by Adam Hartung | Sep 30, 2014 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Web/Tech
Will the new Apple Pay product, revealed on iPhone 6 devices, succeed? There have been many entries into the digital mobile payments business, such as Google Wallet, Softcard (which had the unfortunate initial name of ISIS,) Square and Paypal. But so far, nobody has really cracked the market as Americans keep using credit cards, cash and checks.
But that looks like it might change, and Apple has a pretty good chance of making Apple Pay a success.
First, a look at some critical market changes. For decades we all thought credit card purchases were secure. But that changed in 2013, and picked up steam in 2014. With regularity we’ve heard about customer credit card data breaches at various retailers and restaurants. Smaller retailers like Shaw’s, Star Markets and Jewel caused some mild concern. But when top tier retailers like Target and Home Depot revealed security problems, across millions of accounts, people really started to notice. For the first time, some people are thinking an alternative might be a good idea, and they are considering a change.
In other words, there is now an underserved market. For a long time people were very happy using credit cards. But now, they aren’t as happy. There are people, still a minority, who are actively looking for an alternative to cash and credit cards. And those people now have a need that is not fully met. That means the market receptivity for a mobile payment product has changed.
Second let’s look at how Paypal became such a huge success fulfilling an underserved market. When people first began on-line buying transactions were almost wholly credit cards. But some customers lacked the ability to use credit cards. These folks had an underserved need, because they wanted to buy on-line but had no payment method (mailing checks or cash was risky, and COD shipments were costly and not often supported by on-line vendors.) Paypal jumped into that underserved market.
Quickly Paypal tied itself to on-line vendors, asking them to support their product. They went less to people who were underserved, and mostly to the infrastructure which needed to support the product. By encouraging the on-line retailers they could expand sales with Paypal adoption, Paypal gathered more and more sites. The 2002 acquisition by eBay was a boon, as it truly legitimized Paypal in minds of consumers and smaller on-line retailers.
After filling the underserved market, Paypal expanded as a real competitor for credit cards by adding people who simply preferred another option. Today Paypal accounts for $1 of every $6 spent on-line, a dramatic statistic. There are 153million Paypal digital wallets, and Paypal processes $203B of payments annually. Paypal supports 26 currencies, is in 203 markets, has 15,000 financial institution partners – all creating growth last year of 19%. A truly outstanding success story.
Back to traditional retail. As mentioned earlier, there is an underserved market for people who don’t want to use cash, checks or credit cards. They seek a solution. But just as Paypal had to obtain the on-line retailer backing to acquire the end-use customer, mobile payment company success relies on getting retailers to say they take that company’s digital mobile payment product.
Here is where Apple has created an advantage. Few end-use customers are terribly aware of retail beacons, the technology which has small (sometimes very small) devices placed in a store, fast food outlet, stadium or other environment which sends out signals to talk to smartphones which are in nearby proximity. These beacons are an “inside retail” product that most consumer don’t care about, just like they don’t really care about the shelving systems or price tag holders in the store.
Launched with iOS 7, Apple’s iBeacon has become the leader in this “recognize and push” technology. Since Apple installed Beacons in its own stores in December, 2013 tens of thousands of iBeacons have been installed in retailers and other venues. Macy’s alone installed 4,000 in 2014. Increasingly, iBeacons are being used by retailers in conjunction with consumer goods manufacturers to identify who is shopping, what they are buying, and assist them with product information, coupons and other purchase incentives.
Thus, over the last year Apple has successfully been courting the retailers, who are the infrastructure for mobile payments. Now, as the underserved payment issue comes to market it is natural for retailers to turn to the company with which they’ve been working on their “infrastructure” products.
Apple has an additional great benefit because it has by far the largest installed base of smartphones, and its products are very consistent. Even though Android is a huge market, and outsells iOS, the platform is not consistent because Android on Samsung is not like Android on Amazon’s Fire, for example. So when a retailer reaches out for the alternative to credit cards, Apple can deliver the largest number of users. Couple that with the internal iBeacon relationship, and Apple is really well positioned to be the first company major retailers and restaurants turn to for a solution – as we’ve already seen with Apple Pay’s acceptance by Macy’s, Bloomingdales, Duane Reed, McDonald’s Staples, Walgreen’s, Whole Foods and others.
This does not guarantee Apple Pay will be the success of Paypal. The market is fledgling. Whether the need is strong or depth of being underserved is marked is unknown. How consumers will respond to credit card use and mobile payments long-term is impossible to gauge. How competitors will react is wildly unpredictable.
But, Apple is very well positioned to win with Apple Pay. It is being introduced at a good time when people are feeling their needs are underserved. The infrastructure is primed to support the product, and there is a large installed base of users who like Apple’s mobile products. The pieces are in place for Apple to disrupt how we pay for things, and possibly create another very, very large market. And Apple’s leadership has a history of successfully managing disruptive product launches, as we’ve seen in music (iPod,) mobile phones (iPhone) and personal technology tools (iPad.)
by Adam Hartung | Oct 23, 2013 | Current Affairs, Defend & Extend, Food and Drink, Leadership, Lifecycle
On 11 October Safeway announced it was going to either sell or close its 79 Dominick's brand grocery stores in Chicago. After 80 years in Chicago, San Francisco based Safeway leadership felt it was simply time for Dominick's to call it quits.
The grocery industry is truly global, because everyone eats and almost nobody grows their own food. It moves like a giant crude oil carrier, much slower than technology, so identifying trends takes more patience than, say, monitoring annual smartphone cycles. Yet, there are clearly pronounced trends which make a huge difference in performance.
Good for those who recognize them. Bad for those who don't.
Safeway, like a lot of the dominant grocers from the 1970s-1990s, clearly missed the trends.
Coming out of WWII large grocers replaced independent neighborhood corner grocers by partnering with emerging consumer goods giants (Kraft, P&G, Coke, etc.) to bring customers an enormous range of products very efficiently. They offered a larger selection at lower prices. Even though margins were under 10% (think 2% often) volume helped these new grocery chains make good returns on their assets. Dillon's (originally of Hutchinson, Kansas and later purchased by Kroger) became a 1970s textbook, case study model of effective financial management for superior returns by Harvard Business School guru William Fruhan.
But times changed.
Looking at the trend toward low prices, Aldi from Germany came to the U.S. market with a strategy that defines the ultimate in low cost. Often there is only one brand of any product in the store, and that is likely to be the chain's private label. And often it is only available in one size. And customers must be ready to use a quarter to borrow the shopping cart (returned if you replace the cart.) And customers pay for their sacks. Stores are remarkably small and efficient, frequently with only 2 or 3 employees. And with execution so well done that the Aldi brand became #1 in "simple brands" according to a study by brand consultancy Seigal+Gale.
Of course, we also know that big discount chains like WalMart and Target started cherry picking the traditional grocer's enormous SKU (stock keeping units) list, limiting selection but offering lower prices due to lower cost.
Looking at the quality trend, Whole Foods and its brethren demonstrated that people would pay more for better perceived quality. Even though filling the aisles with organic
products and the ultimate in freshness led to higher prices, and someone nicknaming the chain
"whole paycheck," customers payed up to shop there, leading to superior
returns.
Connected to quality has been the trend, which began 30 years ago, to "artisanal" products. Shoppers pay more to buy what are considered limited edition products that are perceived as superior due to a range of "artisanal quality" features; from ingredients used to age of product (or "freshness,") location of manufacture ("local,") extent to which it is considered "organic," quantity of added ingredients for preservation or vitamin enhancement ("less is more,") ecological friendliness of packaging and even producer policies regarding corporate social and ecological responsibility.
But after decades of partnership, traditional grocers today remain dependant on large consumer goods companies to survive. Large CPGs supply a massive number of SKUs in a limited number of contracts, making life easy for grocery store buyers. Big CPGs pay grocers for shelf space, coupons to promote customer purchases, rebates, ads in local store circulars, discounts for local market promotions, sales volumes exceeding commitments and even planograms which instruct employees how to place products on shelves — all saving money for the traditional grocer. In some cases payments and rebates equalling more than total grocer profits.
Additionally, in some cases big CPG firms even deliver their products into the store and stock shelves at no charge to the grocer (called store-door-delivery as a substitute for grocer warehouse and distribution.) And the big CPG firms spend billions of dollars on product advertising to seemingly assure sales for the traditional grocer.
These practices emerged to support the bi-directionally beneficial historically which tied the traditional grocer to the large CPG companies. For decades they made money for both the CPG suppliers and their distributors. Customers were happy.
But the market shifted, and Safeway (including its employees, customers, suppliers and investors) is the loser.
The old retail adage "location, location, location" is no longer enough in grocery. Traditional grocery stores can be located next to good neighborhoods, and execute that old business model really well, and, unfortunately, not make any money. New trends gutted the old Safeway/Dominick's business model (and most of the other traditional grocers) even though that model was based on decades of successful history.
The trend to low price for customers with the least funds led them to shop at the new low-price leaders. And companies that followed this trend, like Aldi, WalMart and Target are the winners.
The trend to higher perceived quality and artisanal products led other customers to retailers offering a different range of products. In Chicago the winners include fast growing Whole Foods, but additionally the highly successful Marianno's division of Roundy's (out of Milwaukee.) And even some independents have become astutely profitable competitors. Such as Joe Caputo & Sons, with only 3 stores in suburban Chicago, which packs its parking lots daily by offering products appealing to these trendy shoppers.
And then there's the Trader Joe's brand. Instead of being all things to all people, Aldi created a new store chain designed to appeal to customers desiring upscale products, and named it Trader Joe's. It bares scance resemblance to an Aldi store. Because it is focused on the other trend toward artisinal and quality. And it too brings in more customers, at higher margin, than Dominick's.
When you miss a trend, it is very, very painful. Even if your model worked for 75 years, and is tightly linked to other giant corporations, new trends lead to market shifts making your old success formula obsolete.
Simultaneously, new trends create opportunities. Even in enormous industries with historically razor-thin margins – or even losses. Building on trends allows even small start-up companies to compete, and make good profits, in cutthroat industries – like groceries.
Trends really matter. Leaders who ignore the trends will have companies that suffer. Meanwhile, leaders who identify and build on trends become the new winners.
by Adam Hartung | Dec 10, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lifecycle, Television
Remember when almost everyone read a daily newspaper?
Newspaper readership peaked around 2000. Since then printed media has declined, as readers shifted on-line. Magazines have folded, and newspapers have disappeared, quit printing, dramatically cut page numbers and even more dramatically cut staff.
Amazingly, almost no major print publisher prepared for this, even though the trend was becoming clear in the late 1990s.
Newspapers are no longer a viable business. While industry revenue grew for
almost 2 centuries, it collapsed in a mere decade.
Chart Source: BusinessInsider.com
This market shift created clear winners, and losers. On-line news sites like Marketwatch and HuffingtonPost were clear winners. Losers were traditional newspaper companies such as Tribune Corporation, Gannett, McClatchey, Dow Jones and even the New York Times Company. And investors in these companies either saw their values soar, or practically disintegrate.
In 2012 it is equally clear that television is on the brink of a major transition. Fewer people are content to have their entertainment programmed for them when they can program it themselves on-line. Even though the number of television channels has exploded with pervasive cable access, the time spent watching television is not growing. While simultaneously the amount of time people spend looking at mobile internet displays (tablets, smartphones and laptops) is growing at double digit rates.
Chart Source: Silicone Alley Insider Chart of the Day 12/5/12
It would be easy to act like newspaper defenders and pretend that television as we've known it will not change. But that would be, at best, naive. Just look around at broadband access, the use of mobile devices, the convenience of mobile and the number of people that don't even watch traditional TV any more (especially younger people) and the trend is clear. One-way preprogrammed advertising laden television is not a sustainable business.
So, now is the time to prepare. And change your business to align with impending new realities.
Losers, and winners, will be varied – and not entirely obvious. Firstly, a look at those trying to maintain the status quo, and likely to lose the most.
Giant consumer goods and retail companies benefitted from the domination of television. Only huge companies like P&G, Kraft, GM and Target could afford to lay out billions of dollars for television ads to build, and defend, a brand. But what advantage will they have when TV budgets no longer control brand building? They will become extremely vulnerable to more innovative companies that have better products and move on fast lifecycles. Their size, hierarchy and arcane business practices will lead to huge problems. Imagine a raft of new Hostess Brands experiences.
Even as the trends have started changing these companies have continued pumping billions into the traditional TV networks as they spend to defend their brand position. This has driven up the value of companies like CBS, Comcast (owns NBC) and Disney (owns ABC) over the last 3 years substantially. But don't expect that to last forever. Or even a few more years.
Just like newspaper ad spending fell off a cliff when it was clear the eyeballs were no longer there, expect the same for television ad spending. As giant advertisers find the cost of television harder and harder to justify their outlays will eventually take the kind of cliff dive observed in the chart (above) for newspaper advertising. Already some consumer goods and ad agency executives are alluding to the fact that the rate of return on traditional TV is becoming sketchy.
So far, we've seen little at the companies which own TV networks to demonstrate they are prepared for the floor to fall out of their revenue stream. While some have positions in a few internet production and delivery companies, most are clearly still doing their best to defend & extend the old business – just like newspaper owners did. Just as newspapers never found a way to replace the print ad dollars, these television companies look very much like businesses that have no apparent solution for future growth. I would not want my 401K invested in any major network company.
And there will be winners.
For smaller businesses, there has never been a better time to compete. A company as small as Tesla or Fisker can now create a brand on-line at a fraction of the old cost. And that brand can be as powerful as Ford, and potentially a lot more trendy. There are very low entry barriers for on-line brand building using not only ad words and web page display ads, but also using social media to build loyal followers who use and promote a brand. What was once considered a niche can become well known almost overnight simply by applying the new dynamics of reaching customers on-line, and increasingly via mobile. Look at the success of Toms Shoes.
Zappos and Amazon have shown that with almost no television ads they can create powerhouse retail brands. The new retailers do not compete just on price, but are able to offer selection, availability and customer service at levels unachievable by traditional brick-and-mortar retailers. They can suggest products and prices of things you're likely to need, even before you realize you need them. They can educate better, and faster, than most retail store employees. And they can offer great prices due to less overhead, along with the convenience of shipping the product right into your home.
And as people quit watching preprogrammed TV, where will they go for content? Anybody streaming will have an advantage – so think Netflix (which recently contracted for all the Disney content,) Amazon, Pandora, Spotify and even AOL. But, this will also benefit those companies providing content access such as Apple TV, Google TV, YouTube (owned by Google) to offer content channels and the increasingly omnipresent Facebook will deliver up not only friends, but content — and ads.
As for content creation, the deep pockets of traditional TV production companies will likely disappear along with their ability to control distribution. That means fewer big-budget productions as risk goes up without revenue assurances.
But that means even more ability for newer, smaller companies to create competitive content seeking audiences. Where once a very clever, hard working Seth McFarlane (creator of Family Guy) had to hardscrabble with networks to achieve distribution, and live in fear of a single person controlling his destiny, in the future these creative people will be able to own their content and capture the value directly as they build a direct audience. A phenomenon like George Lucas will be more achievable than ever before as what might look like chaos during transition will migrate to a much more competitive world where audiences, rather than network executives, will decide what content wins – and loses.
So, with due respects to Don McLean, will today be the day TV Died? We will only know in historical context. Nobody predicted newspapers had peaked in 2000, but it was clear the internet was changing news consumption behavior. And we don't know if TV viewership will begin its rapid decline in 2013, or in a couple more years. But the inevitable change is clear – we just don't know exactly when.
So it would be foolish to not think that the industry is going to change dramatically. And the impact on advertising will be even more profound, much more profound, than it was in print. And that will have an even more profound impact on American society – and how business is done.
What are you doing to prepare?
by Adam Hartung | Feb 11, 2012 | Current Affairs, In the Rapids, Innovation, Leadership, Television, Web/Tech
Buy Facebook. I don't care what the IPO price is.
Since Facebook informed us it was going public, and it's estimated IPO valuation was reported, debate has raged over whether the company could possibly be worth $75-$100B. Almost nobody writes that Facebook is undervalued, but many question whether it is overvalued.
If you are a trader, moving in and out of positions monthly and using options to leverage short-term price swings then this article is not for you. But, if you are an investor, someone who holds most stock purchases for a year or longer, then Facebook's IPO may be undervalued. The longer you can hold it, the more you'll likely make. Buy it in your IRA if possible, then let it build you a nice nest egg.
About 85% of Facebook's nearly $4B revenues, which almost doubled in 2011, are from advertising. So understanding advertising is critical to knowing why you want to buy, and hold, Facebook.
Facebook has 28% of the on-line display ad market, but only 5% of all on-line advertising. On-line advertising itself is generally predicted to grow at 16%/year. But there is a tremendous case to be made that the market will grow a whole lot faster, and Facebook's share will become a whole lot larger.
At the end of January Proctor & Gamble's stock took a hit as earnings missed expectations, and the CEO projected a tough year going forward. He announced 1,600 layoffs, many in marketing, as he admitted the ad budget was going to be "moderated" – code for cut. While advertising had grown at 24%/year sales were only growing at 6%. He then admitted that the "efficiency" of on-line advertising was demonstrating the ability to be much higher than traditional advertising. In other words, he is planning to cut traditional marketing and advertising, such as coupon printing and ads in newspapers and television, and spend more on-line.
P&G spends about $10B/year on advertising. 2.5x the Facebook revenue. Now, imagine if P&G moves 10% – or 25% – of its advertising from television (which is now a $250B market) on-line. That is $1-$2.5B per year, from just one company! Such a "marginal" move, by just one company, adds 1-3% to the total on-line market. Now, magnify that across Unilever, Danon, Kimberly-Clark, Colgate, Avon, Coke, Pepsi …… the 200 or 300 largest advertisers and it becomes a REALLY BIG number.
The trend is clear. People spend less time watching TV and reading newspapers. We all interact with information and entertainment more and more on computers and mobile devices. Ad declines have already killed newspapers, and television is on the precipice of following its print brethren. The market shift toward advertising on-line will continue, and the trend is bound to accelerate.
Last year P&G launched an on-line marketing program for Old Spice. The CEO singled out the 1.8 billion free impressions that received on-line. When the CEO of one of the world's largest advertisers takes note, and says he's going to move that way, you can bet everyone is going to head that direction. Especially as they recognize the poor "efficiency" of traditional media spending.
And don't forget the thousands of small businesses that have much smaller budgets. Most of them rarely, or never, could afford traditional media. On-line is not only more effective, but far cheaper. Especially as mobile devices makes local marketing even more targeted and effective. So as big companies shift to on-line we can expect small to medium sized businesses to shift as well, and new advertisers are being created which will expand the market even further. This trend could lead to a much faster organic market growth rate beyond 16% – perhaps 25% or even more!
Which brings us back to Facebook, which will be the primary beneficiary of this market shift.
Facebook is rapidly catching up with Google in the referral business. 850 million users is important, because it shows the ability Facebook has to bring people on-line, keep them on-line and then refer them somewhere. The kind of thing that made Google famous, big and valuable with search a decade ago. In fact, people spend much more time on Facebook than they do Google. When advertisers want to reach their audience they go where the people are (and are being referred) and that is Facebook. Nobody else is even close.
The good thing about having a big user base, and one that shares information, is the ability to gather data. Just like Google kept all those billions of searches to analyze and share data, increasingly Facebook is able to do the same. Facebook will be able to tell advertisers how people interact, how they move between pages, what keeps them on a page and what leads to buying behavior. Facebook uses this data to help users be more effective, just like Google does to help us do great searches. But in the future Facebook can package and sell this data to advertisers, helping them be more effective, and they can use it for selling, and placing, ads.
Facebook usage is dominant in social media, but becoming more dominant in all internet use. Like how Windows became the dominant platform for PC users, Facebook is well on its way to being the platform for how we use the web. Email will be less necessary as we communicate across Facebook with those we really want to know. Information on topics of interest will stream to us through Facebook because we select them, or our friends refer them. Solving problems will use referrals more, and searching less. The platform will help us be much more efficient at using the internet, and that reinforces more usage and more users. All the while attracting more advertisers.
The big losers will be traditional media. We may watch sports live, but increasingly we'll be unwilling to watch streaming TV as the networks trained boomers. Companies like NBC will suffer just as newspaper giants such as Tribune Corp., New York Times and Dow Jones. Ad agencies will have a very tough time, as ad budgets drop their placement fees will decline concomittantly. Lavish spending on big budget ads will also decline.
Anyone in on-line advertising is likely to be a winner initially. Linked-in, Twitter, Pinterest and Google will all benefit from the market shift. But the biggest winner of all will be Facebook.
What if the on-line ad market grows 25%/year (think not possible? look at how fast the smartphone and tablet markets have grown while PC sales have stagnated last 2 years as that market shifted. And don't forget that incremental amount could easily happen just by the top 50 CPG companies moving 10% of their budget!)? That adds $20-$25B incrementally. If Facebook's share shifts from 5% to 10% that would add $2-2.5B to Facebook first year; more than 50%!
Blow those numbers up just a bit more. Say double on-line advertising and give Facebook 20% share as people drop email and traditional search for Facebook – plus mobile device use continues escalating. Facebook revenues could double up, or more, for several years as trends obsolete newspapers, magazines, televisions, radios, PCs and traditional thoughts about advertising.
If you missed out on AT&T in the 1950s, IBM in the 1960s, Microsoft in 1980, or Apple in 2000, don't miss this one. Forget about all those spreadsheets and short-term analyst forecasts and buy the trend. Buy Facebook.
by Adam Hartung | Jun 26, 2009 | Current Affairs, Defend & Extend, Disruptions, In the Swamp, Innovation, Leadership
"Retailers cut back on variety, once the spice of marketing" is the Wall Street Journal.com headline. It seems one of the unintended consequences of this recession will be forced consumer goods innovation!
For years consumer goods companies, and the retailers which push their products, have played a consistent, largely boring, and not too profitable Defend & Extend game. When I was young there was one jar of Kraft Miracle whip on the store shelf. It was one quart. This container was so ubiquitous that it coined the term "mayonnaise jar" – everybody knew what you meant with that term. Now you can find multiple varieties of Miracle Whip (fat free, low fat, etc.), in multiple sizes. This product proliferation passed for innovation for many people. Unfortunately, it has not grown the sales of Miracle Whip faster than growth in the general population.
Do you remember when you'd go to Pizza Hut and they offered "Hawaiian Pizza?" Pizza Hut would concoct some pretty unusual toppings, mixed up in various arrangements, then give them catchy labels. Unfortunately, what passed internally as an exciting new product introduction was recognized by customers as much ado about nothing, and those varieties quietly and quickly left the menu. Like the Miracle Whip example, it expanded the number of choices, but it did not increase the demand for pizza, nor revenues, nor profits.
Expanding varieties is too often seen by marketers as innovation. I remember when Oreos came out with 100 calorie packs, and the CEO said that was an innovation. But did it drive additional Oreo sales? Unfortunately for Nabisco, no. It was plenty easy to count out the number of cookies you want and put in a baggie. Or buy fewer cookies altogether in these new, smaller packages.
These sorts of tricks are the stock-in-trade of Defend & Extend management. Clog up the distribution system with dozens (sometimes hundreds) of varieties of your product. Try to take over lots of shelf space by paying "stocking fees" to the retailer to put all those varieties (package sizes, flavor options, etc.) on his shelf – in effect bribing him to stock the product. But then when a truly new product comes along, something really innovative by a smaller, newer company, the D&E manager uses the stocking fees as a way to make it hard for the new product to even reach the market because the small company can't afford to pay millions of dollars to bump the big guy defending his retail turf. The large number of offerings defends the product's position in retail, while simultaneously extending the product's life to keep sales from declining. But, year after year the cost of creating, launching and placing these new varieties of largely the "same old thing" keeps driving down the net margin. The D&E manager is trying to keep up revenues, but at the expense of profits.
Simultaneously, this kind of behavior keeps the business from launching really new products. The previous CEO at Kraft said in 2006 that the best investment his company could make was advertising Velveeta. His point of view was that protecting Velveeta sales was worth more than launching new products – and at that time the last new product launched by Kraft was 6 years old! Internally, the decision-support system was so geared toward defending the existing business that it made all marginal investments supporting existing brands look highly profitable – while killing the rate of return on new products by discounting potential sales and inflating costs!
This D&E behavior isn't good for any business. Consumer goods or otherwise. And it's interesting to read that now retailers are starting to push back. They are cutting the number of product variations to cut the inventory carrying costs. As I mentioned, if you now have 6 different stock keeping units (SKUs) for Miracle Whip in various sizes, flavors and shapes but no additional sales you more than likely have doubled, tripled or even more the inventory – and simultaneously reduced "turns" – thus making the margin per foot of shelf space, and the inventory ROI, poorer. Even with those "shelf fee" bribes the consumer goods manufacturer paid.
For consumers this is a great thing! Because it frees up shelf space for new products. It frees up buyers to look harder at truly new products, and new suppliers. The retailer has the chance of revitalizing his stores by putting more excitement on the shelves, and giving the consumer something new. This action is a Disruption for the individual retailer – pushing them to compete on products and services, not just having the same old products (in too many varieties) exactly the same as competitors.
This action, happening at WalMart, Walgreens, RiteAid, Kroger and Target according to the article, is an industry Disruption. It impacts the manufacturers like Kraft and P&G by forcing them to bring more truly new products to the market if they want to maintain shelf facings and revenues. It alters the selling proposition for all suppliers, making the "distribution fees" less of an issue and turning those retail buyers back into true merchandisers – rather than just people who review manufacturer supplied planograms before feeding numbers into the automated ordering system. And it changes what the manufacturer's salespeople have to do.
The companies that will do well are those that now implement White Space to take advantage of this Disruption. As you can imagine, it's a huge boon for the smaller, more entrepreneurial companies that may well have long been blocked from the big retailer's stores. It allows them to get creative about pitching their products in an effort to help the retailer compete on product – not just price. And for any existing supplier, they will have to use White Space to get more new products out faster. And get their salesforce to change behavior toward selling new products rather than just defending the old products and facings.
Markets work in amazing ways. Almost never do things happen as one would predict. It's these unintended consequences of markets that makes them so powerful. Not that they are "efficient" so much as they allow for Disruptions and big behavior changes. And that gives the entrepreneurial folks, and the innovators, their opportunities to succeed. For those in consumer goods, right now is a great time to talk to Target, Kohl's, Safeway, et.al. about how they can really change the competition by refocusing on your innovative new products again!
