News and Events
View our large collection of articles, events, media and interviews within.
View our large collection of articles, events, media and interviews within.
Traditional methods of distributing and selling products are changing rapidly. E-commerce channels have developed from small add-ons in distribution models, to often be the sole or primary distribution route as they now offer rapid and low cost channels to market with enormous reach to customers and niche segments. So the global marketplace now combines affordable and portable customer- based technology, such as iPhones, iPads and laptops with easy to develop online channels giving unprecedented transportability of business ideas and new options for market entry by new players or even by existing players looking for a new angle.
However the online concept is continuing to evolve as electronic displays and digital content now combine with smartphone technology.
Let’s look at the Australian supermarket sector as a case study. Supermarkets are traditionally large footprint physical stores, often being the anchor tenants for many suburban shopping centres. Around these anchor tenants are clusters of specialist retailers, many of them franchise branded stores. The supermarkets have evolved their techniques to attract shoppers to the store, with traditional marketing techniques around product range, price specials and bundling. In recent years the supermarkets have extended their reach by online channels, where customers can shop online and never have to set foot in the store.
With advances in smartphone technology and development of specialist phone apps, we arc now seeing greater customer adoption of online supermarket shopping.
The Financial Review article of September 10, 2011 looked at Coles and Woolworths phone apps that communicate specials to customers, categorise products to replicate the in-store experience and serve as customer loyalty tools. Let’s now go a step further and look overseas to see what could be the next evolution in online distribution for supermarkets and retail stores:
Large UK supermarket chain Tesco sought to enter the market in South Korea.
The major barrier to success was the strength of incumbent supermarket chains, so Tesco had to come up with something new. Tesco’s play was to use a new form of electronic display for its supermarket-based products and to place those displays in high foot traffic areas, recognising that local consumers were time poor, electronically savvy and high users of public transport.
The supermarket placed large electronic display screens (entire walls of them) along the walls of subway rail stations. This provided a captive market to people travelling on the rail system.
The displays were a visual representation of the traditional supermarket shelving so while customers were not able to touch and feel products they were able to see them displayed electronically in the same manner. In addition, price tags and barcodes were displayed below each product and customers could use a special app on their iPhone or SmartPhone to scan the bar- codes and purchase the goods.
So consumers no longer needed to go to the supermarket to do their shopping; they could simply scan and buy as they were running to or from the train. The model was so successful that in a short period of time Tesco achieved the number two market share position in its category.
What if the Tesco model came to Australia? More particularly, it’s not if, it’s when.
Provided the success factors of consumer convenience, speed of delivery and consumer adoption of the channel and technology are replicated then there are huge opportunities and threats for players in the Australian market.
It is conceivable that such a model may be adopted in the supermarket or similar retail spaces in the next few years. Putting aside the potential fade factors, the mere convenience of the distribution channel and method is likely to attract a large number of consumers from all generations. Even Australia’s grey nomads
and baby boomers have smartphones these days. As such this means the likelihood of fewer consumers using traditional supermarket stores is a likely outcome unless the stores themselves take on a new destination or experiential style of customer offer.
Following this to its logical conclusion, if fewer people are using the local supermarket then the supermarket owners no longer need large premises and footprints and in some cases may not even need the location.
With a shrinking physical supermarket presence, what does this mean for other tenants in the shopping centres or retail precincts that traditionally cluster around the anchor tenants such as supermarkets?
There are certain risk or threat issues to consider. What is the value in having a store in that shopping centre or precinct? What will happen to rents (theoretically rents should
be lower if there is less foot traffic in the centre due to lack of the key anchor tenant)?
If a franchisee signs a long term lease what risks arise if a key anchor tenant reduces its format or abandons a site? How should lease documentation be drafted to anticipate these possibilities and protect franchisees?
In terms of opportunities, this style of distribution opens up new ways for all sorts of retailers to promote and sell their products. Conceivably these scanand-buy formats like Tesco can and will come in all shapes and sizes and inevitably will be placed in a variety of destinations accessible to consumers. This will be an exciting new channel for retailers as it takes electronic channels from the online space to physical points of presence but through technology and digital content.
So, how would franchises use this form of technology and distribution? The pace of new channel development including online channels and other electronic channels means franchisors need to be constantly planning for these new opportunities and threats.
How do these channels fit with a traditional franchise model? How can they be harnessed to benefit both franchisees and franchisors? How do you take protective steps to defend against possible intrusion or new competitive forces?
A variety of strategic, operational and legal issues need to be considered in this new environment. For franchisors that typically construct their franchise model and legal documentation with a long term view, this can now become dangerous. If a franchise model is not flexible enough or quick enough to adapt to such changes then the customer proposition and distribution model can lose pace with market circumstance and prevent it from meeting customer needs and competing aggressively with new competitors.
Franchisors need to think about constantly reviewing the market developments and
how they apply to the franchise model and documentation. It’s important they stay tapped in to market information and interpret these developments for their business.
Potential franchisees, particularly those considering stores and leases in retail precincts, need to consider:
Larger landlords like Westfield still tend to hold the bargaining power and may do for some time yet, but as a business owner or franchisor there are now new circumstances emerging that require consideration and possible changes to approach and documentation. For fitouts, is your fitout flexible enough to adapt to Virtual wall opportunities and is the availability and price point commercially acceptable?
These changes will come in some format and across many industries and the businesses that anticipate and pre-position for the threats and opportunities will be the growth businesses of the next wave. Those that don’t do this will almost certainly place revenue at risk and possibly survival of their business.
DC Strategy is your business growth specialist. For more information in relation to franchising, please contact us:
growth@dcstrategy.com
Melbourne Office: 03 8102 9200
Sydney Office: 02 8220 8700
