The two most common threats to big corporates can be ORGANISATIONAL and/or ENVIRONMENTAL.

 

As I’ve often said, “Companies don’t fail. Businesses don’t fail. Products don’t fail. Brands don’t fail… It is Leadership and Management that causes these to fail.”

 

In Woolworths case, their internal issues are their sheer refusal to believe that anyone outside their company knows anything worthwhile. It reminds me of the saying, “Only a fool knows everything” and Woollies, for all their admirable knowledge, expertise, and ability, are sailing 5º off course, right into the proverbial Titanic’s iceberg!

 

They stubbornly have refused the recent counsel of a previous CEO who has told the Board, that WOOLWORTHS has chronic “ABC Corporate Cancer” (a term coined by Warren Buffet that identifies the destructive combination of arrogance, complacency and bureaucracy). This is clearly observable when you consider their absence of strategic leadership in overcoming the long-running Coles Price war, their botched and re-botched Every-Day Reward loyalty programs, their high staff turnover in Marketing & Strategy personnel, and turnover of Chairman and CEO.

 

So THREAT No 1, the Denial in recognising the ORGANISATIONAL aspects of ABC, is sending WOOLWORTHS cascading towards disaster. They need to embrace a humility and adopt attitudinal shift to listening to and accepting external advice.

 

The often spruiked Einstein-quote of “Doing what you have always done, and expecting a different result is insanity”, might apply in the face of their diminishing success over the past 10 years.

 

Threat No 2 is an External One. WOOLWORTHS see Coles as their major competitor. While Coles struggles against WOOLWORTHS, Aldi is left to grow consistently at 7%+… Why can’t WOOLWORTHS see the writing on the wall, or at least the significance of this trend???

 

WOOLWORTHS (and Coles) have adopted the short-term, and brand corrosive pursuit of private label and house brands, at the expense of branded products. They have made enemies of FMCG companies that they should be partnering with to undo the generic attack on brand value. They should be encouraging brand equity development and new product development, and supporting brands in ways they never have than before.

 

Instead, they connive to squeeze what little is left in profits for their FMCG partners, forcing budgets dry, eliminating insights for NPD by research, or revenue for brand equity development.

 

So THREAT No 2, the Denial in recognising the ENVIRONMENTAL aspects of ABC, is undermining their own competitive advantage and market positioning, creating an industry and a market place that is becoming more willing to reject WOOLWORTHS as a preferred solution to its needs.

 

Inevitably, of course, the WOOLWORTHS Board will retire, fat on its Directors’ Fees. WOOLWORTHS senior executives will ‘migrate’ to other retail organisations, employed due to their position and political savvy, rather than their failure to save WOOLWORTHS, and WOOLWORTHS will become a company that older people “might remember”.

 

It the poor shareholders of WOOLWORTHS , the faithful investors who trusted the Board and senior executives, for whom I feel sorry; particularly when WOOLWORTHS could return to favour dominance and mega profits, by simply jumping form their self-imposed pedestal and holding cap in hand.

 

NB: WOOLWORTHS were offered a means of generating $400M is EBIT p.a. in 2007… and two senior executives individually approved the concept… but shuffles in management and politics… combined with insurmountable corporate arrogance quashed that concept regardless. Now they’re in trouble – go figure!

Greg Foran (President and CEO of Walmart USA, and ex-Woolworths employee) said Woolworths’ biggest weakness was the inability to change. This remains true.

Only with clarity of vision can Woolworths avert a future where Coles and Aldi become the duopoly, and Woolworths is remembered with the same nostalgia that baby-boomers remember Flemings.

The concept is best explained in my book, “The Four Faces of Marketing”, which has been endorsed by many within the strategic marketing community around the world: More simply explained in a picture, headed “The Hierarchies of Marketing”, on the web page…

http://www.launchengineering.com/marketing.htm

I believe the ONLY way Woolworths can be saved is from leadership at Board level… from a Board that can grasp and endorse strong strategic disciplines that will cascade down from very top to the very bottom of the organisational chart.

It’s no mistake that GE became the worlds largest company under the leadership of Jack Welch, with his insights into the 8P’s of Marketing… and the “scuttlebutt” is that WW is losing key executives daily!!! Given THESE EXECUTIVES, many of them toothless strategic ones, can see disaster coming; the Board needs to, too!

AS an ex-employee myself, I hold Woolworths in great esteem, and would hate to see that future rollout; but rollout it will without strategic direction NOW!

According to Wikipedia, the free encyclopaedia

Milton Friedman takes a shareholder approach to social responsibility. This approach views shareholders as the economic engine of the organization and the only group to which the firm must be socially responsible. As such, the goal of the firm is to maximize profits and return a portion of those profits to shareholders as a reward for the risk they took in investing in the firm. He advocates that the shareholders can then decide for themselves what social initiatives to take part in rather than having their appointed executive, whom they appointed for business reasons, decide for them.

Friedman argued that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders and that the shareholders in their private capacity are the ones with the social responsibility. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.

In the book, Friedman writes: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

The truth is that CSR-free businesses strive towards highest possible ROSF (return of shareholders’ funds). To do this they MUST focus on operational issues, ignore the implications and incidental costs of short-term returns over long terms position, and IF EMPOWERED, create win/lose relationships with trade partners (and even customers).

Friedman ignores two keys factors of the 8 P’s of Marketing – PEOPLE & POLITICS – the People who possess operational skills, don’t ‘get’ (or even understand) strategy. The politics of a Board of Management team that exercises OPERATIONAL strengths cannot embrace (or even grasp) STRATEGIC concepts, ideas, and approaches.

So Coles & WW have now commenced on their paths to self-destruction… two giants that DESERVE immortality, undermining their future. One is like a care with great power delivery to the rear wheels; just missing one of its front wheels… steering isn’t very good. The other is missing a rear wheel, it can only stay stable turning in a circular fashion on itself, in every widening and less efficient circles.

(If you doubt this at all, talk to Geoff Kennet, try and find a mission statement for Westfarmers or Coles, ask WW why they rejected a promotion to generate $400M p.a. in EBIT 8 years ago, because they were focused on ‘making’ Everyday rewards work, but now hang their hopes on squeezing more from suppliers, while taking more shelf space for private labels – the polices used by their abnormally high English executive team, who are applying the OPERATIONAL methods that have now damaged Sainsbury & Tesco.)

Both are building businesses for Aldi, and now Lidi… in the false race to short term ROSF while damning long term ROSF permanently. (See “Are WW & Coles sly Agents of Aldi”).

Mind you FMCG companies fell into the Corporate Arrogance trap decades ago (some are still there) and, had THEY had strategic insight and nous, they’d have control of the situation now, but alas… short term “Friedman” thinking undermined THEIR future, as well!

But CSR (Corporate Social Responsibility), or the lack of it, is NOT the issue, but only a symptom.

The REAL issue is strategic thinking vs operational thinking…. Strategic Management as opposed to operational Management… Panning for winning the war, not raining to win a single fight in a stand-alone battle.

Adopting the Hierarchies of Marketing, and embracing the need to create and maintain balance of power between OPERATIONAL and STRATEGIC thinking – mindful of the shareholder vs, stakeholder debate – is the reality that escaped Milton Friedman.

[Readers are invited to download my free e-book – “The Four Faces of Marketing – The Missing Link Between Marketing & Management” at http://j.mp/ALLmktg ]

Are WW & Coles Sly Agents of Aldi?

WW & Coles are chic, sophisticated efficient retailers – no argument… right?

They analyse return on store real estate, supplier efficiency, optimisation of promotions and deep dive into category workshops so they know more than national advertisers and international manufacturers about key categories.

Focussed on two variables

  1. Maximised return on shareholders funds, and
  2. Shopper satisfaction

WW and Coles may be reaching retailer nirvana…

Or are they building a road to disaster?

WW & Coles claim to be aiming for 30% of product to be house brands, own brands, or generics. In reality independent competitors believe up to 70% of Coles and WW shelves are no longer independent brands.

Their argument is that shoppers don’t mind… they just want ‘value’.

Fly Buys, Everyday rewards and “professional research findings’ are delivering the message that shoppers no longer demonstrate “loyalty’ to branded products.

OK, far too many weak, under-skilled FMCG companies have let brand equity dissipate, and deserve the resulting loss of audience loyalty and diminishing market share.

BUT, are Coles & WW just building a breeding ground for retail brand switching to Aldi?

Aren’t WW & Coles ’teaching’ shoppers to trust house & generic brands? Are not Coles & WW educating Australian consumers to find ample satisfaction by trusting the store, or the packaging, rather than the reputation and brand pride of a manufacturer?

20 years ago Aldi wouldn’t have found critical mass. The old Franklins proudly satisfied one third of the NSW grocery market by differentiating with a broader range of branded alternatives. What a shame that corporate arrogance and loss of leadership brought Franklins undone… but that’s history.

When FMCG possessed a passion for the science and depth of marketing strategy, brands BUILT retail chains, and consumers sneered disrespectfully at generics and copies of ‘real’ brands.

These days are gone. Coles and WW boast they are bringing ‘value’ to shoppers giving them exactly what they want in the form of private brands.

Coles and WW are “training” the Australian consumer to accept the Aldi model

So, while Coles & WW “train” the Australian consumer to accept the Aldi model, Aldi is quietly opening distribution centres, and doubling its stores, size and reach, efficiencies, marketing, and trade relations… having already won 10% of the eastern seaboard and looking for 20% national market share in the next 10 years.

Where will this come from? The shoppers WW & Coles have trained to look for ’value’ in house brands and lower prices!

Can Coles & WW Stop the Rise of Aldi?

Roger Corbett, on leaving the CEO role at WW said, “The biggest weakness for Woolworths is Corporate Arrogance.” If you try and help WW or Coles, their arrogant executives dismiss any suggestions that outside advisors could ‘possibly know better’. But they continue to employ ‘corporate profile’ that will follow the company line, and endorse “the emperor’s new clothes”.

Time will tell.

Meanwhile Aldi grows… with WW & Coles opening stores and ‘unsustainable’ growth rates… tactical actions in an environment that calls for blue ocean strategic assessment.

Let’s see what happens.

The following is a summary of my presentation at the 2012 FMCG Summit on Longevity, held at MGSM.

Every company must follow its mandate/mission/vision and derived corporate objectives: That’s the Board of Management’s job!

So why is everyone complaining that WW & Coles are making it hard? It’s their job to maximize profit…. and ours to help them! If we happen to make mega bucks in the process – good on us! If we get deleted in the process, we should only blame ourselves.

When marketing science reigned supreme, a very accurate and detailed segmentation study, including positioning map and competition analysis, was a yearly investment, but in the past decade, as pressure has been put on improving WW & Coles profits, operational managers have sacrificed long term strategic foresight, and stripped themselves of their most powerful ally – market segmentation knowledge.

[A show of hands at the Summit showed only 1 attendee had commission a new segmentation study in the past three years – now wonder FMCG marketers are losing bargaining power!]

Now that Woolworths, and Coles have the power of loyalty card data… data that is fast, statistically reliable, accurate, and consistent, FMCG marketers are going to be stripped of their knowledge assets, and buyers will become category experts like never before.

Buyers can now rebuild a category from scratch… deleting big brands, ranging new innovations, with assurance and confidence they have never had before… because they really KNOW their customers.

The only tool that FMCG markets have to battle is better, albeit different research.

Now, more than ever, we must see Coles and Woolworths as trade partners sharing common needs… satisfaction of the customer. FMCGers must discard the red ocean strategies of undermining competitors and fervently pursue blue ocean strategies that can be exposed by trend analysis from consistent, quality market segmentation studies conducted periodically and analyzed meticulously.

It is up to us to demonstrate to buyers that there is real and sustainable commercial advantage in ranging our products. The two basic tools are marketing effort, and positioning strategy, that together build the asset of brand equity and the outcome of significant market share.

Cynics will say this is easier said than done, but, with C-level support, it is almost easier done that said, IF we remember that the rules, laws, models and processes of professional marketing work (if applied properly) and FMCG markets simply cannot afford to shortcut on any.

 

Do this and we it is inevitable that you WILL follow your company’s mandate/mission/vision and derived corporate objectives in collusion with Woolworths and Coles instead of in spite of Woolworths and Coles.