Taking care of customers in store

Eat better. Live better.

Mama's Pies

Changes in SA Foodservice Demographic

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A customer is the most important asset a retailer has and they should therefore be at the centre of the retailer’s universe. Every retailer has a clear and expressive “customer centric policy” or a “customer satisfaction strategy” that is presented by executives at every opportunity. Putting it on paper is easy but turning it into a reality is something entirely different.

South African retailers have a sophisticated store infrastructure in place that is modern, well-run and aesthetically pleasing. European shoppers would find it difficult to believe that they were on the Southern Tip of Africa. It is clear that our retailers spend a great deal of time and money on the “hardware” aspect of the customer experience but neglect the “software” or personal aspect.

A retailer’s only direct contact with its customers is through the store’s floor staff. They have a powerful impact on the customer’s in-store experience, whether it’s positive or negative. Every shopper has a customer service story to tell and the vast majority of them are negative. That is something that needs to change. Most consumer goods can be bought at a competitor’s store for very close to the same price. This makes it near impossible to generate shopper loyalty based on price.

A great in-store experience is worth as much as a quality product. I believe retailers need to place more effort on the development, education and training of their floor staff to ensure that they deliver the best service to every customer, at every opportunity. It is crucial that staff realize their integral role in the retail experience and the influence they have on customer experience.

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The ample supply of a relatively cheap labour pool has long been an asset to South African retailers, until now they have been able to employ a large workforce (by international standards) while still being able to maintain healthy margins (again by international standards). An international FMCG retailer expects to operate on a margin of between 0.5 and 1.0% while in South Africa Retailers aim for between 4 and 6%, but that is a topic for another discussion.

The cost of labour in South Africa is increasing considerably and legislation is reducing the number of retailer friendly employment options, such as contract and casual labour. At store level, retailing is labour intensive and the cost saving potential is limited. However contemporary IT solutions provide a viable alternative to the traditional staff heavy approach. Small innovations, like electronic shelf labeling, can significantly decrease costs and improve productivity. Whilst full automation at store level is still a way off, retailers are prepared to invest in the right technologies to reduce the dependence on labour.

It is not going to be the store floor worker who will feel the impact for the race to reduce the overall employee cost. They are largely protected by unions and legislation, however we can expect a sharp drop in contract and casual work opportunities. The brunt of the blow will be felt in the management teams outside of the store.

In SA some retailers have done well to keep “non store” management costs low, but in other instances these costs appear to be substantially higher than the global norm. Centralization of management functions such as purchasing and logistics helps to reduce the management cost, but that’s not enough. As the overall costs of labour increase we will see pressure exerted by executives to cut management structures to the bone.

Whichever way you look at it, the retail industry does not look set to increase the number of people it employs in the near future. When you consider the valuable training, low level entry requirements and upward opportunities that retailing offers, you would expect Government to be bending over backwards to create an environment that would stimulate employment. In my opinion it should form the backbone of the nation’s job creation strategy. Instead we seem to find ourselves in a web of legislation designed to have the reverse effect.

For a concise summary of the amendments to the Labour Laws, click here.

  
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How valuable is the convenience format to South Africa’s major food retailers?

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There has been a great deal of hype around the Branded forecourt store ever since the first Woolworths / Engen store was launched in 2000, but in the 10 years since then the partnership has only managed to find 43 suitable sites and still do not distribute nationally.

I am not implying that there is not a space for convenience retailing in our market, it has been proven that the format works very well. I am simply warning against the over estimation of the size of the target market and the availability of suitable sites for stores.

Convenience retailing is a very specialist form of retailing and the costs associated with selling from a small store are often underestimated, especially if there is an aggressive store roll out plan. It is also difficult to find suitable sites and even more difficult to find operators who are able to make the significant investment and have the necessary retail skills to manage what is an intricate, hands-on business.

Pick n Pay and Fruit and Veg City have aggressive plans for the convenience format. They are both very good retailers and I have no doubt that they will execute the projects to their full potential. It’s the potential size of the market that remains to be seen. I don’t believe that retailers should be looking for their growth to come from the convenience format but perhaps a better question to ask is, can they afford not to participate in the sector.

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The 3 core principles behind Pick n Pay’s restructuring campaign, Consumer Sovereignty, Doing good is good business and Business Efficiency, are simple and straightforward and it follows that they therefore should be easier to affect and maintain. At the heart of the restructuring, as always with Pick n Pay, is the consumer and how their experience and interaction with the brand can be improved.

One the biggest changes is right at the top as the current Exco and Retail Management Board and Group Enterprises Board make way for a Group Executive consisting of accountabilities in Marketing and Sustainability, Buying, Operations, Supply Chain/IS, Franchise, Group Enterprises, Finance, HR, Transformation and Customer.

These are only the latest in a series of changes which began implementation in 2006. CEO Nick Badminton cites the most notable change as the fact that they are now a “more focused operation, having converted the Score stores to Pick n Pay and announced our intention to sell our Franklins operation in Australia.”
In addition, they have made substantial investments towards efficiency and sustainability. In terms of the latter, the retailer announced its intention to commit to zero waste to landfill by 2015 and dramatically reduce carbon emissions.

With regards to the sale of their Franklin’s operation, unfortunately the Australian Competition and Consumer Commission has chosen to oppose the proposed sale, claiming that if successful the deal would negatively affect competition in the retail sector. Furthermore they also cited an expressed interest in acquiring the Franklins chain by “unnamed parties.” Pick n Pay CEO, Mr Gareth Ackerman was surprised and disappointed by the decision and insisted that the sale of Franklin’s to Metcash would be in the best interests of Australian consumers.

Ackerman commended Badminton for his efforts and added that, “his restructuring is an important part of the total strategy of Pick n Pay. It positions us very well for the future.”

With all the changes in the pipeline it looks like Pick n Pay have a bright future however, some the sparkle may be lost if Franklin’s continues to weigh down the domestic giant. The sale would go a long way towards funding the extensive restructuring and without it said plans may have to be put on hold.

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South African retailers enter deflationary period.

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Defining Deflation
Coming off of an extended period of relatively high inflation, retailers are suddenly forced to contend with a new issue, deflation. What are the consequences thereof and how will retailers deal with this new obstacle?

An important distinction to be made early-on is the difference between disinflation and deflation. The former refers to a period during which inflation is still positive but decreasing over time. Deflation on the other hand, defines a period of negative inflation, i.e. Inflation is at, or lower than, 0%. Generally speaking, 2% inflation is regarded as a safe buffer against deflation.

Effectively what results during a period of internal deflation, is that the cost of keeping a SKU on shelf increases while its value decreases. This puts retailers in a difficult position as they literally cannot afford to drop prices to drive revenue. Furthermore, it may lead to consumers assuming that prices will continue to drop which in turn leads them to put off purchases, further exacerbating the situation.

Shoprite has managed to keep its head above water during increasingly trying economic times. Its turnover in the quarter ended September grew by 9.7%, and its core business, which includes the Shoprite chain, the U-Save Shoprite format and Checkers, grew turnover by 8.5% while internal food inflation averaged negative 1.5%. It has been a while since such negative growth has been experienced and it will certainly make efforts to stimulate turnover growth and increase gross profit margins more challenging.

Pick n Pay are facing similar problems as they admitted last week that “there had been significant pressure on the [their] margins as food inflation was below the growth in the consumer price index.” In August last year, internal food inflation was at 9.8% but has since fallen to 0.1%.

Although early signs are showing, it is yet uncertain if retailers are headed for full deflation. If the current rapid disinflation can be stemmed, it might be possible to disregard the former all together.


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