“KKR, and their offer of $15.25, has gone - at least for 2006. If Coles fails to deliver on their profit target, we may see KKR, or another bidder, back with an offer that makes $15.25 seem very generous.”  Brandish 25 October 2006

The commentariat has Wesfarmers’ bid for Coles in deep water.  Stephen Batholomeusz has it in double trouble, Stephen McMahon has it teetering toward collapse and John Durie invokes an iceberg.

Coles is reported to be willing to walk away from the Wesfamers’ deal in its current form.  Chairman Rick Allert appears fixated on his belief that Coles is worth more than $17 a share.  The market is telling him that it is most definitely not.

When the Coles board met last week for two days, I suspected the lead agenda item was how to sustain the takeover.  The outcome appears to be that Allert is prepared to play a game of brinkmanship in his attempt to get a sweetened deal from Wesfarmers.

Having rejected the KKR $15.50 bid last October, Allert finds himself with a huge problem.  The sequelae of the sub prime mortgage contretemps has pushed world markets down and seems to have put private equity largely out of the Coles picture.  This, coupled with problems with Wesfarmers’ coal shipments and some market nervousness about the CGJ-WES nuptials, means Allert now has a bid from Wesfarmers that is worth a little more than $15.20 - and egg on his face.

Let’s get the imagery right here.  Allert might believe he can hold a gun at Wesfarmers’ head, but he is holding it against his own.  If the Wesfarmers deal falls over, Coles will be in deep double iceberg collapsing trouble with a share price in freefall.

Allert’s first duty is not to save his reputation; it is to his shareholders. 

Coles is worth what the market says its worth - nothing more.  Difficult as the lower value may be to accept, one thing is very clear.  Coles, including board, staff, institutional investors and mumndad shareholders have no option other than to accept the Wesfarmers offer – at whatever number the market finally decides it is worth.  

There is a glimmer of hope in a report that TPG may be interested in cutting a deal with Wesfarmers.  TPG, a private equity fund and owner of a large piece of Myer, has been in, around and out of the bidding for a while, either alone, with KKR or potentially with Woolworths, but eventually withdrawing without submitting a bid.  They may bring cash and management expertise to sweeten the deal and spread the risk.

Coles, along with its subsidiaries, is absolutely stalled by recent events. The company needs a new board and a large measure of new leadership to produce a level of stability that will allow the company to resume normal business. 

Footnote:  In February Allert announced the appointment of Mick McMahon as COO so that group CEO John Fletcher could oversee the bid process.  Tooronga insiders say Fletcher has been unsighted for weeks.  Has anyone seen Fletcher recently?

Disclosures.  Orex finds managers for Bunnings and my wife owns a small parcel of Coles shares - although now I should be saying that I am a boofhead for advising her not to sell them at $17.80.

Last week Adrian Williams of British retail analysts IGD spoke to members of the Australian Centre for Retail Studies and presented the IGD 2007 “Ten to Watch” list.  It covers retailers that lead trends and punch above their weight because of their value proposition, format excellence and impact on the market.  

The 2007 list includes:

• Amazon – an online brand diversifying all the way to grocery
• Biedronka – an ambitious Polish discounter with a soul
• Cook – which sells premium frozen ready meals to people in affluent leafy suburbs
• Deli de Luca – a Norwegian ultra urban city centre convenience concept with a strong food service focus
• Macro Wholefoods– an Australian organic retailer with a passion for product and customer engagement
• Migros – a Swiss market leader with an ethical focus
• Reliance – a fast growing Indian with a beautiful supply chain, aiming for 500 stores
• Shoppers Drug Mart – Canadian health and beauty retailer with a strong loyalty component
• Shoprite – the largest African retailer, across 16 countries
• Wawa – a US forecourt retailer specialising in food service

There are a number of common themes running through the world’s most watchable retailers, and they are themes that many more Australian retailers should embrace.

Premium and Added Value.  This is no longer a niche sector.  Baby boomers have led the growth in consumers’ interest in values & ethics, health & wellness, indulgence and luxury & convenience, resulting in opportunities for retailers who embrace these issues to engage their customers.  Examples are Cook and Macro.  Aldi and Spar; offers that entered the market in the discount sector, are moving into premium ranges.

Sustainability.  Not too long ago, many retailers regarded corporate social responsibility as a fluffy concept.  Food miles, taking care of the environment and being good corporate citizens were low on the agenda.  Customers now want to see, and be associated with, values and ethics.  On the Biedronka site you will read “No company can survive under a business model that is not socially responsible”.  A retailer’s habits regarding packaging and waste, carbon, energy, transport and water will impact on their success at an accelerating rate. 

All successful retailers have CSR statements, watch their energy use and are aware of the ethics of their carbon footprint, waste and sourcing.  Migros and Biedronka embrace sustainability.  Even Wal-Mart, the world’s largest retailer, and regarded by some as a monster, is a leader in this field, aiming for a tough target of 100% renewable energy and zero waste by 2010.

Format Innovation.  The boundaries between offers is blurring as consumers demand flexibility and immediacy.  Amazon, which started as a bookstore, expanded into CDs and DVDs, is now offering groceries, leveraging off their logistics systems and providing broader offers.  Is this the department store of the future? 

Deli de Luca has introduced noodles and other fast foods previously uncommon in Scandinavia.  In the other direction, some stores are aiming for extreme segmentation.  Happily Lady’s Convenience is the Japanese retail equivalent of Fernwood Gym, staffed by women and aimed only at female customers.  Kid Fresh (meals) has a similarly tight focus.

Branding.  Building an emotional bond and trust in the brand decommoditises the offer, lessening the impact of price.  However, the meaning of branding is shifting.  It is now more how the business relates to their broader community.  Macro understands how to build bonds between customers, the retailer and growers.

Retailers all claim to be customer centric, but unless they are good neighbours and active in communities, they will not be taken seriously and will not build trust. 

I think the mental response of many customers to the “You’ll love Coles” house brand is “No I don’t”.  The shift to house brands embraced by Coles and Woolworths will only work if they first create an environment with which customers want to be seen to be associated.  Without that, customer loyalty will never be deepened.

All retail markets become price driven unless other elements make the offer compelling.  However, there are at least ten companies in the world that understand how to avoid that trap.

In 1996, when Orex placed our first candidate* at Bunnings, their show was just getting on the road, having just opened their fifth big box store.  You know what Bunnings has grown to become – stores everywhere, sales approaching $5 billion and profitability you’ve got to love. 

Orex has found more than 500 leaders for Bunnings.  They include Buyers, Category Managers, Store Managers, Regional Managers and leaders in Property, HR, Marketing, and Loss Prevention.

Orex has helped Bunnings grow to become one of Australia’s biggest retail successes.

Bunnings has had a great working relationship with Orex Recruiters for the past ten years.  Orex has played an integral part in our growth by sourcing culturally aligned people to lead our support office and store teams and have assisted in the execution of our business strategy.   Orex has consistently acted on our behalf in both an ethical and professional manner”.

Martin Duffy
Bunnings Human Resources

Once upon a time, the Kwik-E-Mart (where a 50c stamp costs 89c and $20 worth of petrol is surprisingly expensive) was a money making machine. 

Once 24/7 trading became common for supermarkets, convenience stores found it tougher.  Where we would once begrudgingly buy fags, Weeties and milk from 7-Eleven or similar convenience stores, we now go elsewhere.  Although some C-stores do well, others are searching for their niche.

Australian C-stores take several formats - the 7-Eleven freestander, the servo forecourt, the FoodWorks mini supermarket or the vanishing local milk bar.

C-stores have limited assortments and small store layouts making finding and buying easier.  They save us time.  Recognising that they are losing some sales to C-stores, Tesco (UK) is putting quick shops – emergency fag and milk supplies - just inside the front door of giant supermarkets.  No need to walk all the way to the dairy case at the back and wait in an express queue that takes 10 minutes.

Much of US C-store retailing is about impulse and fast fresh food.  Wawa, a US forecourt retailer, is an innovator.  They sell petrol - plus quality food add ons.  The motorist can order a coffee (of which they have 16 types in 4 sizes) or a ciabatta, focaccia or sandwich from a touch screen attached to the bowser.  The food and coffee are freshly made while the tank is being filled and is ready when the fuel is paid for.  The Wawa food offer has become so successful that it now stands alone in some locations.

In Europe C-stores are also about food, but tend to be meal solutions of higher quality and price points rather than fast food.  Some newer Australian FoodWorks stores are riding this trend. 

Japanese convenience stores are very high service environments that vary the product offer by time of day.

In some markets, C-stores have become a local concierge, offering a broad range of convenience services.  Beyond the current ATMs and mobile phone recharges, they offer box office, dry cleaning drop off and pick up, digital printing of photos and documents, bill payment, pack, post and courier services and online shopping pickup points.

High staff efficiency, short queue times, self-checkout or self serve and vending machines all speed the sale.  New ordering and payment solutions involving mobile phones or the new Wave Visa will speed the transaction.

The increasing numbers of households where everyone is employed, the shrinking size of households and the shift to higher quality fast foods all play into the hands of the new generation C-store. 

Convenience stores can really only offer two things.  They can save time or they can save effort, and if the deal is good enough, customers will pay over the odds.  Expect them in Australia soon.

This article draws extensively on a presentation to members of The Australian Centre for Retail Studies by Adrian Williams of IGD Retail Analysis.

In a footnote, we now see life imitating Apu.  A dozen US 7-Elevens were re-badged as Kwik-E Mart stores this month as part of a promotion for the release of The Simpsons Movie.  Buzz cola, sprinklicious pink doughnuts and squishees walked out the door, and sales doubled.  It’s a fine example of the importance of experiential retailing.  Build it special, and they will come.

Are the brick-and-mortars that have materialized, hanging from the eBay empire, long for this world?  This interesting AuctionBytes.com story out of London suggests they may have some hurdles.

The story details one company’s decision to shut down its eBay drop-off stores and to focus on home collection efforts. “The company’s main demographic are busy professionals who don’t necessarily have time to visit Auctioning4u’s shops and prefer the company’s handy home collection service; they want collections from their homes and business at times and dates of their choosing.”

A handful of finalists competing for one of Melbourne’s most prestigious retail honours – The 2007 ARA and City of Melbourne Lord Mayor’s Innovation Award – will go head to head in a live panel session interview on day three of the National Retail Forum, 16 August, Melbourne Exhibition Centre Auditorium.

Celebrating the spirit of innovation and recognising exceptional contribution to the Melbourne retail scene, the 2007 Innovation Award finalists must demonstrate uniqueness in business concept, customer experience and display a visible point of difference.  The Awards are open to all retail companies or registered businesses with operations in the municipality of The City of Melbourne.

David Edwards, Executive Director, Australian Retailers Association (ARA) will question the finalists before a crowd of National Retail Forum delegates during the final conference session, entitled New generation retailers.

Among the judging panel of industry experts is Melbourne fashion designer and last year’s winner Harry Georgiou, Designer/Director of JASONGRECH.  Georgiou and business partner Jason Grech took away the prestigious award in recognition of their business’ innovative approach to delivering customers a complete, personalised styling service.

“What I’m looking for in this year’s Innovation Award winner is a clear point of difference, a company which can stand apart from the rest and clearly demonstrate a strong reputation in important areas of retailing such as customer service,” said Georgiou.

“In addition to the obvious prestige and credibility associated with the Award, recognition programs such as these provide important channels to reward retailers for the time and energy they inject into their businesses.  The National Retail Forum is a great platform to showcase the finalists as it encourages delegates and fellow Melbourne retailers to consider what they can do differently to improve their own business.”

Fellow judges participating in the Q&A panel session on 16 August include Scott Chapman, Director of Marketing, City of Melbourne; Richard Vines, Membership and Marketing Manager, Australian Retailers Association; and Fiona Snedden, Councillor, City of Melbourne.  

Nominations for the 2007 ARA and City of Melbourne Lord Mayor’s Innovation Award have now closed.  The judging panel will review nominees’ written submissions and announce up to five finalists on the 6th August.  The 2007 Innovation Award winner will be announced at the Immerse Yourself in Retail Awards Ceremony and Gala Dinner, 18 September 2007 at Crown Palladium, Melbourne.

The National Retail Forum will take place alongside Australia’s largest retailing exhibition, 2007 Retail Expo Australasia, 14-16 August, Melbourne Exhibition Centre.  The Australian Retailer’s Association (ARA) and the Australian Centre for Retail Studies (ACRS) are Conference Partners for the National Retail Forum.

For more information visit: www.retailforum.com.au or www.retailexpo.com.au.

The rough end of IR

My 19 year old son was working at a Melbourne restaurant that operated a function room.  It was a casual student job as a waiter and barman.  He was called in when they had work for him, and he worked about 8 to 12 hours each week.

He was earning next to nothing per hour.  Most of his mates who had similar jobs told him he should be earning $2 more per hour.   He asked his manager about this and was greeted with "prove it".

He asked me how he could learn what he should be paid.  I referred him to a government wage line.  It turned out, because of the bar work, he should have been paid $3 more per hour.  He went back to the manager with this information and asked for a pay rise, including the arrears.  He received the money without any fuss. 

Jubilant about what he saw as a windfall, he told a couple of colleagues.  Mistake.  They also went to the boss and sought recompense.

I suspect you are expecting to read that he was sacked for telling his colleagues. 

Nothing so crass happened, for this might have attracted an unfair dismissal claim.  His direct supervisor informed my son that, although he was one of the best members of the team, the owner of the business had told the supervisor not to give my son any more shifts.   He hasn't been fired, and technically he is probably still on the payroll.

He got another job in a restaurant run by some terrific people.  It was well paid and a positive & rewarding experience that he enjoyed for his remaining student period.
 
If that hadn't happened, he might have started his serious career believing all bosses are b*stards, and that would have been a pity.

Foodworks Mt Buller

FoodWorks Mt Buller has surpassed all expectations to ring in sales worthy of the largest, top stores in the FoodWorks network and see a customer count just shy of 11,000!

The 200sqm store recently enjoyed its first birthday, having opened on 9th June last year, and has now entered their second ski season, with the outstanding ongoing snow fall aiding their sensational results.

Serving from only three express checkouts, the store’s customer count and sales results are up over 50 per cent on the school holidays last year.

When designing the purpose-built supermarket on the mountain, FoodWorks Mt Buller storeowners, Michael and Tina Reddrop (owners of a total of five FoodWorks stores around north-east Victoria) had the goal of providing a convenient, unique and all-encompassing supermarket equipped to meet the grocery shopping needs of Mt Buller residents and visitors.  Throughout the design process, the Reddrops took onboard feedback, comments, requests and suggestions from mountain regulars.  The full-service supermarket is 50 per cent larger than the previous Mt Buller store and features 50m of state-of-the-art refrigeration, providing greater variety in frozen food, dairy, meat and fresh produce, and offers an extensive liquor department, featuring a beer cold room and wine refrigerators.

“After such a bad snow season last year, followed by the summer fires, it is great to have such an amazing season this year.  “We are thrilled with the recent sales results, but cannot rest on our laurels, as the hardest part is keeping the stock up and continuing to meet the needs of those coming up here to enjoy the mountain in all its glory,” Mrs Reddrop said.

In addition to traditional grocery lines, FoodWorks Mt Buller stocks hardware, games, newspapers, DVDs and other things to entertain the mountain visitors.

Considering last year’s sales results exceeded the Reddrops’ targets, the latest sales successes have truly astounded them.

Understandably, with limited space, the task of keeping the 200sqm (trading space) store’s shelves stocked during this exceptionally popular period is highly challenging.

Currently, with limited storage space, FoodWorks Mt Buller has two vehicles on hand to bring new supplies up the windy mountain, in addition to the nine pallets they receive twice a week, but even then it is still a struggle.

“Logistically, it’s very difficult, but we have an incredible team of staff up here on the mountain, and our staff off the mountain have also been a truly tremendous help during this busy time. “Honestly, I don’t think we could have done it without access to our other FoodWorks stores for stock and assistance,” Mrs Reddrop said. Chances are the FoodWorks Mt Buller team will not be feeling the chill too much this season with all the rushing about they’re doing to keep food on the shelves and provide for the local community!

Dream job- prevention not reaction

Build your career in OH&S.  Prevention not reaction.  This role has been created to take occupational health and safety and, in particular, incident prevention to a whole new level. Parramatta, NSW office and working with NSW stores for one of Australia's leading retailers. Contact Tracey Horton on Free call 1800 336 774 for details.

And here are some other retail management opportunities.

Snippets and briefs

• This Brandish is a little shorter and comes to you earlier because of a death in my family.  The next Brandish will be a bumper issue following the National Retail Forum.
• Fast fashion label Zara is more interested in speed than celebrity Zara.  They can have a line in stores within weeks of the concept development, and do it without help from Kylie, Kate, Stella or Madonna.
• This is how you take an old man's drink - whisky - and give it aspirational Gen Y appeal.  Take its baby boomer dagginess; link that idea to Boomers having the dollars and you have a formula that reads Chivas = wealth = lifestyle.  Even if you're from the boondocks.
• Just buys Smiggle, appoints new board members including Ian Dahl.
• House sold.
• Myer to open another eight stores by 2009.
• Harvey Norman to take on Officeworks.
• Dymocks buying Borders.
• Key menswear trends for spring 2008.