Monday, October 06, 2008
Name-calling
For the trade unions, ‘Walmartization’ bears as its identification tag union busting and social dumping. It is evidence of Darwinian theory hard at work. Directed at Woolworths (and, until recently, Pick n Pay), it is also SACCAWU’s battle-cry of the moment.
‘Walmartization’ is a bulky, but ambiguous label. One can add countless charges to the load. For me, the most outstanding flip side to the coin may be encapsulated in a single phrase: getting the best deal. By dint of its market size and power, Pick n Pay is able to drive supplier efficiency and pass the gains to consumers in the form of lower prices. And, in consumer terms, price carries great weight. Unlike the products of employee welfare or social responsibility initiatives, price is visible, tangible and verifiable.
What’s more, the cheapest goods – food and basic everyday necessities – are of the greatest value to the least affluent. Earlier this year, Pick n Pay introduced a subsidy on such items to help consumers counter the side-effects of food inflation, interest rate increases and rising debt. Whether that decision was inspired by altruistic sentiment or capitalist instinct is really beside the point.
Woolworths, which makes no bones about its higher LSM target market, has demonstrated that it is not immovable on price either. Indeed, following the publication of the retailer’s performance for the six months to June, CEO Simon Susman acknowledged that the retailers’ battle for survival had been reduced to a fight on price. And it is the retailer’s size that enabled it to adjust entry level prices accordingly.
It’s heartening to observe the industry players strategise, adapt and problem-solve. It’s a sign that competition is alive and well. And, when one considers that the typical behaviour of a predatory corporation is to cut prices in order to stamp out the competition - only to raise them again later - our ‘home-grown Wal-Marts’ seem to have more in common with relatives higher up the family tree.
New kid on the block
Having tucked its labour dispute into bed last week, Pick n Pay is powering forward and, well…downward. On Tuesday, the retailer unveiled its pilot C-format store - Pick n Pay Daily - at the Worldwear Centre in Johannesburg.
The convenience store is all about easy reach and time-saving. With its limited product offering and its emphasis on ready-prepared meals, fresh produce and grab-and-go drinks, the C-store is a product of the global retailer’s keeping pace with increasingly time-governed consumers for whom choice has become secondary to accessibility.
The supermarket shrink trend is particularly evident in the US. An article published in The New York Times this month bemoans the hassle that “miles of aisles” presents to the time-starved shopper who knows exactly what he wants as he enters the store. The figures abbreviate the story. For the first time in 20 years, the average grocery store size dipped - by some 38 000 square feet - in 2007, while the average grocery shop now lasts 22 minutes. The pulling power of assortment is clearly on the wane.
The C-store is a ‘smart’ stop whose limited product offering and easy-to-park-and-shop features enable the consumer to get what he needs when he needs it. And, according to research conducted by Pick n Pay, it’ll be the obvious shop-stop for the retailer’s core consumers in the higher LSM brackets, for whom several shopping trips a week is already a given.
Growing at approximately 14% pa, the convenience store format is the fastest growing segment in the retail market, but it’s also a risky time to downsize. Consumers’ ‘flight to value’ at the bigger store formats, as well as the smaller store’s higher staffing costs per square metre, cannot be ignored. Then again, at an average size of 850m2, and with a carefully balanced fresh food/grocery offering comprising some 6 500 product lines, Pick n Pay Daily may strike the elusively happy medium.
Either way, the newcomer will pose an interesting challenge to Woolworths, which has led the convenience store movement in South Africa and which has recognized the need to increase the size of its smaller franchise stores. Competition is always good news for the consumer and, with the Pick n Pay-BP joint venture to launch in November this year, Pick n Pay will be able to meet its rival at the critical forecourt level too.
The convenience store is all about easy reach and time-saving. With its limited product offering and its emphasis on ready-prepared meals, fresh produce and grab-and-go drinks, the C-store is a product of the global retailer’s keeping pace with increasingly time-governed consumers for whom choice has become secondary to accessibility.
The supermarket shrink trend is particularly evident in the US. An article published in The New York Times this month bemoans the hassle that “miles of aisles” presents to the time-starved shopper who knows exactly what he wants as he enters the store. The figures abbreviate the story. For the first time in 20 years, the average grocery store size dipped - by some 38 000 square feet - in 2007, while the average grocery shop now lasts 22 minutes. The pulling power of assortment is clearly on the wane.
The C-store is a ‘smart’ stop whose limited product offering and easy-to-park-and-shop features enable the consumer to get what he needs when he needs it. And, according to research conducted by Pick n Pay, it’ll be the obvious shop-stop for the retailer’s core consumers in the higher LSM brackets, for whom several shopping trips a week is already a given.
Growing at approximately 14% pa, the convenience store format is the fastest growing segment in the retail market, but it’s also a risky time to downsize. Consumers’ ‘flight to value’ at the bigger store formats, as well as the smaller store’s higher staffing costs per square metre, cannot be ignored. Then again, at an average size of 850m2, and with a carefully balanced fresh food/grocery offering comprising some 6 500 product lines, Pick n Pay Daily may strike the elusively happy medium.
Either way, the newcomer will pose an interesting challenge to Woolworths, which has led the convenience store movement in South Africa and which has recognized the need to increase the size of its smaller franchise stores. Competition is always good news for the consumer and, with the Pick n Pay-BP joint venture to launch in November this year, Pick n Pay will be able to meet its rival at the critical forecourt level too.
Consumption by credit
Woolworths and Massmart’s financial results for the six months to June – published last week – highlight once again the all-consuming character of the credit crunch.
Although Massmart delivered a satisfactory profit growth performance, the Group reported clear evidence of a consumer pullback. Not only has real Group sales growth dipped, but more and more customers are keeping their credit cards well beyond harm’s reach.
Top-end retailer Woolworths is especially vulnerable to the credit crunch. Bad debts have rocketed by 80%, and the retailer has had to hold back on extending new credit.
The retailer has observed a steady deterioration in its consumer spend since last September, and is responding with a distinctly defensive price and cost control strategy, reducing entry-level and basic goods prices to ensure competitiveness. That self-restraint is physically visible too – space growth objectives have shifted from C-stores to fewer, large format, full line food stores. The emphasis has landed squarely on value for money – for the retailer and its customers alike.
The discounted price approach has been less of a challenge for Massmart’s high-volume, low-cost, low-margin divisions, but their supporting promotional efforts have been no less vigorous. And my inbox proves it!
Of course, the higher up the consumption chain, the greater the risk of consumption by credit. Last week, mainstream clothes retailer Truworths reported a 66% growth in its bad debts.
Figures released by the Reserve Bank last week outline the full extent of the proverbial
iceberg. Households are currently using a disturbing 11% of disposable income to pay interest on debt while banks’ bad debts are growing at an alarming pace. There has also been a steep decline in the growth of household net wealth since the second quarter of last year. This month, debt counselling company Consumer Assist said that South Africa needs 2 500 more debt counsellors to service the needs of more than six million debt-beset consumers.
Retail may be on the back foot, but it has planted its other foot firmly in front. Massmart has been particularly vocal about life-beyond-the-tunnel. And, if Absa’s CEO is to be believed, the sector – and its supporters – will be on top of their game come the Soccer World Cup.
Although Massmart delivered a satisfactory profit growth performance, the Group reported clear evidence of a consumer pullback. Not only has real Group sales growth dipped, but more and more customers are keeping their credit cards well beyond harm’s reach.
Top-end retailer Woolworths is especially vulnerable to the credit crunch. Bad debts have rocketed by 80%, and the retailer has had to hold back on extending new credit.
The retailer has observed a steady deterioration in its consumer spend since last September, and is responding with a distinctly defensive price and cost control strategy, reducing entry-level and basic goods prices to ensure competitiveness. That self-restraint is physically visible too – space growth objectives have shifted from C-stores to fewer, large format, full line food stores. The emphasis has landed squarely on value for money – for the retailer and its customers alike.
The discounted price approach has been less of a challenge for Massmart’s high-volume, low-cost, low-margin divisions, but their supporting promotional efforts have been no less vigorous. And my inbox proves it!
Of course, the higher up the consumption chain, the greater the risk of consumption by credit. Last week, mainstream clothes retailer Truworths reported a 66% growth in its bad debts.
Figures released by the Reserve Bank last week outline the full extent of the proverbial
iceberg. Households are currently using a disturbing 11% of disposable income to pay interest on debt while banks’ bad debts are growing at an alarming pace. There has also been a steep decline in the growth of household net wealth since the second quarter of last year. This month, debt counselling company Consumer Assist said that South Africa needs 2 500 more debt counsellors to service the needs of more than six million debt-beset consumers.
Retail may be on the back foot, but it has planted its other foot firmly in front. Massmart has been particularly vocal about life-beyond-the-tunnel. And, if Absa’s CEO is to be believed, the sector – and its supporters – will be on top of their game come the Soccer World Cup.
Hard Stuff
The current inflationary environment is producing some mixed movements – amongst brands and consumers alike. Alcohol and tobacco products are showing themselves to be less discretionary than other non-essential items. Alcohol, in particular, is proving distinctly resilient in the face of an overarching consumer pullback. This says a lot about the power of the lifestyle choices that drive demand. But it’s also a function of circumstances.
One of the contributory factors to the ‘sin’ goods’ resilience is a shift from out-of-home to in-home consumption. Local restaurants and pubs have confirmed a decline in traffic which in its turn is partly attributable to soaring fuel prices.
But the hard stuff isn’t untouchable. Pick n Pay reports a downgrading trend within these product categories – from premium to mainstream, and from mainstream to economy. SAB, whose products are just as stable as food, have noticed the same tendency to trade down. Mainstream beer brands are performing exceptionally well, while premium and speciality products are slowing.
In the US, the inverse holds true. According to research published by Nielsen in July, higher priced brands like wine and spirits traditionally hold up better than lower priced ones during economic cycles. This is because there is enough strength in the upper income groups – who are more disposed to those products – to withstand the storm. Data collected from the major retail stores revealed a 5.4% increase in spirits sales in May, and a 9% increase in total liquor sales.
But, regardless of the intra-category differences, alcohol represents a needful - and somehow always affordable – luxury. And it’s ironically reassuring that these vice spends can be relied upon to buck national spending trends when the going gets tough.
One of the contributory factors to the ‘sin’ goods’ resilience is a shift from out-of-home to in-home consumption. Local restaurants and pubs have confirmed a decline in traffic which in its turn is partly attributable to soaring fuel prices.
But the hard stuff isn’t untouchable. Pick n Pay reports a downgrading trend within these product categories – from premium to mainstream, and from mainstream to economy. SAB, whose products are just as stable as food, have noticed the same tendency to trade down. Mainstream beer brands are performing exceptionally well, while premium and speciality products are slowing.
In the US, the inverse holds true. According to research published by Nielsen in July, higher priced brands like wine and spirits traditionally hold up better than lower priced ones during economic cycles. This is because there is enough strength in the upper income groups – who are more disposed to those products – to withstand the storm. Data collected from the major retail stores revealed a 5.4% increase in spirits sales in May, and a 9% increase in total liquor sales.
But, regardless of the intra-category differences, alcohol represents a needful - and somehow always affordable – luxury. And it’s ironically reassuring that these vice spends can be relied upon to buck national spending trends when the going gets tough.
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