Articles

To Bleat or Beat? That is the Question!

I found it fascinating listening to a well known media figure chastising the rent disparity between Woolworths and a butcher in a large shopping centre recently. He went on to state that if the rental costs were equal, the local butcher would “thrash Woolworths”. I am assuming he means that the butcher could offer a cheaper product than Woolworths if one of this particular butcher’s primary cost of doing business (CODB) inputs was the same.

There are two problems with this claim.

Firstly, the reality of CODB and rent scales. There is a very good reason that Woolworths rent is lower. It’s pulling power. The number one determinant in supermarket shopping market share is location. Woolworths can (and does) self develop mini-centres in local areas or stand alone supermarkets at a very low cost. Landlords actually have to price rent to lure them into their centres as – unlike many specialty retailers like butchers – Woolworths pulls foot traffic to it wherever it locates. The other retailers around Woolworths pay for the right to exploit the foot traffic generated by retail “anchors” like Woolworths. The rent is higher for this very reason and – just like Woolworths – any retailer has the choice to locate somewhere else where the rent in cheaper.

But of course they won’t have the benefit of the foot traffic generated by the “anchor” retailers like Woolworths and around the argument goes.

Secondly, why would any specialty retailer with half a brain think that they can compete with a profit through volume retailing colossus like Woolworths on price? Specialty retailers – in order to survive must recognise that their CODB (including but not limited to rent only) is higher and their opportunity is not low margin, high volume sales but rather high margin/low volume.

While one of the competitive weapons at your disposal is always negative propaganda, it sometimes gets so entrenched that it becomes a mantra and stops people thinking creatively about how to win. Execution in your business is within your control. External competitors and how they operate are not.

It is time to stop bleating and start beating.

A strong, vibrant and creative specialty retailing sector is what makes retail exciting for everyone. Specialty butchers can win by catering to a niche and dialling up immersion, engagement and service. Any area of specialty retailing can do the same. And guess what. International best practice suggests that when a differentiated, well-run specialty retailer locates immediately adjacent to his profit through volume competitor his sales and profit go up.

He doesn’t just survive he prospers. By playing to his strengths and the basics of specialty retailing he takes cheap price out of play and blunts the competitive impact of the major.

So, what are you going to do? Bleat or beat?