1. convenience leaders summit
Michael Baker
presentation to the
aacs
convenience leaders summit
melbourne, AUSTRALIA
November 29, 2012
© Baker Consulting 2012

2. Recognise the car?
If the parents drove it, chances are good that the children will not want to
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3. How do traditional retail formats measure up to a modern standard of customer-centricity?
© Baker Consulting 2012

4. Food retail market share in the US
Format
Number of stores
Market share
2006
2011
Traditional supermarket
27,267
26,345
44.1%
40.1%
C-stores
144,130
154,373
16.2%
15.1%
with gas
116,882
125,333
13.8%
12.9%
without gas
27,249
29,041
2.4%
2.2%
Warehouse clubs
1,240
1,331
7.4%
8.5%
Supercenters
2,696
3,609
14.5%
17.2%
Dollar stores
20,543
24,512
1.7%
Drug stores
19,864
22,534
4.9%
5.5%
Other
17,283
17,572
11.2%
13.4%
Source: Willard Bishop
© Baker Consulting 2012

5. Lessons for small food formats
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
© Baker Consulting 2012

6. The technology revolution
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7. E-commerce share of retail sales, 2011
Source: CBA, Citi Research, Baker Consulting, US Census Bureau, UK Office for National Statistics; © Baker Consulting 2012

8. Retail floorspace per capita, selected countries
Source: Baker Consulting

9. 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

10. 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

11. Key implications of the technology revolution for the role of the store, cont.
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

12. 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

13. 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

14. Let’s open a channel Michael Baker michael@mbaker-retail.com
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