Thursday, July 19

Why the Sainsbury’s/Asda merger is short-termist and simply dumb

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The old retail model is dying – consolidation merely postpones the inevitable

The news that UK supermarket Sainsbury’s and Walmart subsidiary Asda plan to merge may have been judged a great move by many analysts but it’s not. It’s short-termist. It panders mainly to the immediate shareholder value issues and, as so often happens, the customer – who holds the key to long term value and success – is insufficiently considered.

Sainsbury’s Chairman, David Tyler, has claimed this consolidation as the most “historic and pivotal move” they can make. History will judge this a short-sighted manoeuvre based on preserving a predominantly bricks-and-mortar player in an industry that’s dying on its feet – unless it changes significantly.

Vote with your clicks

If you’re a customer in a town where your supermarket options are Asda or Sainsbury’s ability get exactly what you want with minimised household spend (part of their model) will be limited. In addition, the time, effort, inconvenience and – in my case – sheer boredom involved will encourage me to search for other options. If you’re a customer in cyberspace you have more shopping options than you know what to do with. Its arguable that having 20 choices of grade, size, price and expiration date of a cherry tomato might add layers of complication and the illusion of control.

It might be simplistic to say that online will replace “offline” – the current low penetration of Amazon Fresh suggests that it will take time – because some elements of shopping remain resistant to online. This of course will surely change and as it does rapidly accelerate. Do you honestly see the bricks-and-mortar model being the same in 2025 as it is now? People who extrapolate based on prior behaviour might argue differently on the basis that the experience is not much different from 2011 but extrapolation arguments in a world of customer innovation opportunity are often TOTALLY wrong!

Yes, we’ve had online shopping for a decade or so and we still have plenty of physical spaces to go and buy stuff in so why panic? The trend extrapolators might have a point? Reality check: we’re already seeing the death of many high street retailers as they lose out to online operations so although the death of the high street has been a long time coming, it looks like it’s not only here but accelerating. The high street actually has a big part to play but not in its current guise. This is where customer success, experience and exposure to innovation plays a critical role.

Focusing on what I term customer success which consists of customer outcomes and related experiences (outcome and experience are different things) gets us away from this sterile “bricks v clicks” debate and opens up innovative new areas for growth.

My personal outcome for food shopping is to have my chosen fresh foodstuffs, delivered not only to my house but placed exactly where I want them in my kitchen. I don’t want to have to repeat my eggs, milk and bread order every time, but I do want the option to adapt it if I expect visitors. I don’t want to worry about being in the house when there is delivery, but I also want to ensure my property remains secure.

As a Customer Success expert, I know that there are many people who would want exactly the same, but I also know that there are a large number of variants – because we have levels of uniqueness which we expect to be actively considered. I am also aware that the distribution model for this type of shopping whilst lower cost than traditional bricks and mortar is still more expensive than say “click and collect”. For a few pounds reduction I might opt for a model which places my shopping in the boot of my car at a click and collect location such as a local petrol station.

Brick it

Does this mean the current bricks and mortar is redundant? Time will tell but I think that it does not have to be the case.

If I now live in a heady world where I don’t need to walk up and down an aisle why would I go to the “bricks and mortar” and spend?

What experiences around food would make you get of the house? Certainly, interacting with people and companies online will make many crave getting away from a screen – so what sort of experiences would make you move? Maybe it would be to experience something specific. Maybe it would be to learn something. Maybe it would be to better understand new ideas around nutrition. Maybe it would be meet your friends and do something. I certainly would not meet my friends to do a weekly shop, but I might go if a celebrity chef was doing a workshop which you could join in. Is that workable? Not sure, but I do know that a commodity process such as basic shopping will not be the domain of the high street but companies that offer the customer something different most certainly will.

You can start to think differently about the outcome and ask questions like:

  • How does the arrival of more intelligent devices change the ability to predict my demand for specific goods on specific days?
  • Could we use my social network to pick up shopping for me and automatically recompense them? (note that this could be of real benefit to people with mobility constraints)
  • What other delivery mechanisms might work? How can the principal online provider integrate with other local providers to optimise deliveries?

This is only a starter list – if I took a walk to the shops I might even think up some more…

Customer-centric strategy?

As Charles Bennett noted recently, building customer-centric companies is difficult, usually because customer-centric change must have a business case that stands up to scrutiny alongside other more concrete initiatives. When you get to the level of big strategic moves with tangible benefits (in Sainsbury’s case, assuming 73 stores can be offloaded, and other economies of scale realised) you realise just how far strategic thinking has to go to put the customer genuinely at the centre.

I’m hoping that somewhere in Sainsbury’s there’s a someone taking a creative view of what the future of retail might look like from a customer perspective and how the company might respond to it, but I’m not convinced. I think it’s more likely that the company will lurch, albeit elegantly, from one defensive manoeuvre to another – we’ve fended off the lower cost supermarkets (Aldi/Lidl) and we’re staying ahead of Amazon (for now, by removing one UK acquisition target from the game) – keeping analysts happy and, in the case of one senior executive, apparently staying “in the money”.

But it’s not the best outcome for customers and, ultimately, not the best one for the company.

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About Author

Business strategist, consultant and change manager who helps companies become genuinely customer-centric. Nick delivers customer-driven business transformation projects and has worked across many industries including banking and finance, insurance, telecommunications, industrial and public sector. Has held senior roles with variety of blue chip names including BT, Royal Bank of Scotland, CSC and Sema Group. Currently Head of Delivery at NextTen Innovation Solutions

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