NO SHORTAGE OF CHALLENGE
The management jargon would say that without change, there is no opportunity. Well, given the current situation in the food retail sector, there is clearly a great amount of opportunity! Indeed anyone working in the supermarket business, certainly cannot complain about lack of challenge. Increased competition, changes in consumer buying behaviour and greater focus on value have all had real impact and establishing future strategy is certainly not easy. Figures continue to show great fluctuations in the fortunes of different businesses and certainly the major supermarket concerns. If you are an investor, picking the winners is certainly not easy just at present.
Then we have inflation at almost zero in the last reports. Does this encourage spending or does it delay it, especially on luxury items? And what about pay costs? All the political parties, in the current campaigning period, are seeking to promise increased living standards so we all feel the impact of the strong economy and high employment. However is this possible, especially given the profit pressures in the food sector and that low inflation?
All of this, I guess, makes me feel glad that I myself am not now directly involved in executive management but yet perhaps it is really a good time. In my previous roles as a chief executive, I did espouse the adage that problems are only challenges leading to opportunities. Whilst certainly times of pressure, it can also be exciting. Previous rule books need to be modified and the risk factor increases.
Despite real fluctuations in profit reports, sales trends are less variable. In responding to the discounters and the change in shopping habits and shop visits, establishing price levels has never been so challenging. Price matching has its place but not if it forces prices to an unsustainable level. Consumers may enjoy lower pricing but if the long term result leads to an opposite effect, will they be so happy. The conundrum is, does the retailer focus on sales, profits, return on capital or all three? How important really in the current climate is growing market share?
All of this is easy for me to say as a commentator but certainly not easy for supermarket executives or boards who need to satisfy so many needs, not least those of shareholders. Whilst satisfying worried shareholders remains important, long term strategies need to reflect the very changed environment, looking at the long term, not easy in our world of modern media where every profit change or sale drop is immediately picked up and disseminated. We live in a world dominated by the demand for immediate responses and actions, not always the best policy.
There is no doubt that prices are falling across the sector at a high rate and how organisations respond and develop their plans is crucial. Key commodity prices have fallen, such as wheat, and we all know that oil prices have fallen. In such circumstances, not least in the battle for market share, prices continue to be cut increasing even more pressures on total sales figures and profits.
And in the midst of all this, we have the changes in shopping habits and the way consumers purchase. In a time of pressure, investment is needed in on line solutions and offers as well as in more convenience outlets to suit the changes. The phrase ‘customer is king’ is certainly correct now. Internet browsing and purchasing and the growth of discounters puts the shopper very much in charge. On line purchasing puts extra cost on the retailer in picking and delivering but they must respond. Establishing more convenience outlets puts more pressure on existing large stores.
I recognise none of this is news to anyone involved directly in the sector but it seems to me that we do need to get the wider message of such dramatic change to a much wider audience. As customers reap rewards of lower pricing, I am reminded of the Yorkshire comment (the place of my birth) that you ‘never get owt for nowt’. What is needed is the right balance. Fascinating and challenging times but where do they lead?