Coriolis Chart Watch Q3 2003

Chart Watch is an online publication featuring a brief view into our latest thinking on the evolving food and fast moving consumer good industry. It is sent to subscribers four times per year.

Top Line: Australasian retailers are following the lead of international retailers, especially Tesco. The strategies of the major Australasian supermarket groups - Woolworths, Coles Myer, Metcash, FAL, Foodstuffs and Pick'N Pay - are imitations of those pursued by Tesco.

So what?  Is the phrase "innovative retailer" an oxymoron?   Can anyone name a single new concept or idea developed by a supermarket retailer in Australasia?  Why is this?  Is there a good reason?

In manufacturing, new product research involves laboratories, scientists and a large expenditure of money.  For example:

Two Procter & Gamble scientists developed the Olestra "fake fat" in 1968.  It took the company almost thirty years of development, FDA trials, government lobbying and hundreds of millions of dollars before it has a product on the shelf.  Unfortunately the product failed because of an embarassing side effect.

Supermarket retailing is nothing like this. In supermarket retailing, new product development involves getting on a plane, flying somewhere, and looking at a new supermarket.  Most ‘new’ ideas are just lifted from someone else.  Want to know what's new in supermarket retailing?  Here's your itinerary:

Wegmans   (Rochester, New York)

Tesco   (London, England)

Wal-Mart   (Bentonville, Arkansas)

Besides, not much new is happening in supermarket retailing.  The modern supermarket is the result of three innovations: self-service, the big box and the shopping cart.  Add in the UPC bar code scanner and that's everything you need to open a supermarket. 

Sure, there are bells and whistles.  Leading retailers around the world are investing hundreds of millions of dollars in IT systems.  But these don't change the shopping experience; they just make everything behind the scenes occur more smoothly at a lower cost.  Everything else is just different layout, signage and shelves, or adding new departments into the existing box.

In 1931, Harvard Professor Malcolm McNair proposed just about the only academic theory in retailing: the Wheel of Retailing.

"To venture a broad generalization, it seems to be a characteristic of new types of distributive enterprises that in the first stage of their development they gain a foothold primarily by means of low prices, in the second stage they "trade up" the quality of the merchandise carried, and in the third stage they compete by offering services."

Which brings me to the major Australasian supermarket retailers.  In answer to the question, no innovative retailer isn't an oxymoron.  However, to date most Australasian retailers have been so focused on building new boxes in an unsaturated market that they haven't needed to innovate.  But the days of opening new stores on green fields sites are fast coming to an end.  According to published reports, all the main groups are planning significant new store openings:

Woolworths   “15-20 supermarkets per year”

Coles     “plans for at least 150 supermarkets… over the next 5 years”

Metcash   “Opening 30 IGA stores in 2004”

Foodland   “8 to 10 Action stores for the foreseeable future”  

Pick’N Pay   “Double the number of stores” [currently 75]  

Foodstuffs   3 to 6 stores in 2004 (estimate)

Aldi     “At least 100 stores on the Eastern Seaboard”   

But clearly they can't all succeed. And besides, aren't there enough supermarkets already?  Isn't the market saturated?  So when they realise this, what will they do next?  Clearly they have to change the plan: now they need to innovate.

Tesco faced this problem a few years ago in the saturated United Kingdom market.   They couldn't build a new supermarket without doing something horrible, like knocking down a sixteenth century church.  So what did they do?

First, they increased the sales of their existing boxes:

They offered home delivery from the local supermarket for internet orders.

They offered fuel by building petrol stations in their parking lots

They increased their range of non-food and general merchandise

With changes in the law, they offered liquor and in-store pharmacies

They developed an in-store banking offer.

They began offering their customers mortgages and travel insurance

Second, they looked at new store formats.  In a short space of time, Tesco launched three new store formats: Express convenience stores, parking-free Metro stores on the High Street and Extra hypermarkets.

Third, they started to expand internationally.  Through acquisition and organic growth they entered eleven countries, most recently Japan, through the purchase of the C Two-Network chain.

As a manufacturer, wouldn't it be nice if you could predict what your supermarket customers are going to do next?  That way you could develop new product and promotional ideas today, for presentation tomorrow.  Well you can.  Just look at what Tesco has done. 

Now evaluate your current offer in light of where your supermarket customers are going.  Are your products in categories that fit with this vision?  Maybe it’s an item that sells especially well in a pharmacy or a convenience item for their petrol forecourt.  Because if it isn't, you're in trouble.  All this new stuff - liquor, fuel, general merchandise, pharmacy, banking, travel insurance, etc, etc – is going to have to go somewhere.  And if you’re in a tired old category that’s not showing any growth, that somewhere is going to come from you.

You can download our complete Overview of Key Australasian Supermarket Retailers here.  You can look into the future in the Tesco Annual Report here.

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