing talent levels within this competitive market. This is also a
sought-after role as those participating are moulding the future.
The essays on this memory stick should be read and absorbed as current and
solid information about our industry. The content is relevant and the foresight
shows why these people will be the leaders of the future. Those considering
entering the Joe Berry Award for 2016 should use these essays as a guide, to
help you write a finals quality essay of your own.
The ASMCA, myself as patron and the sponsoring judges all take great pride
in presenting these awards and we hope to see them continue to grow and
to highlight the future industry executives. We encourage all companies to
sponsor and support the awards as it is their young people who will become
the industry leaders.
We thank Retail World for continuing to publishing these essays and for being
a solid supporter of the industry and the Joe Berry Award.
Bernie Brookes
Joe Berry Awards 2015
1986 Joe Berry Award Winner
Joe Berry Award Patron
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TABLE OF CONTENTS
Adam Mourad 4
Woolworths Limited
Sarah Phillips 10
Nestlé
Alex Goh 19
Woolworths
Giulia Joliffe 27
Woolworths
Sarah Hughes 38
Coles
Marian Girgis 45
Myer Pty Ltd
Joe Berry Awards 2015
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Adam Mourad
Woolworths Limited
Topic 6: Price Optimisation.
Q. Price Deflation is a real problem
for retailers and suppliers in Australia.
Discounting has escalated and the process of
raising prices is difficult to implement. Can
dynamic pricing optimisation help? If viable,
who will benefit the most from dynamic
pricing?
Entrant Number: JBA – 15 – 0148
Joe Berry Awards 2015
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Adam Mourad
TABLE OF CONTENTS
Executive Summary 6
References 9
Joe Berry Awards 2015
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Adam Mourad
EXECUTIVE SUMMARY
Price deflation is an issue for Australian retailers and it has been further compounded with price discounting. Operating in such
an environment has made the process of raising prices difficult to implement. Discussed in this essay is the current environment
for retailers and suppliers when faced with trying to improve their top and bottom lines respectively.
This essay will introduce dynamic pricing as a possible lever retailers could use to drive growth in their organisations. Dynamic
pricing has changed the way in which consumers shop and it is no longer a matter of just where to shop but also when to shop.
Dynamic Pricing is relatively new, it’s different and it’s innovative. With the right intelligence software and data analytics in place,
all retailers can use Dynamic Pricing – regardless of their size – to compete on items when they need to.
Topic 6 – Price Optimisation
The theory of Dynamic Pricing (DP) will be introduced as an alternative to the traditional price setting strategy along with how
it can help retailers maximise sales and profits in Australia. The local and international retail environment will be analysed from
a competitive point of view. This essay will identify several key examples of DP strategies that have allowed organisations to
set themselves apart from the competition using DP as a lever for optimisation and growth. Analysis will show that DP can
be utilised to combat price deflation by allowing retailers to potentially lift prices to price equilibrium and allow for both price
increases and decreases when it is deemed appropriate. Furthermore, research will be provided on the relationship DP has with
the trust of consumers. It is important to note that DP strategies are not a mechanism used only to discount prices but more so
they utilise price optimisation models as a powerful profit lever to continue to drive business growth as a race to the bottom is
not sustainable.
In recent years there has been an increase in the amount of data collected on consumer behaviour. Organisations now have the
ability to gauge customers’ willingness to pay for their products and are using data analytics to determine what the behavioural
effect of price changes are on sales volumes1.
Traditional fixed pricing strategies are a convenient model for retailers and suppliers, however it comes with several
disadvantages. Fixed pricing can raise costs as pricing is not based on cost efficiencies or optimal prices but more a cost plus
strategy. Determining optimum pricing takes time and research, especially when a product is new to the marketplace. Fixed
pricing cannot predict important pricing factors such as depreciation nor can it accurately incorporate the effects of demand
changing market forces. Fixed pricing could be right for the target market, however it could be inappropriate for the broader
customer base2.
Retail commentator Patricio Robles suggests that a pricing strategy such as DP cannot work in the retail sector when compared
to airline or hotel industry. Offering consumers higher prices in peak periods for airlines and hotels makes sense because the
travellers have less flexibility to alter travel plans. Shoppers on the other hand can simply change their shopping habits should
retailers implement a DP strategy. Pressure levels are different when comparing perishable to non-perishable items and their sale
velocity, however an additional point to consider is that retailers do not want inventory languishing in stores and warehouses3.
The application of DP models in to the business environment was an authentic revolution to the traditional concept of price
setting4. DP assesses the demand of a product and its supply curve for a specific instance, and then the point of equilibrium is
determined at a finer more personal and/or situational level. This is in contrast to the traditional price setting strategy of cost
plus5. This allows retailers to use DP models to calculate how demand varies at different price levels. Combined with data on
costs and inventory levels allows prices to be recommended that will improve profits. It also allows prices to be tailored for
specific customer segments by simulating how targeted customers will respond to price changes with data driven scenarios6.
Australia has one of the world’s most concentrated grocery landscapes and is dominated by Coles and Woolworths. Findings
from data provided by IBISWorld in figure 1.0 shows that as of 2014 they account for more than 70.7% of the total supermarket
revenue raised in Australia7.
Joe Berry Awards 2015
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Adam Mourad
Figure 1.0 – Supermarket Major Players
Suppliers in Australia can no longer rely on annual price rises to grow and boost profitability. The levels of real household
disposable incomes have greatly affected the industry where in periods of low disposable income consumers are more likely to
do away with luxury items and only purchase basic products8. Figure 2.0 displays the % change in disposable household incomes
with a forecast through to 2020. Historical gradual price rises are a major contributor to pathway created for European and
American discounters such as ALDI and Costco to enter into the marketplace and use price as the differentiator to major local
retailers using this differentiator to attract the bargain hunting customer. These discount retailers offer a greater range of private-
label products cheaper than branded merchandise giving consumers a way to enjoy luxury products without the burden of a high
shopping docket9.
Figure 2.0 – Real household disposable income forecasts against population growth forecast
Coles and Woolworths’ domination of the FMCG environment means suppliers are heavily dependent on these two retailers
to sell their products. In recent times this has become challenging for suppliers as the two major retailers have been engaged
in a price war where for example both have sold milk at $1 a litre and bread at 85c per loaf10. This places significant cost
price pressure on local producers. These pressures coupled with the lower reduced margin at the register make for a difficult
unsustainable competitive landscape.
In November 2012 the US state of Virginia launched a hugely successful DP strategy on a toll road and called it the 1-495 HOT
(high-occupancy toll) lanes. The 1-495 HOT is a 14 mile stretch of road that runs parallel to a toll-free road. The toll-free road
is often characterised as having a combination of continuous delays and frustrated motorists. Through the use of ‘big data’
and advanced analytics the state was able to monitor, track, influence traffic flow, and ultimately dynamically adjust pricing to
optimise outcomes. When traffic increases and traffic becomes more congested and speed falls to below 45mph, the toll price
increases and deters additional motorists from using the road. Once speed increases and traffic becomes less congested the toll
price decreases and encourages the more price-sensitive motorists to use the toll road11.
Historically prices adjusted gradually over time. With the advent of new technology the era of high-frequency trading was born.
Joe Berry Awards 2015
This new landscape gives retailers the ability to shorten the length of time it takes to change a set price to microseconds12.
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Adam Mourad
In 2012 Uber’s Boston team identified a problem where on weekends their network was experiencing a significant spike in
unfulfilled driver requests. The root cause was drivers clocking off early just before the weekend party-goers began venturing
home. This was causing a supply-demand imbalance which resulted in a raft of unhappy customers.
Uber then decided to trial DP in their Boston network, offering drivers more attractive pay rates at times of unfulfilled orders to
increase the supply of drivers. The effect was instantaneous; driver availability (supply) at crucial times increased by nearly 80%
and eliminated almost 70% of the unfulfilled orders (demand).
As a result of the success the Boston branch was able to achieve the organisation decided to implement this DP strategy into the
times it found based on its data where demand was materially outstripping supply13.
Similar to the toll road strategy, Uber was able to use price increases to temporarily intentionally reduce demand, empowering its
customers to decide on the price to value ratio and make the decision accordingly.
A key component to the success of DP in retail is Electronic Shelf Labels (ESL). It is simply impossible for retailers to reflect prices
in real time without the implementation of an ESL solution into their business. Regular price changes across a wide range of
items means retailers need an efficient cost-effective ticketing strategy just to keep pace. Using an ESL solution will give retailers
the sophistication and ability to be able to display the right prices at the right time.
Price discrimination is described as the practise of charging multiple prices for the same product where the difference in price is
not based on different costs but on a difference in demand14. In a theoretical discussion price discrimination within DP strategies
ignores customers’ emotional reaction to the price change. Environments where customers have reasonable access to substitutes
are environments which retailers operating in cannot ignore the potential for hostile customer reactions15.
The relationship between retailers and consumers is a sensitive, fragile relationship. It is developed over sustained periods of time
and trust should be a critical component in the concept of DP. Internet retail has increased the criticality of trust between retailers
and consumers, that there is almost non-existent human contact between customers and internet retailer’s significantly adds to
the fragility of the relationship retailers have with consumers16.
In order to mitigate the risks that are associated with customer perception and DP, companies could start with a small pilot
with limited selections of products that are identified as having low criticality and assess their customer bases acceptance and
readiness for such a paradigm shift. Using the feedback gained the strategy can then be managed and expanded into a wider
range of low criticality products or venture into a product range with high criticality and reassess17.
Implementing DP into retail takes a level of customer intimacy not previously available and rarely used in Australia due to a lack
of data and analytics. However, this is changing and the inception of ‘big data’ coupled with predicative analysis, organisations
can now better understand their customers and assess the effect DP could have on their products, sales, profits and the
relationship between retailer and consumer18.
The key stakeholders of DP strategies are suppliers, retailers and consumers and these benefits form the pillars behind such
strategies.
DP gives suppliers the ability to grow their net prices without necessarily raising prices. Many suppliers, even with the information
available today, still set prices using simplistic models for price elasticity without identifying the need to set prices strategically.
Perhaps the best example of this is Coca-Cola Amatil, who through rigorous research found that convenience store customers
were more likely to pay a higher price for a bottle should cans be unavailable, then using this information to ensure it has the
right products in the right channels. Coca-Cola per litre prices differ significantly depending on the place of purchase. Up to $7
per litre from a convenience store as opposed to sub $2 per litre in a supermarket, successfully using DP to optimise their pricing
through average weight of prices across their portfolio19.
DP gives retailers the ability to test the true price elasticity on products and use this elasticity to positively impact revenue
and profit. It creates a powerful tool for achieving a balance between supply and demand, this balance allows for retailers
to maximise sales and profits when equilibrium is achieved as opposed to under- or over-pricing an item. Perhaps an equally
significant benefit to retailers is the business essential real-time data concerning market conditions at play, which leads to the
Joe Berry Awards 2015
ability to fine-tune pricing strategies more efficiently but effectively offers warning signals when there is a shift in demand20.
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Adam Mourad
The benefit to consumers is being offered the right price for the item at the right time based on all market forces. This will also
reduce time spent in the buying cycle, removing their need to further research price before purchasing. The Good Guys historically
have been known to negotiate with consumers based on a pay cash pay less strategy – this was an effective drawcard until the
smartphone era began and customers could receive on the spot up-to-date competition pricing and then proceed to negotiate.
The Good Guys now employ a team in Melbourne who operate price intelligence software performing that dynamically prices
their goods at the most up-to-date lowest price at the point of purchase.
In conclusion, DP is an important strategy which can boost competitiveness and maximise overall growth potential. The use of
advanced analytics allows retailers to detect competitor pricing movements, adjust accordingly, and reduce time-to-market for
these adjustments, especially when combined with advanced technologies such as digital ticketing.
Perhaps a more important feature of DP is its ability to predict when market conditions are right for price increases taking into
account complex factors such as reputational risk and short-term vs long-term gain.
DP is a strategy that is an industry game changer. Suppliers benefit through retailers selling stock more efficiently without the
build of inventory that can lead to more cost efficiencies and DP can also be used as a mechanism to lift the average weight of
price across a portfolio maximising their revenue.
Consumers can be confident that they are being charged the fairest price in the marketplace based on all the dynamics built into
determining the retail price.
REFERENCES
1. M
oritz Fleischmann, Joseph M Hall & David F Pyke 2004, “Smart Pricing”, MIT Sloan Management Review, vol. 45, no. 2, pp. 9.
2. Phillips, Robert. “Pricing and Revenue Optimisation”. Stanford Business Books, 2005.
3. Nagle, Thomas T. and John Hogan. “The Strategy and Tactics of Pricing: A Guide to Growing More Profitably”. 5th ed. Prentice
Hall, 2010.
4. Indre Deksnyte, Zigmas Lydeka & Violeta Pukeliene 2014, “Dynamic price as a bargaining result for revenue maximization in
retail”, Ekonomika, vol. 93, no. 3, pp. 67.
5. Troy Hiltbrand 2013, “Dynamic Pricing: The Future of Customer-Centric Retail”, Data Warehousing Institute, Seattle.
6. Ibid.
7. Brooke Tonkin, 2015, “Supermarkets and Grocery Stores in Australia”, IBISWorld Industry report G4111
8. Brooke Tonkin, 2015, “Supermarkets and Grocery Stores in Australia”, IBISWorld Industry report G4111
9. Ibid.
10. Sophie Langley, 2014, “Woolworths bread price war raises more concerns”, Ausfood News.
11. Troy Hiltbrand 2013, “Dynamic Pricing: The Future of Customer-Centric Retail”, Data Warehousing Institute, Seattle.
12. Ibid.
13. Ray Gurley, 2014, “A Deeper Look at Ubers Dynamic Pricing Model”, Above the Crowd.
14. Kathleen Carrot & Dennis Coates, 1999, “Teaching Price Discrimination: Some Clarification”, Southern Economic Journal,
1999, vol. 66, issue 2, pages 466-480.
15. Garbarino, E. & Lee, O.F. 2003, “Dynamic pricing in Internet retail: effects on consumer trust”, Psychology & Marketing, vol.
20, no. 6, pp. 495-513.
16. Ibid.
17. Troy Hiltbrand 2013, “Dynamic Pricing: The Future of Customer-Centric Retail”, Data Warehousing Institute, Seattle.
18. Troy Hiltbrand 2013, “Dynamic Pricing: The Future of Customer-Centric Retail”, Data Warehousing Institute, Seattle.
19. David Zehner and Melanie Sanders, 2015, “The New Reality for Grocery Suppliers in Australia”, Bain & Company.
20. Harri Daniel, 2011, “The Benefits of Dynamic Pricing, the Benefits of Everything”. benefitof.net/benefits-of-dynamic-pricing/.
Joe Berry Awards 2015
9Sarah Phillips
Nestlé, Rhodes, Sydney
Topic 1: The Emergence of Convenience.
Q. Globally larger format stores, eg,
hypermarkets, and department stores, are
losing market share and convenience stores
are winning share. Will the same trends
emerge in Australia? What effect will it have
on current market conditions?
Entrant Number: JBA-15-0351
Joe Berry Awards 2015
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TABLE OF CONTENTS
Executive Summary 12
Introduction 12
Changing Shopper Needs 13
Revised Regulation and Increased Harmonisation 14
Multichannel Synergies to Drive Economies of Scale 14
Perceptions at a premium: A barrier for growth 16
Conclusion 17
References 18
Joe Berry Awards 2015
11Sarah Phillips
EXECUTIVE SUMMARY
Growth of the convenience channel will increase, with shoppers leading the change. The baby boomers and millennials display
more similarity in their shopping behaviours and preferences than first meets the eye. While their behaviours shift as they age
and urbanise, these behaviours in turn will impact their demands for retail.
Global growth trends will be replicated in Australia as we see similar demographic changes influencing shopper behaviours and
needs. The extent of that growth will hinge on how quickly retailers and suppliers tap into the convenience opportunity and
overcome existing barriers.
This essay looks at the impact that two key demographic groups will have on convenience retailing, subsequent effects on the
Australian retail market dynamics (including major players) and barriers to be addressed for growth to occur.
INTRODUCTION
Growth of the convenience channel in Australia is already materialising and under the right conditions could flourish. Given
shifting shopper behaviours and the future reality there will be an even more prominent difference in shopping habits as a result
of wider demographic changes.
To a shopper, convenience can be defined as the locality and accessibility of products and services which meet a present need.
As a channel, it is described by outlets categorised by the following criteria as seen in figure 121.
Figure 1
Joe Berry Awards 2015
In markets such as the UK and USA, where this channel has gained sizable share over the last 10 years from the hypermarkets
and large stores, infrastructure is well positioned and set up to capture this growth in demand for shopper convenience.
12Sarah Phillips
Consumers are shopping more frequently and are looking for outlets that are within close proximity as their basket size is smaller
on each trip. As the shopper needs change the retail sector must ensure that there are offers differentiated and available to
meet them.
As the consumer demand for retail shifts towards more convenient retailing in Australia, there is a sizable growth opportunity for
the channel. Is the Australian market in a position to capitalise on this and at what cost?
CHANGING SHOPPER NEEDS
The global growth of convenience and the opportunities in Australia are consumer led. Two major demographic changes will have
most influence on the channel in the coming years:
1. The ageing population
2. Increased urbanisation; growth of the ‘millennials’ (Consumers aged 18-34)22
Increased longevity, the post-war baby boom and decreased fertility rates have all led to an upwards shift in the age structure.
The ABS projected the 65-84 group would grow on average 2.7% per year to 2011, and then accelerate to 3.5% per year to four
million in 202223. This major demographic change will impact shopping behaviour as older shoppers will be less mobile, occupy
smaller households and will place much greater importance on accessibility to local retail, infrastructure and services; particularly
health and aged care.
Not only is the size of this group set to accelerate in the short/medium term before declining but they will be very valuable
shoppers. In the UK it is expected that two-thirds of retail spending growth will come from shoppers aged 55+ by 203024.
The second notable demographic shift is urbanisation which is resulting in a global household structure change. Millennial
consumers are of growing importance as they slowly overtake baby boomers in terms of size25. Greater urbanisation is resulting
in smaller households and families. Single person households are expected to grow by 11%, accounting for 15.3% of households
globally by 201726.
A direct correlation can be seen between the sustained expansion of convenience stores, the rise in urbanisation and 1-2 person
households. Japan, UK and China are key examples. Figure 2 shows the growth in urbanisation from 2005-13. Australia shows a
positive trajectory, growing steadily from 2005 (88%) to 2013 (89.2%)27.
Figure 2 – Urban population (% of total)
Joe Berry Awards 2015
13Sarah Phillips
Urbanisation and household size are important factors for retailers to consider. They directly impact on the spending/saving
patterns of shoppers and will influence purchasing power and preferences. Gradually, both the ageing population and the
millennials will form smaller households, look to shop locally, more frequently and will purchase less on each trip. The consumer
profile for both groups is built on convenience. For the full growth potential to be attained the market must be set up to meet
the needs of these consumers.
REVISED REGULATION AND INCREASED HARMONISATION
Significant investment is required from retailers and suppliers to create more relevant retail propositions in Australia.
Deregulation and standardisation of current planning laws is required to enable increased competition and a more productive
sector.
Victoria is an example of reduced regulation levels, removal of planning restrictions and increased supply of land for retail
development. As a result, the state now has the most flexible planning system in Australia. This is an approach that all states
should follow; ‘identify different types of centres and precincts by their role in the broader economy and their unique qualities as
opposed to solely their scale and geographical location.’28 More flexible planning laws allow retailers to position infrastructure to
better suit consumer needs.
If planning laws allow, an initial outlay of capital investment will provide retailers with the ability to capitalise on the greatest
future footfall opportunity. The relatively concentrated grocery market in Australia may limit the levels of investment and
competitive appetite seen in other markets and hinder the speed at which the sector’s infrastructure and supply chain will
develop to meet the needs of the channel. Acquisitions and rebranding of existing stores with known and trusted banners is
potentially a more cost-effective route for larger retailers to strengthen their position in the market. Incentives to join the banner
could be implemented.
Both retailers and suppliers must assess existing processes and infrastructure. Smaller stores have less shelf space, less room to
store goods and high sales volatility at peak times. Distribution, delivery requirements (order quantity/ vehicle size/ frequency)
and supplier forecasting by channel will need to be reviewed as this channel and the shopper demand increases.
Current planning is geared to the needs of larger format stores, a barrier that will limit future expansion. Separate planning and
collaboration with suppliers is crucial if retailers are to maximise growth in this channel.
Australia requires more relevant planning regulations for convenience as the future society evolves. Current planning laws
and zoning are limiting opportunities outside of major shopping centres. Retailers require the ability to provide more relevant
propositions to meet the changing shopper needs and behaviours.
MULTICHANNEL SYNERGIES TO DRIVE ECONOMIES OF SCALE
Shoppers at both ends of the spectrum are savvy. The recession has changed the behaviour of the generation Y/millennial
urbanites and the ageing population. The increased demand for convenience and value has led shoppers to use multichannel
outlets.
The Australian retail market is unique with its dominant duopoly. The ability for the convenience channel to expand is somewhat
challenged by supply chain inefficiencies, higher utility/labour costs, and legislative changes; all driving up the cost to serve.
Major retailers will be required to leverage their known and trusted banners to lead change in the retail market. Access to
capital investment along with their synergies through multichannel retailing and economies of scale will play an integral role in
changing the retail landscape.
Joe Berry Awards 2015
The growth by channel in the UK market, figure 329, shows that over the next four years, despite a decline in the use of hyper
and supermarkets, as convenience and multichannel retailing grows these more traditional stores will still hold a significant
position in the market.
14Sarah Phillips
Figure 3 – UK Channel Growth
An IGD survey found that in 2016-17 56% of the respondents would like to use five or more channels compared to 34%
currently, if they are available locally30.
Suppliers and retailers must start looking at the longer-term impact of multichannel retailing on the supply chain. Currently,
there is a significant difference in attitude and approach from retailers and manufacturers coming out of a more advanced
multichannel market. 51% of retailers in the UK state that they are ready and well prepared for multichannel in comparison to
only 23% of surveyed manufacturers31.
The higher cost to serve relative to alternative channels is a barrier limiting expansion of convenience. Online provides an
alternate way of shopping for the elderly, less mobile consumers, while reducing the reliance on car usage and big store formats.
Click and collect should be a strategic focus for convenience stores as this service requires minimal overheads, appeals to our key
changing demographic groups by broadening the available product range and reduces a retail outlet’s cost to serve.
While the demand for home delivery decreases, the UK has seen an increase in the use of click-and-collect for online shopping.
(Figure 432) This service meets the shopper need for value and convenience as they can collect shopping in their own time with no
collection fees.
Figure 4 – Online Shopping
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15Sarah Phillips
Opportunities also exist in the Australian market for pure-play retailers to enter. This would benefit independent/franchise retailers
with existing stores to achieve higher margins and e-commerce expertise whilst increasing competition in multi-channel retailing.
As the population ages and shoppers look to use more channels, existing petrol and convenience stores will play a major role in
the development of the traditional convenience channel. Currently the proportion of cars in Australia is much greater than other
developed markets.
(Figure 533) The P&C store network should operate simultaneously with traditional convenience in Australia, creating multichannel
synergies and shopper benefits through click and collect as shopper missions overlap.
Figure 5 – Passenger cars (per 1,000 people)
There is a long-term growth opportunity for retailers in multichannel retailing. Suppliers will need to review their supply chain
against significant impacts if retailers look to establish separate channel supply chains. Moving forward, an understanding of and
strategy for multichannel retailing is crucial due to the high appeal for both key demographic groups.
PERCEPTIONS AT A PREMIUM: A BARRIER FOR GROWTH
Presently, one of the largest barriers to unlocking growth of convenience is the price perception and structure of the channel.
As shoppers use multiple channels and compare pricing, this previous acceptance of price premiums for convenience presents a
barrier to increased penetration. Convenience outlets must provide better value in-store if they are to change the existing inflated
price perception. With large-scale advertising investment having the most impact in communicating value for the channel to
shoppers, multichannel retailers will need to lead initiatives on pricing. Consistent messaging and promotional activity under the
same banner improves trust with shoppers, credibility and loyalty to the retailer. This is an opportunity that could be driven by the
supplier community providing price-marked goods at point of manufacture.
Joe Berry Awards 2015
Private label (PL) presents another key initiative for improved price perception. Led by banners with established product offerings
in their large-store formats, these products promote value, choice and will, in turn, attract more shoppers to the channel.
16Sarah Phillips
In 2014 57%, (+5%, 2013), believe PL products to be of better value for money than alternative brands34. As the product quality
and branding of PL is heightened, the desire for value and acceptance of the PL continues to increase.
In the UK, Sainsbury and Tesco have proportionately similar ranges of PL in convenience to those in super/hypermarkets; often
including value and premium tiers to provide choice and trade-up shoppers within PL. In Carrefour express stores, PL accounts for
35-40% of their total offer35.
With an already established supply chain, the grocers can list higher margin PL products to improve the cost-to-serve in
convenience while improving the price positioning of the channel and meeting the needs of the value shopper.
Price-marked goods are also a lever for both bannered multi-site and independent retailers to use to achieve growth. Not
currently prevalent in the Australian market, this lever enables independent retailers to compete with the grocers and
multichannel retailers by creating trust and reassurance with shoppers. An example can be seen in figure 636:
Figure 6 – Price-Marked Goods
Suppliers should look at this avenue for independent retailers and provide them with solutions tailored to their channel.
Overcoming the premium price stigma attached to convenience will enable increased penetration and maximum growth of the
channel.
CONCLUSION:
Convenience stores will become increasingly pertinent in the coming years as we see a shift in shopping behaviours and
household size; trends recently visible overseas. Retail accessibility and local infrastructure will be fundamental for consumers.
Unlocking and maximising growth will require support from both retailers and manufacturers for these changing demographic
needs. The major retailers will need to lead with a louder voice, greater reach and access to more sizable investment. Australia
will see growth of the convenience channel similar to overseas but some unique traits will mean that the proportionate growth
opportunity versus other markets will not be as sizable. Population density, existing urbanisation levels, planning laws and price
perception will all hinder the size of potential growth. By unlocking these barriers a growth opportunity does exist.
Convenience; demanded by consumers, facilitated by retailers and manufacturers, enjoyed by shoppers.
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17Sarah Phillips
REFERENCES
21. IGD (2015), Convenience retailing factsheet, www.igd.com/our-expertise/Retail/Convenience/3369/Convenience-Retailing-
Market-Overview/, 14/2/2015.
22. Horovitz, B, (2015), “Millennials crave convenience stores most of all”, USA Today, viewed 19/2/2015,
www.usatoday.com/story/money/2015/02/04/millennials-convenience-stores-fast-food-restaurants/22872685.
23. Australian Bureau of Statistics (2009), “Future population growth and ageing, ABS Social trends”,18/2/2015,
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10March%202009.
24. KPMG/Ipsos Retail Think Tank (2013), “How will demographic trends affect the retail sector?”, KPMG, 14/2/2015
www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/how-will-demographic-trend.
25. Passport (2013), “Downsizing Globally: The impact of changing household structure on global consumer markets”,
Euromonitor International.
26. Ibid.
27. World Bank (n.d), “United Nations-World Urbanisation Prospects”,19/2/2015, data.worldbank.org/indicator/SP.URB.TOTL.
IN.ZS/countries/1W-AU-GB-US-DE-JP-CN?display=graph.
28. Kelly, P. (2014). “Competition policy review”: Issues Paper, Large Format Retail Association (LFRA),
competitionpolicyreview.gov.au/files/2014/12/Large_Format_Retail_Association.pdf , 11/12/2014.
29. Gladding, N, (2014), “UK grocery: Market and channel forecasts 2014-2019”. IGD Retail, retailanalysis.igd.com/Hub.
aspx?id=61&tid=10, 20/2/2014.
30. Jones, R. (2014). “Multichannel supply chains- Part 1: Get your organisation ready”, IGD Supply chain, 11/12/2014,
supplychainanalysis.igd.com/Hub.aspx?id=20&tid=6&fid=12.
31. Ibid.
32. Henry, V. (n.d). “Click and Collect Convenience”, retrieved 14/2/2015, IGD Shoppervista: www.igd.com/our-expertise/
Shopper-Insight/Channels-and-In-store/24469/Click--collect-convenience/.
33. International Road Federation: “World Road Statistics and data files”. (n.d). Retrieved 19/2/2015, World Bank:
data.worldbank.org/indicator/IS.VEH.PCAR.P3/countries/1W-AU-GB-US-DE-JP?display=graph.
34. Freedman, M. (2014). “Private label and brands in convenience stores”. Retrieved 11/12/2014, IGD ShopperVista:
shoppervista.igd.com/Hub.aspx?id=35&tid=4&rptid=279.
35. Euromonitor International (2011), “Convenience Retailing: Market drivers challenges and opportunities”, Passport:
Euromonitor: www.euromonitor.com/convenience-retailing-market-drivers-challenges-and-opportunities/report, 14/2/2015.
36. Pepsico, (2012), “Quids in with Walkers £1 share bags”, retrieved 23/2/2015, www.pepsico.co.uk/trade-news/quids-in-with-
walkers-1-share-bags.
Joe Berry Awards 2015
18Alex Goh
Woolworths
Topic 1: The Emergence of Convenience.
Q. Globally larger format stores, eg,
hypermarkets and department stores, are
losing market share and convenience stores
are winning share. Will the same trends
emerge in Australia? What effect will it have
on current market conditions?
Entrant Number: JBA-15-0064
Joe Berry Awards 2015
19Alex Goh
TABLE OF CONTENTS
Executive Summary 21
Introduction: What is a Convenience Store? 21
Are the Same Trends Emerging in Australia? 22
Why are Convenience Stores (in the Current Format
and Operating Model) Not a Commercially
Attractive Proposition? 22
The Way Forward: Key Strategies to Make
‘Convenience’ Work 24
Conclusion 26
References 26
Joe Berry Awards 2015
20Alex Goh
EXECUTIVE SUMMARY
Traditional grocers that fail to fully understand what ‘convenience’ is from the perspective of the customer of today will most
certainly be left behind in the current highly competitive landscape. The true challenge for grocers is not how quickly new-format
convenience stores can be rolled out, but how quickly can they reorientate the business to focus on the customer.
Although there are varying definitions of a convenience store, there is a consistent trend that is emerging. Traditional grocers
globally are re-prioritising their focus on convenience stores. This is driven by the entrance of new competitors which have
redefined the ‘convenience’ that customers of today are demanding: greater flexibility, close proximity, hassle-free, tailored
range. However, traditional grocers are still struggling to find a suitable convenience format and operating model that makes
commercial sense because:
• Convenience stores in the current format do not attract mainstream grocery customers.
• The rollout of convenience stores cannot be done in isolation.
• A change in mindset is required to compete effectively in ‘convenience’.
To deal with the emergence of ‘convenience’, this essay proposes that Australian grocers adopt the following strategies:
• Redefine the meaning of a convenience format store within the framework of a geographically based omnichannel strategy.
• Realign success measures to be based on a ‘convenience’ mindset.
• Change buying and merchandising practices to give customers more of what they want.
INTRODUCTION: WHAT IS A CONVENIENCE STORE?
The definition of a convenience store will vary depending on the country, type of retailer and who you ask. This essay will focus
on the emergence of convenience in the grocery industry. However, the lessons are equally as applicable to other retailers in
Australia.
Typically, a convenience store is a small store, located close to where people live and work, and stocked with a condensed range
of everyday products. In Australia, convenience stores include milk bars, corner stores or stores adjacent to petrol stations37.
Figure 1 – Example of convenience stores in Australia
GLOBAL TREND TOWARDS CONVENIENCE STORES
There is a clear trend that is emerging globally: sales from large-format stores, once favoured by traditional grocers, are in
decline38,39.
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21Alex Goh
Figure 2 – Sales of large-format stores are in decline in the UK39
As such, traditional grocers like Walmart and Tesco are redirecting their strategic priorities towards rolling-out new-format
convenience stores38,40. This is because of the increasing levels of competition, especially against new online-only competitors,
discounters, specialty premium grocers and even competitors from other industries. For example, in the US, large technology
companies like Google and Amazon are entering the grocery industry41. In the UK, the big four grocers (Tesco, Sainsbury, Asda,
Morrisons) are being “squeezed in the middle” by new competitors from all sides42. The entrance of new competitors has
changed what the customers of today value, which is to have a more convenient shopping experience (eg. greater flexibility, close
proximity, hassle-free, tailored range). In response, traditional grocers are focused on building new-format convenience stores to
provide the level of ‘convenience’ that customers are demanding.
ARE THE SAME TRENDS EMERGING IN AUSTRALIA?
The same trends experienced globally are becoming evident in Australia. New online-only competitors like Aussie Farmers Direct
are enticing customers with home delivery of groceries. There is even speculation that Amazon is preparing to enter the Australian
grocery industry through its Amazon Fresh grocery delivery business43.
Global discounters like ALDI and Costco are significantly increasing their market share. To defend their market share, Australian
grocers will need to offer greater ‘convenience’ to the customer.
In addition, there has been a profound shift in the Australian lifestyle over the last 25 years44. Australians are now choosing to
live in high density inner-city urban areas close to work, shops, transport and community facilities45. This is further evidence that
Australians are demanding greater ‘convenience’ in their everyday lives, which is permeating to the way they shop.
Therefore, the focus on growing new format convenience stores in Australia is vital. In fact, there are increasingly frequent reports
of Coles and Woolworths acquiring 200-400sqm sites to trial new-format convenience stores in Sydney and Melbourne CBD46.
However, to successfully offer ‘convenience’ to customers, Australian grocers will need to create a commercially viable preposition.
WHY ARE CONVENIENCE STORES (IN THE CURRENT FORMAT AND
OPERATING MODEL) NOT A COMMERCIALLY ATTRACTIVE PROPOSITION?
Joe Berry Awards 2015
Globally, traditional grocers are still struggling to find a suitable convenience format and operating model that makes commercial sense.
Walmart has been trialling multiple new-format convenience stores over the years in the hope of being able to “zero in on what works
and what doesn’t”39. There are several reasons why traditional grocers are still struggling to make a success of convenience stores:
22Alex Goh
• Convenience stores in the current format do not attract mainstream grocery customers
Issue: The current format of a typical convenience store is designed to attract a convenience store customer. This is skewed
towards men47, younger age groups48, and from Asian or Middle Eastern descent48. Given the small store size, these stores hold
a limited range of products and usually charge higher prices. However, women are still the primary shoppers at grocery stores,
representing over 64% of all grocery shopping trips48.
Solution: Therefore, for convenience stores to cater to the needs of mainstream grocery customers, the format of these stores
would need to be significantly different from the format of convenience stores as we recognise them today. Changes to the
product ranging, pricing and even the store layout would be necessary.
• Success cannot just be achieved by rolling-out convenience stores in isolation
Issue: Customers are demanding greater levels of ‘convenience’ than ever before. However, they are not demanding just
convenience stores. Customers are increasingly doing more of their shopping online from any device (mobile, tablet, computer),
at anytime and anyplace. In addition, customers are becoming more accustomed to a variety of home delivery and collection
options. Even older Australians (65+ years) are increasingly going online to shop, with the majority of their spending going to
grocery and liquor (28% of their total online spending)49.
Solution: To effectively address the concept of ‘convenience’ for the customer of today, traditional grocers need to adopt a more
holistic change to the strategy and operating model of the entire business. The success of rolling out new format convenience
stores will be limited if it is not complemented by ‘convenience’ online channels.
• Many grocers do not currently have the right mindset to compete effectively in ‘convenience’
Issue: It is quite difficult for traditional grocers to comprehend a world of convenience stores when it is against the principle
of volume and efficiency. Traditional grocers who have come to dominate the current landscape had succeeded in the past
because they were focused on providing customers with reliable products and services at competitive prices while maximising the
efficiency of the full supply chain (ie, ‘Operational Excellence’)50.
Solution: However, to succeed in the new ‘convenience’ paradigm, traditional grocers need to completely change their mindset to
develop the discipline of delivering superior ‘Customer Intimacy’50. Grocers that excel in ‘Customer Intimacy’ are focused on building
long-term customer loyalty, tailoring their product offerings and having the operational flexibility to provide the reach that customers
are demanding (through more convenient locations and access to multiple channels)50. Figure 3 provides an illustration of the disciplines
discussed, which is consistent with Treacy and Wiersema’s “Value-Discipline Model” first published in the Harvard Business Review.
Figure 3 – Treacy and Wiersema’s Value-Discipline Model for traditional grocers, now and in the future50
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23Alex Goh
THE WAY FORWARD: KEY STRATEGIES TO MAKE ‘CONVENIENCE’ WORK
To effectively deal with the emergence of ‘convenience’, Australian grocers need to start adopting the following strategies:
• Redefine the meaning of a convenience format store within the framework of a geographically based
omnichannel strategy
There is definitely a role for convenience stores in the current landscape. These stores are necessary to provide customers with
access to stores in convenient locations. However, the format will need to be different to the format of a traditional convenience
store as we recognise it today. There will have to be a number of new convenience store formats, depending on where the stores
are located. For example, convenience stores in CBD locations would have a café, hot food counter and a variety of other food-
to-go options to cater to office workers. On the other hand, convenience stores in suburban locations would be equipped with
24-hour click and collect lockers and ‘automated convenience store’ facilities for emergency top-up purchases.
Figure 4 – Example of 24-hour click and collect lockers and ‘automated convenience store’ facilities
In addition, grocers need to develop a fully integrated geographically based omnichannel strategy to achieve the level of
‘convenience’ that customers are demanding. A strategy where ‘convenience’ online channels (eg, home delivery, click and
collect) would complement a network of traditional and convenience store formats to meet the specific needs of customers in a
geographical area. Figure 5 provides an example of how the omnichannel strategy can be implemented in the northern suburbs
of Sydney to give customers a fully integrated and truly convenient shopping experience.
Figure 5 – Example of an omnichannel strategy in the northern suburbs of Sydney
Joe Berry Awards 2015
24Alex Goh
• Realign success measures to be based on a ‘convenience’ mindset
To succeed in ‘convenience’, grocers need to change their success measures to one that is customer-centric (see figure 6 for
examples). This will ensure that grocers focus their efforts on providing to customers an engaging and convenient shopping
experience across all channels. The aim should be on maximising the overall share of a customer’s wallet. A siloed approach to
managing the performance of stores individually (often in competition against each other) will prevent grocers from embracing a
fully integrated omnichannel strategy.
Therefore, by realigning success measures to be focused on the customer, grocers will start managing all stores (and channels)
within a geographical area as one entity. Only one store manager would be required for a cluster of stores to ensure that there
are constant synergies among stores. Grocers will be focused on increasing the lifetime value of a customer in that geographical
area (eg, by retaining loyal customers and encouraging more repeat purchases across the entire network), instead of basing
decisions purely on the amount customers spend at any one store or channel.
Figure 6 – Example of customer-centric success measures necessary to succeed in a world of ‘convenience’
• Change buying and merchandising practices to give customers more of what they want
Many grocers still adopt a buying and ranging strategy that is based on product type and supply. For example, the store layout for
most grocers is still based on product-based categories, where cereals are located in a different aisle from milk.
Instead, to successfully deliver ‘convenience’ for customers, grocers need to be able to tailor their product offerings based on the
specific needs of customers in the locality and across formats. Initially, grocers will need to identify the customer segments in the
locality. Then, buying and ranging decisions should be tailored to each of the customer segments. Products that meet the needs
of one customer segment may not meet the needs of other segments. Any decisions on ranging, pricing and even promotional
activities should be based on improving one of the customer-centric success measures (see figure 7 for examples), with the aim
of ultimately providing customers with more of what they want.
Joe Berry Awards 2015
25Alex Goh
Figure 7 – Example of new customer-centric KPIs by customer segments for buying and merchandising
CONCLUSION:
The emergence of ‘convenience’ is definitely a major challenge to traditional grocers globally. The solution is not to blindly roll
out as many new format convenience stores as quickly as possible. As pointed out by Woolworths’ CEO Grant O’Brien at a
business leaders’ forum, “It’s a fact that a focus on efficiency and operational excellence can often relegate the customer to a
lower priority”51. The solution to the emergence of ‘convenience’ is “to reorientate the business to the customer”51. Grocers that
fail to fully understand what ‘convenience’ is from the perspective of the customer of today will most certainly be left behind in
the current, highly competitive, landscape.
REFERENCES
37. K. Carey. “Convenience stores in Australia, a revolution and more evolution”. 30 Oct 2012. Australian Food News.
38. K. Souza. “Wal-mart eager to test convenience store model”. The City Wire. US. 21 Nov 2013.
39. K. Jefford. “ALDI and Lidl to grab more sales from supermarket stores”. City AM. 21 Jan 2015. [Online] Available from:
www.cityam.com/1404175038/discounters-grab-more-sales-superstores [Accessed 21 Jan 2015].
40. R. Hegarty. “Tesco franchise for indie c-store ‘will be a game changer’”. The Grocer. UK. 6 Apr 2013, p4.
41. S. Langley. “Online giants go head-on into online groceries”. 8 Jul 2013. Australian Food News.
42. Barclays. “The battle for supermarket supremacy”. Barclays. 3 Nov 2013. [Online] Available from: wealth.barclays.com/en_gb/
smartinvestor/investing-ideas/battle-for-supermarket-supremacy [Accessed 21 Feb 2015].
43. A. Heber. “If This Job Ad Is Anything To Go By, Amazon Could Be Expanding Its Home-Delivered Grocery Service Into
Australia”. Business Insider. 8 Sep 2014.
44. B. Salt. “Woolworths Trolley Trends”. Prepared by KPMG. 28 Aug 2013.
45. P. Strang, C. Mead. “Changing cities, changing modes – transport choices for the 21st century”. Presented at the Australian
Institute of Traffic Planning and Management National Conference, Aug 2013. GTA Consultants.
46. C. Cummins, J. Sprague. “Woolworths, Coles to take on convenience stores”. Sydney Morning Herald. 6 Oct 2014.
47. S. Langley. “More men pushing shopping carts, but are brands and retailers adapting?” 5 May 2014. Australian Food News.
48. K. Conomos. “Neilsen 2012 convenience outlook”. Dec 2011/Jan 2012. C&I Magazine.
49. NAB Online Retail Sales Index, “In depth report – October 2014”. Published on 3 Dec 2014. National Australia Bank.
Joe Berry Awards 2015
50. The Enterprise Advocates. “The Tracey & Wiersema Value Discipline Model – Part 1”. 22 Feb 2012. [Online] Available from:
www.enterprise-advocate.com/2012/02/the-tracey-wiersema-value-discipline-model-part-1/ [Accessed 21 Feb 2015].
51. G. O’Brien. Media Release: “Grant O’Brien’s speech to the QUT business leaders forum”. Woolworths. 21 Feb 2013.
26Giulia Joliffe
Woolworths
Topic 4: Staff Incentives to Build Service.
Q. How can Australian retailers implement a
staff incentive scheme to improve service?
What incentive is used overseas? How should
Australian retailers manage the high base-pay
rate in this country? What should be the key
performance indicators (KPI) for staff?
Entrant Number: JBA-15-0297
Joe Berry Awards 2015
27Giulia Joliffe
TABLE OF CONTENTS
Executive Summary 29
Introduction: A service renaissance 29
Service incentives in perspective 29
A spotlight on overseas incentive programs: 30
Macy’s: ‘Everyday Magic’ 30
Marks & Spencer: ‘Spotlight’ 30
Building an effective staff incentive program 31
Conclusion 35
References 35
Joe Berry Awards 2015
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