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Sandbox for the globe

Assistant Minister for Industry, Innovation and Science, Craig Laundy, recently stated in ABCs TV show Q&A that Australia should become “the sandbox for innovation” that will disrupt the world as we know it: “I would argue with 24 million people here we are the perfect test bed for the world’s technology. We could be a sandbox, they call it, and let overseas companies come here play and innovate.” A nice sentiment but where are we now and how can we get there?

The Australian FMCG industry trends often mimick similar European markets a decade ago, with Australian consumers sharing similar tastes, culture and behaviors. Currently, private label share in Australia is lower than in many European countries, however retailers are driving to increase private-label presence, a tactic they’ve used before. Aldi’s expansion in two states is no doubt expediting adoption of private label strategies across major retailers, which is driven, in turn, by major retailers hiring experience through European-trained retail executives. Pressure to compete with discounter supermarkets and private label has driven national brands to invest significantly into promotions, putting significant pressure on the industry.

Perhaps the most significant similarity, although much more recent, is the onslaught of online retail. While Australian retailers are playing with how their online service will look to the consumer, it is at an early stage of innovation. The disruption of Amazon’s arrival in Australia seems set to accelerate consumers’ move to online shopping. Interestingly this does offer an opportunity for Australia, as there is no lone digital adoption strategy. What we mean by this is clearly global markets are going in similar directions, but there are many different paths and some emerging markets are reinventing adoption stages previously experienced by established markets.

A 2016 study by Deloitte, “2016 Global Powers of Retailing”, shows that less than 20% of the world’s top 250 retailers operate on Australian soil. But will this relative unsaturation continue? I suspect not. Retailers already with a presence will look to expand while new entrants will look to capitalise on a stable economy, substantial government spend and robust consumer appetite for local and international household goods. Globalisation will force significant challenges for all in what will be perhaps the most disrupted and competitive of all market sectors.

If the Australian industry really is following trends seen in other markets, are we capitalising on it occurring during a time of increasing innovation or have we set ourselves a well-trodden path of bullish pressure down the supply chain and siloed identification of opportunities in innovation and efficiency?

Can we do something different? Does the timing mean we can adopt technology faster and more effectively than our European counterparts? Can we accelerate and position ourselves as a world leader in FMCG?

The question does remain though, are our supermarkets ready and willing to embrace change?

MANUFACTURING DECLINE AND INTERNATIONAL LEARNING

It’s no surprise that manufacturing in Australia has been in steady decline over the past 30 years. In fact, it currently accounts for around 7 per cent of total output and employment, a 50% reduction of from 1990. It could be said that manufacturing has been reduced to a remnant. The remaining industries have either found specialisms, those that need either little labour or a lot of energy, or they rely on customers who require proximity or immediacy such as FMCG. Defence contractors, and automotive assemblers and suppliers have been all but lost.

With this said, Australia’s food industry contribution to national manufacturing has increased by 30 per cent over the past seven years according to a new Australian Food and Grocery Council (AFCG) report. Tanya Barden, AFCG’s Director of Economics reiterates the contribution the sector makes to the economy at “a time when other manufacturing is moving offshore and being buffeted by internal and external economic pressures”. So if the sector is going nowhere how can we set ourselves up for success?

NECESSITY IS THE MOTHER OF INVENTION

While it may be true there are parallels between FMCG in Europe in 2008 and Australia today, the same cannot be said about the health, diversity and application of the technology sector. And while the emergence of Aldi and Amazon in Oceania may be a nuisance to some, the old adage seems relevant, “necessity is the mother of invention”. As the Australian FMCG industry is in the grips of forced change, should we be focusing on seeking a new direction rather than blindly following a well-trodden path?

Why Australia is set up to be the test bed for the globe?

  • Relatively small population with similar consumer habits offers global companies ability to test products with less risk to global brand damage
  • Where previously Australia suffered from a smaller talent pool, as the world moves to more social intelligence, online sharing and connection through IoT, solutions are available utilizing a global pool of specialists
  • High labour costs and large distances to cover with logistics ensure a drive to increase productivity and reduce waste to remain competitive
  • Increasing exports in a range of sectors proves that Australia can tap into global markets including China
  • Consumers want digital experiences. Millennials are embracing disruption technologies such as Uber and Airbnb, consumers value speed and convenience over the traditional bricks and mortar shopping experience.
  • Retailers showing signs of collaborative thinking, collectively working across the entire value chain to share financial benefits and remove inefficiencies and cost
  • E-commerce is still gaining significant momentum and continues to threaten brick and mortar businesses
  • Generous government generous R&D tax incentives, offering lower product and Technology development costs
  • Ever increasing presence of technology hubs across Australia creating a hotbed for innovative thinking and fueling the technology startup ecosystem
  • Growing start-up culture in other technology bases such as financial services.

WHAT CAN WE DO?

What technologies and products will emerge in the next 10 years within FMCG is anyone’s guess and any changes won’t happen overnight. However, it is important for leaders to ensure they keep on top of the changes occurring within the industry, challenge traditional business models and encourage adoption of innovation. Failure to do so will gift an opening to innovative global companies to potentially disrupt the category entirely.

 Create the desire for change

This is a time to empower individuals and promote innovation. Old solutions may become dated and redundant, new solutions are in. Empower the entire work force including younger Millennials to submit ideas and spread innovative thinking throughout the business.

 Embrace technology

As covered in Danny Van D’huynslager’s article, think big, start small and act fast. Open your mind to technology solutions and connectivity to reduce cost and increase efficiency across your network.

Collaborate

Build strong working relationships across the value chain. We are not talking about open book relationships, rather honest identification of synergies where financial benefits can be shared by all. Generally, the adoption of cost reduction programs is fairly mature within businesses, however have we the ability to take a holistic view, see our business as a process within entire value chain and understand the drivers which can deliver value to a wider collaborative group?

Nail the art and science of distribution

Globally some retailers such as Alibaba have moved to 24 hour anywhere delivery, innovation in distribution models are becoming common, where technology is the back bone making it possible. UberEats is a great example, it is a service allowing food to be ordered anywhere within a city linked to a distributed network of independent drivers. What’s to stop Uber from developing retail partners?

In her piece, Montia Broughton discusses the benefits of Vendor Managed Inventory. With the direction the industry companies should seek to collaborate, drive shared forecasting and reduce waste across the entire supply chain.

The potential for Australia to be the test bed for global innovation is enormous – we just need an FMCG industry ready and willing to change traditional modes of thinking.

Written by Oliver North and first publish by InsideFMCG – https://insidefmcg.com.au/toward-2020/