Posted 04. 02. 2016
A thousand of retailers and their suppliers discussed options for market value increase at Retail Summit 2016. They agreed that neither retail, nor any other element of supply chain, can create value on the account of other partners. Deepening of collaboration in the whole chain of relations and implementation of win-win-win principle is thus vital.
More than a thousand of participants of Retail Summit, held in Clarion Congress Hotel Prague on February 1 to 3 2016, searched for the ways to bring back value into retail business. 120+ speakers and panelists in their presentations arrived mostly to similar conclusion: the retail value is created (or destroyed) in the whole supply chain, literally from the field up-to-do fridge. Retailers, or any other element of this chain, can create value on the account of other partners, including suppliers, customers or employees. In that context, Retail Summit 2016 focused on detailed discussion of value creation in the relation to all important stakeholders, from farmers up to shareholders.
Focus on the whole value chain
The point of view of retailers was presented by Marek Feltl, regional lead of IKEA – a company which has value creation philosophy anchored right in its strategy called People and Planet Positive: „IKEA strives for direct involvement of all people in the value chain and searches for new opportunities and solutions with the help of mutual interaction and based on shared values..“ Anne Leppälä-Nilsson, senior manager of an iconic Scandinavian retailer Kesko defined the success as reaching the harmony with big trends of social responsibility and with expectations of all parties interested in the chain of relations.
Right balance of the relations to key stakeholders is then of course also essential part of strategies of individual companies. AMAZON, global leader in the fast growing e-Commerce segment, gives maximal accent on customer relations. And never-ever looks at what are competitors doing …. O. Schmitz, European business development manager, explained to Retail Summit participants what AMAZON understands under customer obsession: „we start with the customer and work backwards to vigorously earn and keep customer trust”. AMAZON thinks long term and doesn’t sacrifice long-term value for short-term results. Important building block of this strategy is continuous innovation and also simplification - making things simpler is very important for customers.
Value for Customers
We must aim to deliver higher value for consumers – that message strongly resonated throughout the whole Retail Summit 2016. It was more than logical according to Tomáš Drtina (GfK), as “the authority is just shifting from the brand and retailer to shoppers.” Expert on retail value Kyle Murray (University of Alberta) nevertheless posted the warning about exorbitant focus on customer satisfaction which may lead to false strategic decisions. „Many customers like you. Some of them even love you. And some others do not like you, maybe even hate you. That is how it goes and you have to accept it. This is standard portfolio of a healthy company“. To reach success, you need to work with the whole customer portfolio. Many companies make the mistake of focusing just on satisfied customers, much less attention is then given to dissatisfied, disappointed customers. And that is unique chance for differentiation – namely in this area you can reach very interesting results and minimize the unnecessary losses.
Petr Křiklan (Nielsen) highlighted that increasing value is a „long-distance run”. Improvement can come only gradually as there is a strong history of shopping behavior and that causes strong inertia. Retailers are not focusing on homogeneous mass of shoppers anymore, individual players search for differentiation opportunities and target individual segments. Complete new types of customers are just shaping out and that is the chance to launch new formats, stores and services. As Petr Vyhnálek (Kolonial.cz) explained: „We are at the beginning of the search for new drivers and needs stimulating the shopping in various situations. E-tailers have immense advantage in this process because they have detailed and robust data on shopping behavior that make this search easier“. With all the respect to the complexity of today´s market, we should not forget what has been identified recently in Nielsen study. There are still very clear factors deciding about the success of the store, namely:
Cooperation between retailers and manufacturers
Retail is about trading value for money. The value is measured using different metrics – quality, accuracy, speed – though it can be also something a bit more sophisticated like ability to develop joint projects, to innovate, to support small or regional suppliers or to prevent from food wasting. The value is created through honesty, fairness, and ethics. For value creation, it is essential to possess an ability to listen to the other side of the table, to lead the dialogue, to search for the solution. Recently, European Fair Trade Practice has been created based on these principles. Czech IPFO (Iniciativa pro férový obchod) that was established last year, shares the same philosophy. Petra Buzková, Chairwoman of IPFO, presented the vision to build a platform for creation and growth of value and to be a tool for dialogue and settling of potential conflicts between manufacturers and retailers.
Significant improvement in retailers-suppliers relations are definitively not just a matter of national all-industry initiatives, it has to become the crucial part of daily business life of companies. In that area, a lot of work is in front of us as we got stuck in price wars, category commoditization and promo traps in last years. Some retailers and big manufacturers gained few short term victories but - seen from long term perspective - the value for consumers has been eroded. As Boyan Neytchev, Central European Director of Bel, declared: „If the consumer is not satisfied, everybody is losing in long term”. He presented a case study of Leerdammer brand how to revitalize the stagnating category. Manufacturer has to show various competences – not just the ability to cooperate with retailers but also to understand the demanding consumers, to implement meaningful innovations, effective in-store solutions and to create attractive TV and online content. Another essential measure is optimization of promotions. Tomáš Formánek (Logio) and Roman Zúrik (Kofola) have proven it with a help of an extensive analysis. It turns that retailers using price promotions less frequently and with better optimized portfolio of promoted products show better financial results in individual promotions and suffer less from cannibalization effect.
Another top representative of manufacturers, famous Czech entrepreneur Vlastislav Bříza of KOH-I-NOOR HARDTMUTH, stressed the necessity of relevant reaction to the changing consumer demand. In this context he mentioned especially e-Commerce, new ways to marketing and customer care. The story about digital revolution was heard from many speakers throughout the whole event, nevertheless the good old business values were remembered as well – and that is just perfect. Karel Pilčík of MP Krásno referred to them when presenting his corporate philosophy based on respect to the craft, family tradition and values of his forefathers tightly connected with the region.
Do not forget the farmers!
Retail Summit 2016 intentionally invited also the representatives of farmers to the discussion table and put the topic of their direct cooperation with retailers on the conference agenda, even several times. VŠE v Praze (the Economic University) presented the results of its research into 9 main agricultural commodities. Its findings are most interesting: in the course of the years 2007 to 2015, share of farmers, food processors/producers and retailers within the price determination stayed practically unchanged. Dana Zadražilová and Veronika Mokrejšová (VŠE v Praze) concluded that the research proofs ”the position of farmers in the negotiation within the supply chain stayed unchanged, in-spite of the implementation of the Law on significant market power.“ Unchanged is also the amount of unfair trading practices that farmers suffer from both retailers and food producers, the latter ones not being regulated by the Law. At the same time, 207 interviews with farmers documented that small and medium sized agricultural firms could strengthen their negotiation position not because of the Law but thanks to cooperation measures, for example associating into sales cooperatives. Possibilities of direct cooperation with retailers were then documented by Štěpán Chára (Bohemia Apple) and by joint presentation by Petr Chmelař (Globus) and Stanislav Štrympl (Zahrada Svádov). There is a strong evidence that retail can provide small farmers and processors with solutions and is able to support them when it comes to development of their logistics. Main focus is shortening of delivery terms, ease-up of commercial and contractual conditions and joint sales support.
Significance of human capital still not fully understood
One ambition of Summit organizers has not been properly fulfilled, namely the plan to show the key role of employees in the process of uplifting the retail value. Although the parallel session targeted on this topic was well visited and the discussion was fruitful, the share of business card holders with the title “HR Director” among the Retail Summit guests was marginal. One of important exceptions from this sad rule was Lucie Dostálová of McDonald's, presenting the new phenomenon - Employer Branding. In the times of strong economic growth, we are faced again with massive deficit of good employees and it is vital to build the strong brand not just for external world but also internally, towards the employees. Jan Hanuš, newly appointed MD of EMCO, added very clear message to that: „Let´s do our job in a simple and human way, without hiding behind forms and slogans on the wall. Human values are highly valued and unreplaceble even in the toughest business“.
Last but not least: shareholders value
Retail Summit 2016 has identified plenty of options in retail value increase. Obviously, this is great news for shareholders as value and profit are closely correlated; discussion lead by Tomáš Krásný of Blue Strategy has proven that. George Holst, investment banker from JP Morgan, has explained in detail how to create value for shareholders throughout the whole life cycle of a company. Each phase has its specific opportunities and challenges for the owners, management and employees. In start-up phase, customer offer is most important (differentiated and focused at top line growth). Later on, the corporate infrastructure (professionalization of supply chain organization and intensification of employee qualification) becomes the core task. In last phase, creation of model generating sustainable income is the priority. These building blocks create both internal and transactional value of a company. Owners need to monitor them all in order to be able to decide if and when the full or partial sale makes sense and what type of investor can optimize the shareholder value for all involved parties. Martin Tesař (Deloitte) presented then Value Map enabling to quantify the above mentioned approach to value definition and to test various strategy options. Oldřich Novák (TESCO) highlighted within the discussion round the need for balanced use of both financial and non-financial KPIs.
Key facts on Retail Summit 2016
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