Articles

The Last Brand Standing?

While it now appears a consortium led by Kohlberg Kravis Roberts is leading the bidding to take over the Coles Group and break it up, it is just another step in the globalisation of major mass-market retail. A lot of so-called “smart money” is on both the Woolworths Group and Coles Group retail operations both ending up in foreign ownership within the next 12 months.

These once mighty “indepependent” Australian retailers appear to be just another battle in the international war for mass-market supremacy from retail super-brands Wal-Mart, Tesco, Aldi and Carrefour. There is no doubt that consumers will be better off after the dust settles. Better ranges; more modern stores; multiple formats; better prices; increased services. These are just a few of the advantages of becoming part of one of an international colossus.

But what does it mean for competitors and suppliers? A double-edged sword I’m afraid. The concentration of buying power and distribution means sharper margins, a lower cost of doing business for the power brands and price dominance. Suppliers will be squeezed on margin or lose share. Competitors will be smashed on price.

So what is the up side of the double-edged sword? There is massive opportunity in differentiation. The learning in almost every major market of the world is that eventually one player dominates on profit through volume. But the effect of the concentration of this player is that consumers segment into price led and value led behaviours. And in most cases, the value led is actually the bigger sales dollar and profit segment.

To survive you must rapidly and radically change your business model. This change in business model requires a rethink – no longer blindly driving top line growth but favouring instead a quest to build bottom line profitability through deeper customer and supplier relationships. According to Best Buy USA, retail models today have a shelf life of no more than 3 years. If this is the case, there are a lot of Australian retailers who have been living on borrowed time.

Regardless, with Tesco or Wal-mart or Carrefour or Aldi on the war-path, it’s time to change or suffer the consequences.