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PRESENTATION TO THE AACS CONVENIENCE LEADERS SUMMIT MELBOURNE, AUSTRALIA NOVEMBER 29, 2012 Michael Baker © Baker Consulting 2012
Recognise the car? © Baker Consulting 2012 If the parents drove it, chances are good that the children will not want to
How do traditional retail formats measure up to a modern standard of customer-centricity? © Baker Consulting 2012
Food retail market share in the US © Baker Consulting 2012 FormatNumber of storesMarket share Traditional supermarket 27,26726, %40.1% C-stores144,130154, %15.1% with gas116,882125, %12.9% without gas27,24929,0412.4%2.2% Warehouse clubs1,2401,3317.4%8.5% Supercenters2,6963, %17.2% Dollar stores20,54324,5121.7%2.2% Drug stores19,86422,5344.9%5.5% Other17,28317, %13.4% Source: Willard Bishop
Lessons for small food formats © Baker Consulting 2012 If there are a lot of unprofitable stores it doesn’t necessarily mean the model is broken – fleet may need downsizing Don’t run with the same formula everywhere Rarely can you win on one attribute – convenience – alone. Need one of either price or service Product mix is just as captive to local market as any other retail format - one size does not fit all Some degree of product mix localisation is possible particularly in suburban locations In Australia, weak motivation to innovate by supermarkets will help keep opportunities open for others
The technology revolution © Baker Consulting 2012
E-commerce share of retail sales, 2011 Source: CBA, Citi Research, Baker Consulting, US Census Bureau, UK Office for National Statistics; © Baker Consulting 2012
Retail floorspace per capita, selected countries Source: Baker Consulting
Key technologies “Big” data - tracks, analyses and aggregates data from the consumer’s “digital footprint” enabling retailers to build sophisticated customer profiles and engage shoppers on a one-to-one basis analyse consumer behaviour to support operational decisions Cloud computing – outsources applications hosting and centralises data; e.g. inventory data across stores and warehouses that is accessible across channels Mobile commerce – configuring websites for mobile and facilitating location-based marketing to reward customers for coming into the store Optimisation technologies – pricing/markdown strategy, workforce management Supply chain integration – facilitates omnichannel retailing by integrating inventory and fulfillment across channels Mobile payment systems Mobile POS – enhances service, facilitates store redesign, improves shopping experience © Baker Consulting 2012
Key implications of the technology revolution for the role of the store The physical store is a key competitive advantage for omnichannel retailers, enabling them to interact with customers in a 360-degrees setting that is unavailable to online retailers facilitate the testing and visual inspection of merchandise by customers offer customers immediate gratification conduct e-commerce to capture higher in-store ticket act as a pick-up location for merchandise purchased online act as a fulfillment centre for merchandise purchased online Pure-play e-commerce retailers (e.g. Amazon) are seeking partnerships with companies such as convenience store chains that can provide them with an instant physical real estate footprint © Baker Consulting 2012
Sales staff are liberated from fixed POS stations by mobile devices and use these devices for product information price information, including comparison with other retailers product availability throughout the retailer’s distribution system mobile checkout e-commerce Mobile marketing tools will be used to communicate with customers’ smart phones and tablets while in or near stores, rewarding them for entry into the store with special offers tailored to a shopper’s known preferences Mobile technology critical to retailers as household penetration rises – Smart phones – 68% of Australians aged own one Tablets – 15% of households owned one at the end of 2011 but this number is expected to triple by the end of 2012 © Baker Consulting 2012 Key implications of the technology revolution for the role of the store, cont.
The store will be more exciting – but we’ll need fewer of them Australia’s e-commerce penetration currently estimated at 5.4% vs. 4.9% in the US and 8.8% in the UK Since Australian bricks & mortar retailers are late starters for technology adoption there is still substantial low-hanging fruit in terms of the ability to shift sales from stores to the internet If this is true, e-commerce penetration could plausibly catch up with that of the UK within 4 years (UK e-commerce penetration rose from 5.3% to 8.8% in the 4 years from ) E-commerce would reduce the need for additional retail space to about 1 million sq.m over this period This would equate to an annual growth rate in retail space of about 0.5% vs. historical average of 1.7% Despite slower growth, store closures by retail chains will create significant real estate opportunities at centres that are not “dominant” in their markets © Baker Consulting 2012
The outlook Australian retailers now have four lean years behind them but the structural transformation has a long way to run Consumers spending okay but preferring experiences to “stuff” Backlash against domestic mainstream retailers is real – people believe they have been ripped off E-commerce will continue to grow rapidly Internationalisation of the Australian marketplace will result in significant store portfolio rationalisation by domestic retailers, particularly in soft goods Real estate opportunities will gradually open up for retailers in sub-regional shopping centers Site acquisition will continue to be a limitation on retailers such as Costco, resulting in relative stability in the Australian food market for a longer period For c-stores slow growth can be expected without a significant breakthrough on regulatory hurdles © Baker Consulting 2012
Michael Baker +61 (0) (0) Follow on twitter Let’s open a channel © Baker Consulting 2012
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