THE COCA-COLA RETAILING RESEARCH COUNCILS LEADERSHIP AND THE FUTURE OF

RETAILGlobal Retail Summit, Rio de Janeiro, August 2016

THE 2016

RETAILING RESEARCH COUNCILS GLOBAL RETAIL SUMMIT The first Coca-Cola Retailing Research Council was formed in 1978 in North America to help retailers address industry issues through organized discussion and commissioned research. Today, the Company sponsors six Councils throughout the world: North America, NACS North America, Europe, Asia Pacific, Latin America, and Eurasia, Middle East & Africa. Each Council is comprised of up to 20 retail leaders and non-voting Coca-Cola system executives.

Widely considered to be among the industry’s most prestigious retail think tanks, the Coca-Cola Retailing Research Councils have published more than 60 proprietary studies on issues ranging from shopper insights and new market dynamics to technology, innovation and social media.

THIS PUBLICATION IS A COLLECTION OF PAPERS PRODUCED FROM PRESENTATIONS AT THE GLOBAL RETAIL SUMMIT, RIO DE JANEIRO, 2016.

THE CONTENT PROVIDED BY EACH INDIVIDUAL CONTRIBUTOR IS OWNED BY THAT CONTRIBUTOR. ALL OTHER CONTENT IS OWNED AND COPYRIGHTED BY THE COCA-COLA COMPANY ©2016. CONTENTS

FOREWORD Muhtar Kent PAGE 2 THE FUTURE THE CHALLENGE OF CHANGE James Quincey PAGE 4

HOPE AMID THE TURMOIL Condoleezza Rice PAGE 7 TOMORROW’S CONSUMERS TODAY Marc Bolland PAGE 10 REAL-TIME RETAIL Dan O’Connor PAGE 13 THE FUTURE VALUE CHAIN Ethan Sinick PAGE 16 FUTURE CONSUMERS Carla Buzasi PAGE 19 LEADERSHIP ONE STEP AHEAD Ian Larkin PAGE 22 LEADERSHIP UNDER FIRE Stephen A. Miles PAGE 26 FOOD FOR THOUGHT PAGE 28 SUMMARY PAGE 30 LIST OF MEMBERS PAGE 32

CCRRC 2016 Global Retail Summit Report FOREWORD MAKING ‘We can give our people a real THE and lasting edge by encouraging DIFFERENCE and empowering sensible risk- taking. After all, doing things the way we’ve always done them is a well-worn path to irrelevance’

Muhtar Kent Chairman and Chief Executive Officer The Coca-Cola Company

etailing today is changing more rapid- the challenges of our time. up over yesterday’s missed opportunity or ployees, consumers and communities. ly than ever before, fueled by a potent Through the ages, retailers have always becoming paralyzed by the potential for a More and more of the people who rely on mix of applied technology, product been well served when they and their part- future misstep. us and our businesses are making purchase and distribution innovations, shifting ners maintain an acute and relentless focus Leading in this industry takes committed decisions based, at least in part, on the consumer tastes and an increasingly on consumer needs. This is even truer now, leaders at every level. And we can give our broader value creation story we are writing Rmobile, hyper-connected world. as consumer tastes seem to shift more quick- people a real and lasting edge by encourag- every day. Retail competition, meanwhile, is intensi- ly than ever, moving in tandem with the ing and empowering sensible risk-taking. Which brings me back to where I started: THE BEST LEADERS IN fying. It is intensifying within what we might unprecedented speed of web-based com- After all, doing things the way we’ve always leadership. And it brings me to a set of ques- PEOPLE THESE DAYS “ call the established retail community – and it merce, communication and social media. done them is a well-worn path to irrelevance. tions I ask myself all the time: am I looking “ THIS BUSINESS ARE is intensifying between that group of players Now more than ever, successful retailing In a rapidly changing retail environment, clearly at the world around us? Am I under- EXPECT A LOT OF and new competitors entering the market- demands leadership that’s insatiably cu- innovation becomes our competitive ad- standing the real contours of the consumer THOSE WHO TRULY place, often with disruptive approaches and rious, committed to continuous learning, vantage. To harness it, we must find new and landscape? Am I giving our people the lead- BUSINESSES AND LEARN FROM MISTAKES business models. eager to strengthen internal and external re- better ways to tap the creative genius of our ership and tools they need to help us keep the BRANDS THAT THEY At the same time, the promise of retailing lationships, and surrounded by good people people and our partners, whether in busi- consumer at the heart of all we do? is strong and growing stronger as the world’s enabled with the tools and freedom to make ness, government or civil society. KNOW, TRUST, LOVE MUHTAR KENT population expands, the global middle class the best decisions. People these days expect a lot of business- don’t always have definitive answers to AND ADVOCATE FOR ” increases and urbanization accelerates. es and brands that they know, trust, love and these questions. But I keep working on In such an environment, retail leadership he best leaders in this business are advocate for. And we as consumer goods the answers, and I keep asking them of has never been more important. This is true those who truly learn from mistakes, leaders have to step up and meet or exceed myself and those around me. MUHTAR KENT at every level of retailing, from the board- recover quickly and avoid making the the public’s rising expectations of us. Make no mistake: the opportunities ” room to the stockroom. And it is true for all same mistakes in the future. We should start with the foundational Iin retailing are vast and growing. They’re those who work with retailers. For years, I’ve encouraged our view that our businesses exist to create great- growing for you as retailers and for us as pro- Indeed, I believe that the only truly sus- Tpeople to remain ‘constructively discon- er long-term sustainable value. For those viders of the goods, services and experienc- tainable advantage in retailing today is lead- tent’. We don’t want to be discontent in a of us who lead public companies, we must es you make available to the world. ership. And we all must do our part, as lead- negative way – one that saps our energy and first create new value for our shareowners. In large measure, leadership will deter- ers and partners in this industry, to help each willingness to step out and lead. Instead, we But we can’t stop there. We must also create mine how far we are able to go in fulfilling the other grow and prosper with leadership that need to remain committed to continuous more value for a host of other stakeholders bright promise of retailing in this young and seizes the new opportunities and overcomes improvement, without beating ourselves too, including our business partners, em- boisterous century. 2 3 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report THIS GENERATION OWN THE CONVERSATION THE CHALLENGE BRAND CONVERSATIONS UP TO 70% ARE NOW 24/7 OF THE WORLD’S SPENDING OF CHANGE BETWEEN BUSINESSES POWER IN 2020 WILL BE AND CONSUMERS HELD BY MILLENNIALS Change means disruption, but also the chance to improve. Opening the Global Retail Summit, THIS GENERATION HAS James Quincey considered the main issues THEY ARE CHANGED GLOBAL confronting our industry CO-OWNERS EXPECTATIONS ABOUT OF OUR BRANDS WORK, CAREER AND FAMILY

THEY WON’T LOVE OUR BRANDS UNLESS ‘HAPPINESS’ THEY RESPECT AND TRUST IS THE OVERRIDING James Quincey President and Chief Operating Officer, The Coca-Cola Company OUR COMPANIES OBJECTIVE

razil is an incredible backdrop for million strong – about 18 percent of the total With brands, what used to be a one- trust in business is historically low, growth a discussion about leadership and population. way conversation is now a 24 hours a day, demands more than that. the future of retail. This nation is in By 2020, the global youth market will rep- seven days a week conversation between We now need brand love – the kind of love many ways a metaphor for a world in resent 75 percent of the available workforce businesses and consumers. Most of these we share with family and really good friends. transition. and account for 70 percent of the world’s conversations are taking place in the palms The Greeks gave us that beautiful word BWe see a large and growing youth popula- spending power. Even in the more mature of consumers’ hands. Mobile phones now agape. And it matters more than ever. tion, rapid urbanization, massive adoption markets of the West, we are going to feel this outnumber the population of the world, with In this time of instant communication, we of mobile communication technologies, youth bulge, and feel it profoundly. Indeed, more than seven billion units activated. need consumers who are avid supporters an increasingly powerful civil society and a at 70 million strong, America’s millennial The vast majority of today’s books, DVDs, – raging fans. We need them to be knowl- middle class that has grown from 68 million generation is the largest in US history. video games, electronics and computers edgeable advocates. That kind of personal THEY EXPECT ALL in 2003 to more than 115 million today. This generation has already influenced are already purchased online. In the next connection and affection is the true measure IN THIS TIME “ And with it all comes the social, economic two presidential elections, reshaped the decade, more and more clothing, office sup- of advantage for successful brands. “ OF US TO STEP UP, and political volatility that so often accom- nation’s media and communications indus- plies, health and beauty products, footwear Without question, all of today’s research OF INSTANT BE HEARD AND MAKE panies rapid change. tries and dramatically reset expectations and home décor will be sold online. shows that the biggest overriding objective COMMUNICATION, WE A DIFFERENCE All of these trends and changes, which are about work, career and family. for young adults is one simple but powerful playing out in nations around the globe, have Today’s youth care very much about the onger term, we are going to see a great- concept: happiness. NEED CONSUMERS significant bearing on the world of retail. world around them. They are hopeful and er shift towards even more grocery and Not surprisingly, we’ve seen a huge prolif- WHO ARE AVID They challenge us as leaders and they chal- optimistic. Unlike previous generations, household products researched and eration in recent years of media and public JAMES QUINCEY SUPPORTERS – ” lenge the businesses we lead. they believe business and government can – purchased online. attention given to the science of positive psy- Three areas in particular are influencing and should – play a significant role in making But buying habits are only part of chology. We see that some nations now even RAGING FANS my own leadership style and, I believe, the the world a better place. Lthe story. The way we build brands is also monitor Gross National Happiness. leadership style of many others in our indus- They expect all of us to step up, be heard changing in this digital and social age. What used to be the be all and end all – try. They are: global youth culture, technol- and make a difference – especially the con- The implications for all of us are massive. money and power – has been supplanted, at JAMES QUINCEY ogy and the changing landscape of today’s sumer goods and retail sectors. We have to be more aware than ever of con- least to an extent, by love and friendship. I ” consumers. They know our value chains reach into vir- sumer experiences and ensure that these believe this has an important bearing on our Consider the great swath of youthful 18-to- tually every corner of the world. They know are in harmony with our brand strategies. brands and the way our brands engage and 30 year olds who are quickly taking over the we have the resources, the influence and the As leaders we have to live in this youthful inspire people. world. This generation is moving to cities in skills to bring forth positive change. They’re world; so do our businesses. At Coca-Cola, an essential part of our record numbers. It’s a generation that was monitoring our every move. And they won’t This next generation own the conversa- consumer engagement strategy is to use our born digital – and one that demands change love our brands unless they respect and trust tion. They own the channels. And they are assets in innovative ways that allow our from all of us. our companies. co-owners of our brands. consumers to be an integral part of our story- This generation is nowhere more prev- Who we are is as important as, and in We used to talk about things like brand loy- telling and create their own stories. alent than in Brazil, where 18-to-30 year- some cases more important than, what we alty. Today, in a world where consumers are What are the questions that keep us awake olds, the so-called millennials, are now 35 produce. bombarded by products and messaging, and at night? For me, they are: 4 5 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report n How will all this new technology change we’re also investing more in research and shopper behavior? formulation around low-calorie, plant- n When will we reach a true inflection point based sweeteners like stevia. with e-commerce? It’s about putting the consumer and retail- n Do we have the right marketing mix? er first in everything we do. HOPE AMID n Do we have the right beverages in the We all know change is never easy. portfolio and in the pipeline? And the amount of change we’re seeing n Are we spending enough on digital, social in our business has come with its share of media, innovation and R&D? disruption. That’s inevitable. n Do we have the right operating structure But we also know that if we’re going to THE TURMOIL and the right people? win in the marketplace with our consumers WE NOW NEED n Are we creating a culture that is enticing to and retailers we have to create an internal BRAND LOVE“ – THE millennials and the next wave of youth? environment for our employees that is fun, KIND OF LOVE WE engaging, empowering and productive. Everywhere we look, it seems, we e have also shifted our business At Coca-Cola, we call this effort ‘elevat- see bad news – terrorism, civil war, SHARE WITH FAMILY model to a more consumer-cen- ing the employee experience’ – making our AND REALLY GOOD tric approach. Our consumers are company the best possible place to work. economic stress, social breakdown, telling us they are concerned about We’ve made some good progress, but there FRIENDS sugar and artificial ingredients. is much work ahead of us. freedom under threat. But there’s WThey are telling us they want more choice in Collectively, our companies touch more good reason for optimism too, insists beverages and in the serving sizes of those people and places every day than virtually JAMES QUINCEY Condoleezza Rice. This is a summary ” beverages. any business in the world. And I am sure the We’re taking these demands very serious- same kinds of issues face us all – structural, of her presentation ly. In fact, we’re moving away from volume marketing, business model and employee to a more revenue- and transaction-based issues. We are all dealing with this complex business model, one that offers a greater consumer and retailing landscape. Below: There is a new variety of package sizes, pricing and product But addressing these issues will require us complexity to the consumer and retailing mix. to learn more, stay curious, and never stop landscape that we all In addition to more emphasis on smaller trying to understand the changing trends need to address package sizes that consumers demand, that are shaping our world. Pictures: iStock

The 66th US Secretary of State and National Security Advisor, Dr Condoleezza Rice, is professor of political MILLIONS WERE LIFTED science at Stanford University and a senior fellow on “ public policy at the Hoover Institution OUT OF POVERTY AND PROSPERITY COVERED THE GLOBE

CONDOLEEZZA” RICE

e live in chaotic times. It sometimes across the globe. Some parts such as the feels not so much like one crisis af- Soviet Union remained isolated from it, but ter another as the breakdown of an it had tremendous pull – even China would entire system as we have come to become a major player in time. know it. Alongside free markets we saw free and WThat system grew out of the ruins of the peaceful peoples as democracy grew. Second World War, when the United States Now that system is under stress. From the and its allies determined they would build a day terrorists brought down the Twin Tow- better system than the one they had inher- ers in New York the world began to worry ited – one based on free markets and open more about terrorism. We live in a new secu- economies. rity environment. Into this brave new world came an inter- The economic shockwaves of 2008, which national monetary fund, re-establishing almost brought down the international exchange rate stability, a world bank to help financial system, are another worry. And as countries recovering from war, and a general homes lost value and people became long- agreement on tariffs and trade that wrote the term unemployed, the relationship between rules for an open trading economy. citizens and their governments began to It succeeded brilliantly. Millions were change. lifted out of poverty and prosperity spread People became more suspicious and con- 6 7 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report WHEN YOU THINK NEW TECHNOLOGIES ABOUT IT,“ THERE IS A ARE EMERGING“ THAT GREAT DEAL AVAILABLE WILL HELP TO SOLVE TO US THAT WAS NOT OUR PROBLEMS AVAILABLE IN 1945 CONDOLEEZZA” RICE CONDOLEEZZA” RICE

cerned about the loss of control to remote keep alive our open international economy. fantastic force. Then there is innovation. In innovation – human potential. authorities. Brexit – Britain’s decision to However, we have some arrows in our Silicon Valley somebody creates something Those countries that are most aggressive leave the EU – is a prime example. quiver. We have opportunities. When you every day to try to change the way we live. at developing the potential of their people The American election too is a story about think about it, there is a great deal available New technologies are emerging that will through good education for even the poorest identity; about a world that seems to be tak- to us that was not available in 1945. help to solve our problems. and through openness to immigration will ing away from people the relationships that be the countries that most succeed. are closest to them – family, clan, tribe and ake energy. The North American ener- ow we use technology is important, The US has succeeded because ‘we the nationality. As a result, we see governance gy platform, for instance, has changed though. We can, for example, use it to people’ was not an exclusive concept. It crises as people and their governments try to the picture dramatically. Clean ener- democratize education by enabling was not based on religion, class, nationality realign in a world without borders. gy sources are being developed too, children in remote areas to receive or ethnicity. You could rise from the lowest Some people are comfortable moving such as cellulosic ethanol in Brazil, and Top left: Pre-war trading the best teaching through online rung to become CEO of a great company. around the world, speaking different lan- Tthere is natural gas as well as oil throughout policies, protectionism Top right: The impact of Hlearning. If it is simply used to reinforce so- That is the model of citizenship that will and currency 9/11 has been far reaching guages and living and working anywhere the region. manipulation led directly Picture: Andrew cial stratification, however, more problems change the way countries operate. they choose. They are a global elite. Many An expanding middle class across the to the Great Depression Lichtenstein/Getty will follow. Ultimately, the things that are drawing others, however, have been left behind world is something else that didn’t exist at Picture: Shutterstock Images There’s one more element: human poten- people to clan or tribe will not last. Instead, by globalization and still cling to tribe and the end of the Second World War. With that tial. In the 19th Century what you could dig people will be drawn to the open concept of Right: Alternative nation. growth comes demand not just for consum- Left: The ‘global family’… out of the ground was the source of great- bringing in the brightest and best. Together but how representative energies form part of all So, we live in a complicated world – one er goods but also for education and freedom. are they? our futures ness. In the 20th Century it was industrial- they will make the world a more peaceful that is under challenge, with pressure to People’s desire for control of their lives is a Picture: iStock Picture: iStock ization. In the 21st Century it is creativity and and prosperous place. 8 9 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report RETAILING IN 2030 TOMORROW’S WHO WILL OUR SHOPPERS BE? CONSUMERS TEENS MILLENNIALS TODAY 10-19 YEARS 19-32 YEARS

They’re connected, they’re powerful. And by 2030 they’ll make up half of the global % % population. So any plans for the future of our businesses ought to start with today’s teens and 26 25 millennials, argues Marc Bolland 1.8 BILLION OF GLOBAL 1.7 BILLION OF GLOBAL WHEN WE LOOK AT POPULATION BY 2030 POPULATION BY 2030 TODAY’S TEENS“ WE SEE TRUE ‘DIGITAL NATIVES’ SOCIETY, CULTURE & VALUES MARC BOLLAND” SHIFT TOWARDS URBAN LIVING Marc Bolland began his career in the consumer n True ‘digital natives’ n ‘All about me’ goods industry with Heineken and is a former CEO of UK retailers Morrisons and Marks & Spencer. n Online self as important as real self n ‘My needs; my place; my time; my way’ He is a board member of The Coca-Cola Company n Cautious in light of recession & terrorism n No such thing as ‘best available’ ou cannot talk about the future of re- availability is all right. To millennials it’s not. tail without talking about the future of They expect choice and options, and they n Less judgmental on race, gender & n Personal happiness brands and consumers as well. want it immediately. There’s no such thing preference And when we think about our fu- as ‘best available’ in their language. n ture consumers we must start with Studies show they regard their personal n Short attention spans Success & career achievement important Ymillennials, the generation born in the years lives as important. They have high expec- n n up to and around the millennium. They are tations of success and career achievement. Want more face to face contact ‘Be real, be pure’ already powerful. I imagine most generations before them By 2030 they will account for some 25 per- would have said they sought success and cent (1.7 billion) of the world’s population. then also hoped to be happy. But I’m not sure LIFE TRAJECTORIES And with teens numbering 1.8 billion and I’ve come across a generation that puts per- representing 26 percent globally, they are set sonal happiness first. TRADITIONAL to make up half of the world’s population. Millennials also attach great importance LIVING GET MARRIED LIFE No cohort has been more closely exam- to authenticity. They say they need to see it LINEAR GET AN START HAVE CHILDREN WITH RETIRE EXPECTANCY ined than the millennials. Why? Because not only in people but also in companies. Be LIFESTYLE EDUCATION CAREER CHILDREN LEAVE HOME PARENTS BUY HOME 74 YRS they’re so different. Yet no one truly under- real, be pure, they insist. TRAJECTORY stands them – not even, I suspect, millenni- When we look at today’s teens we see true als themselves. ‘digital natives’. More even than millennials, GET AN START BUY COHABIT WITH What we do know for sure is that technol- teens have never known a world without EDUCATION CAREER HOME PARTNER ogy is big in their lives. They’re always con- digital technology. They don’t celebrate it – nected. On average they spend around eight they simply live and breathe it. Nor do they LIVING MOVE OLDER LIFE TRAVEL GET HAVE CHANGE hours a day online. celebrate innovation in the way we do: it’s POSSIBLE WITH IN WITH KIDS LEAVE RETIRE EXPECTANCY ABROAD MARRIED CHILDREN CAREER What drives them? Coca-Cola research just there, happening every day. It doesn’t MILLENNIAL PARENTS FRIENDS HOME 100 YRS?? talks about a progression from the ‘me gen- surprise them. TRAJECTORIES eration’ to the ‘all about me’ generation. Given the centrality of digital technology MOVE BACK COHABIT WITH GO BACK TO GET DIVORCED FAMILY Everything is more personalized. They seek in their lives, perhaps it should not surprise HOME PARTNER EDUCATION ADDITIONS to experience the world on their own terms – us then that an online identity is as import- LOOK FOR my needs, my place, my time, my way. ant to teens as a real-life one. SELL HOME NEW HOME As retailers we always say that 90 percent A few more points to make about teens: 10 11 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report first, research shows they suffer from what sustainability – and they will look online at has become known as FOMO – fear of miss- our businesses to see whether they really are. REAL-TIME RETAIL ing out. Second, they have short attention Are we ready for that? spans yet are prepared to ‘dig deep’ on sub- jects they care about. ooking ahead to 2030, what else do we They are more cautious too in some re- need to consider? For retailers, greater spects – cautious about the impact on their flexibility and a lower asset base will PLATFORMS IN lives of external forces such as terrorism and undoubtedly be important. Will the recession, for instance, but also about digital generations we’re discussing really security. In this respect, this means moving Lwant to walk through 70,000 sq ft stores? from mega-sites to smaller ones that are If you listen to what they say, they want more secure and carefully curated. choice but they really want to be shown the CHARGE? best and they want 100 percent availability. nlike millennials, teens are less judg- They still want physical stores but they also mental, more serious and more inter- want to get on and have fun. We know they ested in face-to-face contact, accord- are always connected too and so we will need ing to research. When we consider technology-driven stores as well. Over the past century we’ve witnessed three teens and millennials we also need to As employers we must also recognize that main development phases in the retail world. Ubear in mind differences in life trajectories. people want different career models. We I was probably 25 before I had a clear im- know from our research that teens and mil- Now, says Dan O’Connor, we’re about to enter a pression of what I wanted to be in life. At that lennials are not necessarily looking for a sin- fourth. Welcome to ‘real-time retail’ age, my idea of someone who was 65 was of gle career for life and in fact may not always somebody old, bald and not leading a very wish to commit to one for more than about active life. Indeed, life expectancy in those three years. days was 74 in the western world. The final issue is brands. We know that At that time, a journey of 40 years between teens and millennials love brands up to a 25 and 65 probably saw one mid-life crisis, point but are certainly less dedicated to them perhaps the break-up of a marriage, and than we are and are far less loyal. So, if we maybe a short career break before the start wish to build our brands we have to under- LIFE EXPECTANCY IS of a second career. stand what it is they look for most of all – hon- CLOSER“ TO 100, SO Today young people are more profound esty, quality and availability. about life at 18, or certainly 20, than I was at Above all, we need to remember that by THAT’S A ‘JOURNEY’ OF 25. Life expectancy is closer to 100, so that’s 2030 today’s teens and millennials will rep- Dan O’Connor is Founder and CEO of 80 YEARS a ‘journey’ of 80 years – time perhaps for two resent half of the world’s population. Teens RetailNet Group, which advises major mid-life crises and three marriages. will be around 30 years old and millennials brands and retailers on market trends How does all this relate to business? As approaching their 40s. They will be our core we have seen, teens and millennials expect customers with families of their own. hange is not necessarily what we the preceding and next generation business MARC BOLLAND” honesty from businesses and also a level of Best to start preparing for them now. would choose, but it is what we must model at the same time. lead. The speed and nature of change, There are three very visible generations UNDERSTANDING and the importance of making clear of retail across the world today and leading AND MANAGING“ THE choices, are on every industry exec- markets now are poised for the fourth. Cutive’s mind. Over time, powerful external MOVEMENT BETWEEN forces – societal, technologic, economic and THESE ‘EXPERIENCE’ political – can drive an industry through sig- OR ‘S’ CURVES ARE nificant growth and maturation cycles and CRITICAL LEADERSHIP picture pave the way for new business models at an accelerated pace. One good example of this RESPONSIBILITIES was the movement from DVDs to streaming GENERATION 1 video. After 10 years or more of the first gen- eration DVD rental model, operators such as BRANDS IN CONTROL DAN O’CONNOR Netflix had a very short time to move capital, ” people and capabilities to the next genera- tion business model. Leadership teams had to straddle both old and new generations while delivering financial results, engag- ing consumers and re-tooling their technol- ogy, distribution and people. Spotting, un- derstanding and managing the movement between these ‘experience’ or ‘S curves’ are Generation 1: Local trade, ‘mom and perhaps the critical leadership capability in pop’ independent retail operators are well the future. Operating between these genera- developed globally. Collectively these are tions is a world of and not or. Each succeed- highly fragmented, community based retail ing business model rarely substitutes im- ecosystems that control about 50 percent of mediately or entirely for its predecessor. It all retail. They compete through proximity, generally takes decades for the rotation to localization, credit, relationships and more. conclude. But the market-share gainers ‘be- Brands and distributors play a critical role. tween the S curves’ are almost always those Generation 2 – the often labeled ‘Wal- Left: ‘Always connected’ Right: Mary Evans who are well positioned for the future before Mart’ generation – created new economies Picture: iStock Pictures it begins – especially those who can operate by consolidating the fragmented local trade, 12 13 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report also known as ‘real-time retail’. Generation 4 is about reorganizing the industry value chain towards much more THE TALKING POINTS consolidated ‘value networks’ enabled by Summit delegates considered three questions large scale digital platforms. These plat- forms are the by-product of today’s consol- GENERATION 2 idation and integration of the fragmented digital marketplaces, intermediaries and WHAT DOES THIS DO WE NEED TO THINK AND HOW WILL WE RETAILERS IN CONTROL software enterprise operators. We expect MEAN FOR BEHAVE DIFFERENTLY AND/OR HIRE APPROACH THE that there will be below 100 and maybe as OUR COMPANIES? DIFFERENT PEOPLE? FUTURE CONSUMER? few as 25 of these large platforms by 2025 with which most consumers will engage. Traditional retailers, still representing Every new generation requires new strat- Where are the most critical consumer in- Few incumbent retailers will own one of some 50 percent of the industry world- egy, structure, systems, vocabulary and fluence and decision points? How will we these platforms. Therefore G4 will be about wide, are likely to be closer to their com- core people competencies. We must influence these to lock in our consumers? retailers and brands realigning their respec- munities and consumers and should accept that different career and reward Stores will remain important as they still tive competencies while integrating their make more of those ties. Recognize that models will be necessary. While every have the advantage of an economic ROI, own and others’ stores on to these large scale the G3 marketplaces are generally less company must be more flexible in the way proximity, consumer value, key ‘traffic creating and scaling new supply chains and platforms. These platforms (and consum- well placed to supply fresh and tempera- it recruits, retains and rewards the core drivers’ such as fuel, fresh and tempera- leveraging lower costs to improve prices and ers) will continue to evolve with new tech- ture controlled goods, which gives G1 and question is how to bring our existing orga- ture control, and we need to continue to market share. G2 retailers account for about nologies – robotics, digital bots/artificial G2 retailers an advantage. Who ‘owns’ nizations to the next generation skill sets. make the most of them. Also, the in-store TAKEAWAYS 30 percent of all retail today. intelligence, driverless delivery networks, the consumer in the emerging G4 envi- If it is the case, as suggested, that new de- experience is and can be an advantage The first moment Generation 3 saw the addition of online 3D printing networks, advanced genetics ronment, meanwhile, is as yet unclear mand generation models, last mile deliv- over on-line for many categories. Howev- of truth is no longer ‘marketplaces’ (eg Amazon and Alibaba) (life sciences) and more. and raises other important questions. ery and store solutions and analytics are er, consumers are changing. And we will in the store and is and ‘digital intermediaries’ such as Google For instance, where do shopper loyalties required how do we lead our people there? not be able to catch the likes of Amazon migrating to large- and Facebook to the G2 value chain. These lie – with the product or platform? Who And how do we blend our traditional skill- in terms of technology and scale so we scale marketplaces digital enterprises collectively came from owns the shopper data and who controls based teams with our new more digitally need to find out how to work in this new and intermediaries. outside the retail industry with no vested it? Where are the critical influence and de- enabled associates? How do we embed environment. Ultimately, consumers For the first time we interest in the previous generation business cision points? Additionally, should store the new vocabulary of ‘digital leadership’? are still looking for sense, sustainability will see a world where models or incumbents and as a result are based retailers integrate with a platform? and vision, and these can be provided in the platforms are leading the consumer, having a profound impact. As with previous Is proximity and the store experience still both the physical and digital worlds or as brands and retailers. generations these new digital players do not GENERATION 4 valued? How will we ‘re-scale’ our stores suggested in the G4 value networks with create new consumption; they are re-direct- to recover the volume that moved out of technology, stores and supply working in Retailers, brands, ing it. Driven by real-time data and analytics PLATFORMS IN CONTROL the store to a direct model? a highly integrated way. marketplaces and they compete with G1 and G2 for share of intermediaries will trips and spend through viewership, new de- all inter-connect in mand generation techniques, delivery and non-traditional roles more. Some 250 of these marketplaces exist TOP 2020 TECHNOLOGIES THAT ARE SHAPING to create new, non- worldwide, serving both B2B and B2C. They linear value networks GENERATION 4 – REAL-TIME RETAIL constantly add new capabilities to more with completely new economics, consumer deeply engage the consumer thereby raising experience and ‘switching costs’. The momentum globally While the evolution to G4 requires clari- SENSOR NETWORKS COGNITIVE ROBOTICS AND tempos. today is towards G3 and represents about 20 fication it is clear that complex leadership percent of all retail. questions arise. For example: CONNECTING COMPUTING AI AUTOMATION Each enterprise will All three retail generations are present in n Future consumer: What can I expect from have to decide how even the most developed markets today. my best customers? Where are the criti- • PRODUCTS • STORES • HUMAN TO MACHINE • ROBOTICS & AUTOMATION ‘real time’ they need However, shares are shifting and the time cal moments of influence? What matters • FABRICS • BUILDINGS INTERFACE • COMPANION ROBOTS to be. between generations is shortening dramat- most? ically, as is the movement from a 52 week n Market structure: How and when will my • HOME • CITIES • DIGITAL AGENTS • AUTONOMOUS VEHICLES planning approach to real-time interactions market change? Which store types will win? with consumers. n Value networks: How will retailer move • CHATBOTS • DRONES What’s next? The world is rotating again to become a platform based, technology towards the next generation, ‘G4 retailing’, company with stores (vs store based with some technology)? How will supply chains change? How will retailers ‘re-scale’ what are now fragmenting (not consolidating) supply chains? How will local retail op- BLOCKCHAIN erators integrate, partner and align with ARTIFICIAL LIFE MOBILE specific marketplaces? Which retailers will REALITY SCIENCES NETWORKS ride on which of the digital platforms? GENERATION 3 n Managing between the inter-genera- • VIRTUAL REALITY • RNA / DNA • SMART • UBIQUITOUS tional S curves: How do we position be- CONTRACTS CONSUMERS IN CONTROL tween the generations? How do we bring • AUGMENTED SYNTHESIS CONNECTIVITY our people along? REALITY • BITCOIN • MOBILE DATA n Control – who is in control? In essence, G1 saw brands in control, G2 put retailers in SPEEDS (5G) control and G3 has consumers in control. With G4 it will be the platforms themselves in control as consumer switching costs and barriers to entry increase. Pictures: iStock 14 15 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report THE FUTURE VALUE CHAIN FUTURE VALUE NETWORK AT THE HEART OF THE CHAIN

The latest vision of the value chain incorporates previous industry consensus and puts consumers at the center of new opportunities for retailers. Ethan Sinick examines the possibilities TAKEAWAYS As retail markets evolve and most retailers end up investing in multiple models, it is important to identify the value chain possibilities for each generation of Ethan Sinick is Research Director of the Coca-Cola retail channel that you Retailing Research Councils of Eurasia, Middle East & may be developing as Africa and Asia Pacific, and is head of Shirland Ventures, a business. Efficient which carries out retail market research and analysis choice remains critically important Illustration from CapGemini and The Consumer Goods Forum 2016 report “Rethinking the Value Chain: New Realities in Collaborative Business” for extracting value in G1 and G2 retailing, while influencing demand is an ow and where do retailers create eco- they use to fulfill consumer demand while 2005 linear chain, but without invalidating universe. The expansion of opportunities to essential part of value nomic value in the process of fulfilling improving co-ordination and increasing it. create value is essential in an expense-heavy extraction in the G3 consumer demand? Where is it pos- economies of scale. Borrowing from the thinking of Planet value chain where there is no longer an op- and G4 models. sible to find new sources of profit as But, a decade later, the industry sees new Retail RNG, this change can be seen within portunity to generate value from the under- retailers move products from manu- challenges and opportunities in an expand- the evolution from G1 to G4 retail models. lying value of property assets. Value chain evolution Hfacturer to shopper? ed vision of the value chain. Given that the G1 to G4 retailing models The variety of G3 and G4 digital models is an ongoing The idea of a changing value chain has Last year, another group of international exist simultaneously in our markets, there creates thousands of possibilities to satisfy process with each been recognized for some years now within retail executives came together under the is another way to think of these value chains. shopper demand through different logistics year presenting opportunities the retailing industry. When a group of Consumer Goods Forum and created a new In G1 and G2 retailing, most of the value and digital location models. for retailers to retail executives came together as part of view of the future value chain. Rather than will still be created by selecting the most ef- create more value THE INDUSTRY SEES the Global Commerce Initiative in 2005 to a linear vision of a chain, the new thinking ficient range of products that meet the great- inally, the ‘digitization’ of transactions as competition NEW CHALLENGES“ AND examine the issue, they set out a linear view placed the demands of the consumer at the est amount of demand generated by brands means that retailers can do more than challenges historic of the value chain. center of a network of value. (whether national, local or private label). make money from credit; they can areas of profitability. OPPORTUNITIES IN AN This linear view began with procurement The 2015 model recognizes there are many make money from the digital address At the core of any EXPANDED VISION OF process improvements through synchroni- more ways to create value in a world where here are opportunities to create reve- books provided by their shoppers or successful retail zation with consumer demand. At the center the empowered, connected consumer can nues from outlets where the consum- Fthe log-ins and secure transaction processes business is the THE VALUE CHAIN was a vision of a single large-scale supply be at the heart of the consumption process. er’s demand is fulfilled and through which they might be better at providing and ability to develop the chain providing a multi-channel offer that Modern consumers increasingly expect credit payment. Finally, as these are managing. leadership humility and organizational could reach shoppers in any type of local products to be customized, which offers asset intensive value chains, there These generational models can be balance and flexibility ETHAN SINICK area. the opportunity to create incremental value Tare also opportunities to benefit from value summed up as having different financial ” to shift, change and This multi-channel offer included various through direct connections with manufac- growth in the underlying property assets. choices. G1 and G2 remain asset heavy, reshape value chains. forms of e-commerce, large stores and small turing and sourcing. In the G3 and G4 models, the choices mul- balance sheet-led value creation models. stores, and offered chances to further unlock They also interact with other societal tiply and retailers have more possibilities to In G3 and G4, the retailer trades assets for value through optimization of the product ‘stakeholders’ – governments, sustainability influence the brand- and demand-creation expenses. mix sold in each location. NGOs and so on. This in turn opens the door process directly. While these models work in isolation, a This value chain model remains relevant for retailers to show leadership, meet new At the extremes, retailers such as Amazon future challenge will be to understand how for much of the work retailers do today. needs and create even more value. have created a complete in-house marketing to get the best out of an asset heavy, expense Indeed, many companies still see opportu- In short, this network offers more choices services agency to build brands within their heavy multi-channel business that services nities for expanding the number of channels and opportunities to create value than the digital stores and throughout the online all of the retail generations. 16 17 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report OPPORTUNITIES REMAIN ACROSS TWO DIFFERENT MODELS FUTURE CONSUMERS GENERATION 1 GENERATION 2 GENERATION 3 GENERATION 4 THEIR FUTURE, Owned or leased or Possible fulfillment Integrated retailer or contracted by either brand on demand platform company or retailer or hybrid OUR FUTURE BRAND BRAND For tomorrow’s consumers, look no farther than Creation of awareness Collect from store, locker, drop-off point today’s teens and millennials – born in the digital Delivery networks, age and making lifestyle choices all of their own. Demand and either fully integrated, Consumer picks, packs, fulfillment: creation partially integrated or By Carla Buzasi takes home or on the of communities that purely ad-hoc go from the store can build awareness Creation of intent and intent to purchase. to purchase Possibility to fulfill Possibility to create demand directly Ownership of proprietary value through transaction systems consumer credit

EVOLUTION TO FIXED ASSET HEAVY BUSINESS MODEL WHERE PROPERTY EVOLUTION TO AN ASSET-LIGHT, EXPENSE-HEAVY BUSINESS MODEL MANAGEMENT CAN BE A SOURCE OF ADDITIONAL VALUE Carla Buzasi is Global Chief Content Officer at WGSN, trend forecaster for the fashion and creative industries THE TALKING POINTS

LOOKING AT THE FUTURE VALUE HOW, WITH WHAT SKILLS WHAT ARE THE DOMINANT CHAIN, WHAT ARE THE MOST AND WITH WHOM CONSUMER PERSONAS CRITICAL STRATEGIC CHOICES TO DO WE CREATE WE WILL FACE AND SELL TO ore than ever before, we live in a So what characteristics can we identify BE MADE TODAY? OUR FUTURE LEADERSHIP? IN OUR MARKET? data-driven world. And no one in our future (G4) consumers? How do they knows this better, or personifies it behave? What ‘makes them tick’? THERE’S MORE TO Retailers may be feeling comfortable in In increasingly data-driven companies, Achieving a consensus on consumer per- more, than today’s teens and mil- It’s worth remembering of course that THE FUTURE“ their G1 and G2 environments but G3 and leaders will need to be able to show they sonas is tricky. It’s not so much about who lennials – our emerging and future there’s a bit of the chameleon in all of us. To G4 pose all kinds of questions. No one has can get their business to change – to inno- you are and what you look like but what Mconsumers. some extent, the persona we project may CONSUMER THAN MERE the blueprint for ‘how to do it’. vate and adapt the way they work. you want. While the global population is forecast to well vary to suit the time, place, situation or SELF -INTEREST Online vs offline and real estate strate- Change is happening fast, and So, stop talking about the person and grow from last year’s 7.2 billion to 7.6 billion simply the people we’re with. We don’t be- gies all require massive and difficult choic- leaders are not always ‘in tune’ with think more about their needs. It’s occa- by 2020, the number of mobile broadband have in exactly the same way all of the time. es – not easy decisions to make alone. developments. sions that shape the persona – a person can users is expected to continue increasing far For statistical purposes socio-economic CARLA BUZASI Everyone is looking at G3 and G4 opera- Leadership cultures and mentalities are have many personas according to need or more rapidly, from 3.3 billion to 4.2 billion groupings provide a better yardstick. ” tors for answers, but there is a feeling that not always easy to shift. This may mean situation. over the same period. And teens (sometimes But in considering the behavior and traits the likes of Amazon and Alibaba are so far empowering front-line people with the This probably explodes years of thinking referred to as Generation Z) and millennials of the future consumer, certain factors stand ahead that by the time newcomers get into data to make their own decisions more. in market research. Instead of ‘know your are leading the charge. out. For a start, consumers are now born the market they will already be on to the To succeed, leaders must be ready to customer’, you have to know their needs. with unprecedented levels of data about next big thing. embrace the ‘ecosystem’, understand how One or two things are certain: consum- themselves and the world in which they live. Collaboration, and perhaps some con- it works and decide who are competitors ers today are more informed and have Thanks to social media and digital plat- solidation, could be the answer. Certainly, and who are partners. access to far more information. Whether forms as well, we find consumers increas- rapid innovation means the way forward They cannot always say they know bet- they are always accurately informed is ingly promoting their own ‘brands’ and may well lie in partnerships and strategic ter and they have to accept their business another matter. lifestyles. What to older generations might alliances with different experts running may not always be able to do everything by They want instant delivery, too. Busi- have been seen as bragging is regarded as each part of the operation. This recognizes itself. nesses are set up to respond in days, but perfectly normal by teens and millennials. that ‘I may not have the competency but people want them to respond in hours. As Self-promotion is in. I’ll bring in someone who does’. businesses, we have to look hard and de- So too is a kind of reward culture in which Does this turn your store into a shopping cide what we can do to create extra value. aspirational consumers associate with aspi- mall and a giant collection point? Either rational lifestyles. ‘Because we’re worth it’ way, we are witnessing an evolution from might well be their mantra. Right: Teens and convenience to solutions. The definition millennials are leading There’s more to the future consumer than of convenience is changing. the charge mere self-interest, though. Research shows Picture: iStock today’s young consumers are interested in 18 19 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report WHAT IS DRIVING CHANGE IN THE NEW GENERATION 4 CONSUMER?

REWARD CULTURE The aspirational consumer looks to treat themselves and associate with aspirational lifestyles

GLOBAL INTEREST Consumers support the world around them by following, and having an opinion about, world events the world around them too and hold opin- We can further break our future consumers TAKEAWAYS ions about world events. They are also mind- down into four ‘tribes’. These are: People with lower ful of recent economic challenges and have incomes are concerns about data privacy. 1 The ‘moment makers’, for whom time is statistically likely to Research also points to eight key priorities the ultimate commodity spend more money and traits among this group, which the in- 2 The ‘new expressionists’ – flexible, on brands with ethical dustry needs to understand. creative and looking for inspiration SECURITY UNCERTAINTY and environmental In no particular order: 3 The ‘conscious creatives’, who prefer Consumers are mindful of credentials. What recent economic challenges and n Everyone is a fact checker quality to quantity are you doing to best slow recovery, alongside big position your brand to n People value experiences over products – 4 The ‘tactilians’ – they crave physical and data privacy concerns and have credibility in the doing beats buying emotional touch and a 360-degree shop- personal safety sustainability space? n They may have more than one job, and are ping experience. not necessarily looking for a career for life The future consumer n Shorter attention spans are coupled with To illustrate this point, it is said that people doesn’t want to be faster processing speeds – the eight-second today touch their smartphone more than told how to feel or filter any other object. Indeed, it’s said that Brit- think, and certainly n They seek everyday convenience ons check smartphones 1.1 billion times a not what to buy. This n They favor the personalized and custom- day. And Americans check theirs some eight is a challenge but ized – individuality billion times a day. THE TALKING POINTS also an opportunity. How can you and n Taste fragmentation and experimentation One final point to bear in mind: we may WHAT ARE THE MOST PERPLEXING your company learn is driving the ‘global palate’ like to think the old influence the young. To- WHAT STRATEGIC CHOICES ISSUES AND HOW SHOULD WE WHAT ARE THE IMPLICATIONS FOR to collaborate with n Awareness of health and wellness is ris- day, where shopping trends are concerned, SHOULD WE BE CONSIDERING? APPROACH THEM? FUTURE SKILLS AND LEADERSHIP? the very people you ing but it remains more an aspiration than it is the other way round – the young are in- want to purchase your reality. creasingly influencing the old. If it is the case that our future consumers Shoppers have always been a little fickle – We need to listen to younger consumers products? have short attention spans and are less what they want today may not be what they and understand what they tell us. This loyal, how do we adjust to meet their ex- want in a year’s time – but perhaps they’re is not always easy for older leaders. And pectations? It flips strategic planning on becoming even more so now. Keeping up if leaders fail to adapt, the business is in its head. Never mind five-year plans – we with them in a fast-changing environment trouble. Many are ‘uncomfortable in this need five-quarter plans. is difficult. space’. In a fast-changing digital world, adopt- We need to take care, too, when we They also have to be able to listen to ing emerging ideas quickly and securing categorize people. Their personas or younger staff members. The best leaders the capital for them is far from easy. profiles change. They don’t like to be ‘pi- are those who harness the energy and Our stores may be our best assets but we geonholed’. In the UK and Germany, for ideas of their younger staff. need to be able to do more than simply sell instance, some of the big discounters do Two important points to bear in mind: products in them. The future consumer not sell only to poorer shoppers. It’s now first, it’s important to realize that the young may well demand more from us – and sur- considered smart by middle-class custom- are less afraid of failure. If one initiative vival will be difficult unless we do. ers to shop with them too. The same trend proves successful they will not worry about First, though, we have to determine if is being seen in Brazil. the other nine failures. what we’re doing in the marketplace is At the same time we are seeing greater And second, they do not always seek working. And we need to make sure we divisions of wealth – the ‘haves and have hyphenated careers – one of the identified don’t let ‘organization’ get in the way and nots’. characteristics of millennials. If they can block progress. All of this makes it difficult to gain atten- see a career path and an audience for their tion and get into meaningful engagement ideas they will be just as likely to stay, for Left and above: ‘Because with shoppers. How do you talk to the dif- the benefit of the business. we’re worth it’ – the mantra of aspirational ferent tribes? And how do you create the consumers? business processes to do all this efficiently? Pictures: iStock 20 21 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report are wrong. Just a tiny fraction of cars will be. The technology isn’t there yet – there are all kinds of safety issues. Equally, though, I’m sure that by 2060 ONE STEP self-driving cars will have taken over. It won’t happen fast, just as the home comput- er didn’t happen overnight. And that is the real heart of the issue for any company, not just technology-based AHEAD companies. We are usually wrong about speed of adoption. New innovations are slow to take over in the market. But once they hit a certain level of mass adoption, they’re fast. When newcomers eat into your market So it is slower than you think, then faster than you think. And that poses a real strate- they bring change and disruption. How gic challenge to a company. If you move too do you deal with it? Staying one step in quickly with technology you risk eating your own business. But if you’re too slow, some- front of them (or better still two) is a start. body else will eat you instead. Knowing As Ian Larkin explains, it takes vision when to transition is very, very difficult. et’s look at the case of Netflix. In the early 2000s after some early stops and starts, the company settled on a subscription-based operation. For $20 a month customers could rent Lthree DVDs at a time and there were no late penalties. choice. While the average Blockbuster store This was a fundamentally different busi- held about 5,000 films, Netflix could offer ness model from that of its main competitor, 100,000. Blockbuster. Blockbuster had some unique When we look at financial comparisons we advantages, not the least being that 80 per- see that while Blockbuster was charging $4 Ian Larkin is Assistant Professor, Strategy Area, at UCLA Anderson cent of US consumers were within a 10-min- a month per rental Netflix in effect charged School of Management ute drive of one of its stores. And Block- $3. And while Blockbuster’s operating costs buster’s market research indicated that worked out at $2.42 a rental, Netflix’s were movie-renting decisions were spontaneous just over $1. Clearly Netflix was much more around 75 percent of the time. By contrast, at efficient. that time it took a couple of days to deliver a It was also earning more dollars per cus- hen the RAND Corporation, one of Pictures of it show that it was huge but it was DVD through the mail. tomer because the average Blockbuster the foremost US think-tanks, hired how they thought a home computer in 2004 Blockbuster also offered a great selection customer wasn’t renting as often. Yet in a ONE OF THE a group of leading technologists would look. of films and had agreements with leading sense the Netflix product was demonstrably WE ARE USUALLY CONUNDRUMS“ FOR BIG and sociologists it asked them a They saw it as a luxury product beyond the studios to get TV shows and movies more worse. You had to wait for it to arrive and it WRONG “ABOUT THE seemingly simple question: what is reach of the average home – so they got that quickly than anyone else. It looked as if it was wasn’t necessarily the latest and best. COMPANIES IS THAT Wgoing to be the biggest innovation in the next wrong. They also failed to see how small beyond challenge. Yes, Netflix had a greater movie selection. SPEED OF ADOPTION THE BIGGER YOU ARE, 50 years? it would get and that it would travel every- So what did Netflix do to defeat Blockbust- But those movies were often cheap, inde- THE HARDER IT IS TO They predicted home computing. Noth- where, although they did realize it would er? What advantages did Netflix have? pendent and largely unknown. It had a rec- ing amazing about that, perhaps – except require not-yet-invented technology to actu- For one thing, Blockbuster stores were ommendation engine, but this was really to IAN LARKIN RECOGNIZE CHANGE this was 1954. Even mainframe computers ally work. local so it was hard to manage inventory. steer customers away from content that was ” hadn’t yet been invented. IBM’s first main- They also missed on the dates. They pre- Netflix could manage its inventory nation- unavailable. frame wouldn’t appear for another three dicted 2004, but the first home computer ally. Also, people hate late penalties but Netflix followed a cost strategy. And, IAN LARKIN years. appeared in 1978. So they were out by about Blockbuster still charged them. In fact one of almost always, disruptive innovation chal- ” Sixty years ago, when only around one 25 years. In short, they got a lot more wrong the last things it did before it went bankrupt lenges incumbents on the cost side of the in three US households even possessed a than they got right. This happens all the time. was to get rid of them. With Netflix’s sub- business. Disruptive innovation is about (black and white) TV, the RAND team en- Take the example of Uber. Outpacing scription model there were no late fees. In doing things in ways that allow a ‘worse’ visaged a day when everyone would have a other taxi operations in many of its markets, a sense of course there were, because if you competitor, with a ‘worse’ product, brand computer in their home. And they predicted Uber has taken the world by storm. At last kept a Netflix movie beyond 30 days you had and technology, to do better than you. it would fundamentally change the way soci- sight it was valued at around $80 billion. to buy it. So, in 2004, Netflix’s strategy was all about ety operates. Now, thanks to its involvement in the ro- Another point was that Netflix worked cost. DVDs were delivered by mail in an What we’re talking about here is change botics department at Carnegie Mellon Uni- hard to develop its recommendation engine. efficient, low-cost way and the focus was and disruption – how we spot it and what we versity in Pittsburgh, where researchers are You would rate movies and Netflix com- on cheaper and less popular content, using do about it. Recognizing change is extremely working on driverless cars, Uber is aiming pared your ratings to other people’s. In this technology that steered customers away difficult. In fact one of the conundrums for for the day when we have cabs without the Top: The future, comic way it could offer you a customized list of from expensive unavailable content. big companies is that the bigger you are, the cabbies. In fact it has been predicted that as book style, as imagined movies you might enjoy. It was a beautiful business model because in the 1950s harder it is to recognize change. many as 80 percent of Uber’s cars could be Photo: Mary Evans Netflix could not match Blockbuster for it ensured that customers’ willingness to pay Really insightful people, though, often see driverless by 2020. Pictures spontaneity, but through its subscription didn’t decline too much and costs were dra- it before it happens. The RAND team are a I make no claims about my own forecast- model and recommendation service it made matically lower. good example. ing abilities and I’m no expert in this field Above: Uber has changed it more of a planned experience. And with Yet it was easy to see how Blockbuster the face of transportation Acting on their prediction, the RAND but I’m confident analysts’ predictions that across the world three recommended movies in front of you might view Netflix in 2004. ‘We do not be- scientists built a prototype home computer. Uber will be completely driverless by 2020 Picture: iStock there was still an element of last-minute lieve there is enough demand for mail order’ 22 23 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report was one Blockbuster comment. ‘There is not When we think about innovation and As the CEO and founder of Netflix said distribution centers, it was already working a viable business model there in the long run. disruption we are usually afraid of new tech- later: ‘I’m glad they waited until 2004. If on streaming technology that would make Online services are serving a niche market.’ nologies that will be better than ours. We’re they had done this in 2002 they might have them obsolete. Netflix was disrupting itself – Six years later Blockbuster was bankrupt. not worried about less advanced technology. killed us because we weren’t yet profitable. not waiting for a competitor to do it. But that is what disruptive innovation is. It By 2004 all it did was kill them many more Then, in 2011 when the DVD-by-mail busi- e know from the S-curve that challenges incumbents because it is more Pictures: iStock years before they were going to get killed.’ ness was still several times more profitable initial adoption of any new inno- efficient and its cost structure is lower. So it’s A further Blockbuster mistake was that it than its streaming business, Netflix went vation will appear to be slow. Con- the opposite of what we think. didn’t launch a new business line but rather to the market and announced it was going sumers, for instance, seldom adopt If your business is highly successful and on an integrated offering that gave the best to spin-off the DVD operation and focus on THE FIRST LESSON a new technology until relatively the high part of the S-curve, you need to wor- of Netflix and the best of Blockbuster for streaming. The market thought Netflix was COMPETITORS “ Wlate in the cycle. But once adoption starts, it ry less about the technologically advanced one low price. All this did was give value to crazy. But the company knew exactly what it “ IS TO UNDERSTAND happens extremely quickly. product that’s coming out and more about consumers. was doing. WILL ATTACK FROM THE STRATEGY OF THE So Blockbuster was making decisions the upstart who’s doing what you’re doing One strategy sometimes adopted by in- BELOW WITH ‘WORSE’ about how to respond to this upstart, Netflix, but much more cost efficiently. cumbents is to launch a separate business ere are the lessons about disruption. PRODUCTS THAT ARE ATTACKER at the very low point of the S-curve, when The first lesson therefore is to understand that focuses on competing with the new- Competitors will attack from below few people had used it. the strategy of the attacker. Ninety-five comer. It may be unprofitable but it keeps the with ‘worse products’ that are more MORE EFFICIENT Sometimes innovations will take off before percent of the time, the successful attacker competitor engaged. But you have to launch efficient. Don’t be afraid of competi- IAN LARKIN the incumbent knows how to respond. What will come from below with lower costs and a it early. tors with more advanced technology. ” IAN LARKIN makes it even more difficult for incumbents worse product. Another option is the chessmaster strat- HChoose the turf on which to compete. If ” is that for every successful innovation there The second lesson is that you have to de- egy of thinking several moves ahead. In you have a better product, don’t compete on are 10 unsuccessful ones that get started and cide early how to react. Don’t wait for the OS business, thinking two moves ahead is dif- price. When you are disrupted, don’t com- then crash. Judging the difference between (‘oh s**t’) moment because that is too late. ficult enough, but that is what Netflix did. pete on their terms. the two is exceedingly difficult. That’s what Blockbuster did. It didn’t under- It had no expertise in streaming – it had to If you wait until it’s clear where the market Back in 2004, Blockbuster had 40 million stand its vulnerabilities. go out and build it – but in 2009 it launched is moving, you’ve waited too long. members, Netflix two million. Blockbuster The company did eventually act with new its streaming business. As Netflix’s founder Finally, know your competitive advantage was also winning customers more quickly, offers, a mail-order option and a free Blu-ray said, he imagined a day when there would be and how it might need to change. It is ex- and appeared to be in the driving seat. So offering. But it didn’t work. Blockbuster still sufficient bandwidth to offer media over the tremely rare to turn on a dime as Netflix did, it is hard to criticize the company for not had its costliest asset, its stores, and it was internet. but it is possible. responding. now giving things away free. So while Netflix was building massive For Blockbuster, alas, the rest is history. LESSONS ON DISRUPTION: BLOCKBUSTER V NETFLIX

1: CLEARLY UNDERSTAND THE COMPETITOR’S STRATEGY 3: CHOOSE THE TURF 4: THINK ABOUT THE NEXT CURVE NETFLIX CONTRIBUTING PROFIT, DVD V DOMESTIC STREAMING ON WHICH YOU COMPETE Netflix’s initial strategy ‘From the start of Netflix I envisioned a day 250M where there would be sufficient bandwidth to Netflix’s strategy is to deliver DVDs by mail in a highly Blockbuster Total Access 200M • Unlimited rentals by mail offer media over the internet… efficient, low cost manner, focusing on the cheaper ‘tail’ 150M of less popular content, with technology that actively • Unlimited in-store exchanges ‘I always knew the end game would be • Many new releases available streaming content. We just needed to wait 100M steers consumers away from expensive, unavailable 28 days before Netflix and Redbox until the technology was good enough… 50M content • Games and Blu-ray included ‘While we were building massive distribution 0M centers, we were also working on streaming Q4/2011 Q1/2012 Q2/2012 Q3/2012 Q4/2012 Q1/2013 Q2/2013 Question: how threatening is that to Blockbuster? technology that would make those Who benefited distribution centers obsolete’ ● DVD ◆DOMESTIC STREAMING from this offering? 2: DON’T WAIT FOR THE ‘OH ****’ MOMENT Consumers and Netflix 5: KNOW THAT THE MARKET WILL NOT ALWAYS UNDERSTAND 6: KNOW YOUR NETFLIX STOCK PRICE 2008-2012 COMPETITIVE ADVANTAGE HIGH 350 AND HOW IT MIGHT NEED LAGGARDS 300 TO CHANGE 250 How a firm maintains superior

200 performance over time requires that its sources of value-creating LATE 150 difference cannot be easily replicated MAJORITY ‘I am just glad they waited until EARLY

PERCENTAGE OF ADOPTERS OF PERCENTAGE 100 ADOPTERS 2004 to launch Blockbuster Total VALUABLE HARD TO REPLICATE EARLY Access. Any earlier and it might Lowers cost Barrier to entry INNOVATORS MAJORITY have killed us. But it just ended up 50 LOW Increases Barrier to imitation killing them many years before we 0 willingness 1 EARLY LATE 3 4 5 6 7 8 9 0 1 2 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 would have’ 2 2 2 TIME OF ADOPTION 2 2 2 2 2 2 to pay (WTP)

24 25 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report LEADERSHIP UNDER FIRE

When our business hits turbulence how do we respond? In particular, how do we deal with stress? Stephen A. Miles examines some of the most common reactions and offers a few tips on crisis management

Stephen A. Miles is CEO of The Miles Group, which develops talent strategies for organizations, teams and individuals, focusing on high performance, world-class leadership

hen an oil platform exploded caus- out of the situation. They absorb rather than and steering a course accordingly. diagnose and then act. Keep the organization ing the deaths of several workers amplify stress. By going into diagnostic mode you are ruthlessly focused on the correct things PEOPLE TEND TO and injuries to many more, the Zeros, on the other hand, turn inward and working to understand the cause of the rather than chasing everything. To do this A GOOD PROCESS REVEAL“ A BINARY company’s CEO admitted it had micro-manage. Rigid and inflexible, they problem so that you can fix it, rather than effectively, you need to stay fact-based and WILL HELP“ LEAD TO A badly affected him and wished he become over-reliant on processes and un- treating the numerous symptoms you are data-driven. If you are someone who does RESPONSE UNDER Wcould just go home. able or unwilling to take advice. They fail to experiencing. By contrast, moving into acti- things by instinct, make sure someone is GOOD OUTCOME STRESS. SOME PEOPLE Contrast that with the executive of an leverage their teams and remain aloof, and vation mode may feel good because people collecting the data and validating or refuting ARE ONES, OTHERS airline that suffered a plane crash. He paralysis enters the decision-making. And are busy doing things – and that sense of your ‘gut instinct’. remained calm and cool, absorbed the by amplifying instead of absorbing stress, activity is itself stress-reducing – but you If you have to lead your business through a STEPHEN A. MILES ARE ZEROS emotion around him, stepped back and put a they make things worse. may be activating on many of the wrong crisis, here are a few further tips: ” plan in place with the help of key executives. Naturally we want ones, not zeros, in our things and changing things that do not need 1 Face reality and formulate a crisis plan He led from the front and accepted personal businesses. As leaders, it’s important to to be changed, creating even more problems 2 Act promptly, not hurriedly – You can act STEPHEN A. MILES responsibility and accountability for the know how our teams behave under stress. for the business. with deliberateness as well as speed. It’s ” errors that had occurred. Before we assess them, however, we need to your job to assess the size and scope of As leaders, how we respond to stress – assess ourselves. tressful environments tend to reveal the crisis, but acting hurriedly only makes whether minor or catastrophic – is central How we handle ourselves and lead our character rather than build it. Some people nervous to success. A key element of leadership is company when business is good and run- people are highly effective, others 3 Select the most appropriate spokesperson the ability to remain effective when there is ning smoothly is one thing. When we hit tur- completely ineffective. To be effec- – Make sure you are spending your time stress in the system. bulence it is quite another matter, and may tive, you need to be the absorber and where you will have the most impact People tend to reveal a binary response demand a different style. Sfocuser – cool, calm and collected because 4 Communicate through the medium that under stress. Some people are ones, others A frequent tendency is to start questioning that’s the person your team will want to reaches all stakeholders zeros. everything and making changes, which can follow – and able to redirect that energy to 5 Listen to and thank your team – Bring in Ones, for instance, turn outward under lead to a company chasing too many things enable the team to focus on the facts, sup- different views and seek the best advice stress. They have a ‘can do’ attitudes. They – wrong things – and exacerbating the prob- porting data and proposed solutions. before making decisions leverage their teams, seek and take advice, lems. The sense of panic that ensues can lead A good process will help lead to a good 6 Be aggressive in the marketplace – Create and make decisions with the available executives to ‘activate’ when they should be outcome. Make sure your underlying a platform for change. A crisis offers an information. They communicate, bring diagnosing and triangulating – measuring process and leadership is fact-based. It is opportunity to change the game in your people with them and take the uncertainty against other situations, taking other views Illustration: iStock important to ‘go slow to go fast’ – step back, favor. 26 27 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report FOOD FOR THOUGHT

How do retailers view the future? In a Summit discussion led by CCRRC Research Director Michael Sansolo, they offered their thoughts

Michael Sansolo, left, led the session supported by Stephen A. Miles and Ian Larkin

WHAT ARE OUR STRENGTHS? WHAT ARE OUR WEAKNESSES? WE’RE WELL ESTABLISHED BENEFITING FROM YOUR STRENGTHS IT’S DIFFICULT TO CHANGE CREATURES OF HABIT Most of us have a large customer base or a Stephen A. Miles: People often don’t value The first weakness is legacy. Even though it’s As a successful business, we’re always look- strong customer connection, and some of us their strengths the way they should. One of a strength in some ways, our legacy is also a ing to make small leaps rather than quantum are well established in our local communi- the most important things about being suc- weakness because it makes it difficult for us leaps. [Playing safe] is a big weakness in our ties. We have known values, and established cessful is to leverage your strengths to get the to change, especially for a traditional busi- industry. ENACTUS brands and supplier relationships. maximum benefit from them. ness with a traditional mindset. We’re also creatures of habit, so caught up Five students from So, we have established business ecosys- When I coach executives they’ll say ‘I Next come assets. We are heavy on assets in routine that we don’t always see the op- universities in Rio and tems encompassing our suppliers, custom- don’t do this or that very well’. I say: ‘Let’s and the cost of them makes it difficult to en- portunities for future development. Instead São Paulo described at ers, regulators and everything else that goes start with what you do do well and let’s get tertain new business propositions. we just see processes. the Global Retail Summit with running a business. the maximum from it.’ Really good leaders Then there’s our price orientation. We’re how they are helping We also have a lot of information available know their weaknesses and have people heavily focused on price when it comes to ONE STEP AT A TIME improve the lives of to us. Whether we’ve been collecting it or around them who compensate for them. value creation. Price comes first, second and Ian Larkin: The best way to learn is to take disadvantaged people. using it properly is another matter, but it’s third whenever we react to the market and one small step at a time – learn by doing. If The five are members there. And we have access to funds that we Ian Larkin: Blockbuster would have iden- our competitors. you are making small incremental innova- of Enactus, a voluntary can apply in this new world. tified a similar set of strengths but didn’t tions, you’re learning. Even if an idea fails, organization of students understand how to leverage those strengths you are still going to learn from it. Making DIGITAL CHALLENGES and academics against the threat [of Netflix]. So they react- We struggle to integrate digital into our tra- those small innovations leads you to making A RICH CUSTOMER EXPERIENCE supported by business We can inspire our customers when they ed in exactly the wrong way. By throwing the ditional business. We have incomplete or in- the big ones. people, who use their come into our stores. We can provide a very baby out with the bathwater and competing adequate know-how and it is difficult to gain entrepreneurial and rich customer experience. We have direct on Netflix’s terms, their greatest strength be- that knowledge as rapidly as we’d like. Stephen A. Miles: I think it’s hard to fail, business skills to contact with them – we can talk to them di- came their greatest weakness. Many of us are also transaction oriented in fact. As human beings we’re designed launch local community rectly and know how they’re feeling. more than customer oriented. This takes up not to fail, or at least to try not to fail. Part projects around the a lot of the effort that we could be putting into of innovation is teaching yourself through world. THEY’RE OUR GUESTS our customer relationship management. experimentation. The longevity of our management people As a CEO, you want to dedicate time and With more than 69,000 and the relationship with our customers – FEAR OF FAILURE resources to the green shoots. You want to students, Enactus ‘we call them guests’, said one delegate – is a Fear of failure because of fiscal responsibil- nurture them. A lot of amazing innovation operates in 36 countries real strength. Our local ties are good. Anoth- ity is huge in a traditional retailer. It makes goes on in the biggest companies. and is estimated to have er strong point is the fact that we are able to people resistant to change. The organization They understand the notion of green helped transform more seek, and appreciate, the ideas and feedback pushes back rather than venturing forward. shoots, and they also know they are not too than one million people’s from our staff. There’s great pressure to be reliable. big to fail. lives.

28 29 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report SUMMARY THE SHAPE OF THINGS TO COME?

TEN KEY POINTS FROM THE GLOBAL RETAIL SUMMIT External social and economic factors are By 2030 teens will comprise 26 percent 1 driving change in worldwide retailing: 2 of the world’s population. Millennials will • Growing urbanization • Online shopping represent a further 25 percent. True ‘digital • Expanding middle class • Powerful youth culture natives’, they take mobile technology for • Massive adoption of • Longer life expectancy granted and make it work for them. It is mobile digital technology central to their lives Teens and millennials expect honesty and Physical stores will remain important but we 3 transparency from our businesses and 4 will need technology-led stores too believe in sustainability. They judge us online and are less dedicated to brands

The advent of a fourth (G4) generation, The value chain of the future places the 5 real-time retail, will see consolidation 6 consumer right at its heart, reflecting among market places, intermediaries and modern shopper demands – and it opens the software specialists door to new retailer opportunities

For retail managers, one challenge will be A further challenge for leadership teams is to 7 to blend traditional skill-based teams with 8 recognize change in their markets – whether data and digital expertise, in step with the influenced by traditional competitors or new increasingly data-driven nature of retailing external influences – and respond quickly, preferably before it even happens

Change means disruption. Staying one How leaders respond to stress in business 9 step ahead is essential to a smooth and 10 is central to success. It is one thing to lead successful transition when business is good; quite another when business hits turbulence and a different approach may be required

30 31 CCRRC 2016 Global Retail Summit Report CCRRC 2016 Global Retail Summit Report LIST OF MEMBERS

NORTH AMERICA Armando Perez SVP, HEB Grocery Eric Legros CEO, MAF – Carrefour, ME/ NACS/COCA-COLA RETAILING RESEARCH Co.,USA Africa/CCA COUNCIL V Leslie Sarasin President and CEO, FMI, Mehmet Nane CEO, Pegasus Airlines, Hal Adams President, Retail Operations, USA Turkey CST Brands, USA Garry Senecal President, Market Division, Mike Prentice Marketing & Chris Gheysenes President/CEO, Wawa, Loblaw Companies, Canada Merchandising Director, The Spar Group USA Mimi Song Chairman/CEO, Superior Ltd., South Africa Varish Goyal President, Au Energy, USA Grocers, USA Zyda Rylands CEO, Woolworths, South Deborah Gullaher VP Sales/Marketing, Judy Spires Chairman/CEO, KB US Africa Suncor Energy, Canada Holdings, USA Eduardo Salome President, Andina Terry Handley President/CEO, Mike Vail President, Hannaford Organic Casey’s General Stores, USA Supermarkets, USA Neel Shah Business Development Kevin Hess President, Kroger/Kwikshop, Peter Whitsett EVP, Meijer, USA Director, Nakumatt Holdings Ltd., Kenya USA David Zallie President, Somerset Stores Damien Veilleroy Regional Operating Tom Lefevers SVP Marketing, Speedway LLC, USA Officer(ROO) , Metro Group, Asia LLC, USA Jeff Zollpriester President, Quality Foods Willard Zireva CEO, OK Zimbabwe Steve Loehr VP of Operations, Kwik Trip, IGA, USA Limited, Zimbabwe USA Crystal Maggelet CEO, FJ Management, LATIN AMERICA ASIA PACIFIC Maverik Stores, USA Diego Alonso VP Comercial Corporación, Mark Batenic Chairman/CEO (Global), Billy Milam President, Racetrac, USA Auto Mercado, Automercado, Costa Rica IGA, Global/Asia Chuck O’Dell VP Sales/Marketing, Nicolas Braun Marketing Director, Rakesh Biyani Joint Managing Director, QuikTrip, USA Supermercados La Anónima, Argentina Future Group, India Quinn Ricker President/CEO, Ricker’s, Remco Brok Director C&CL – Coca-Cola Tanin Buranamanit Managing Director, USA LA, TCCC, USA CP All, Thailand Debbie Robinson Managing Director, Luis Chapa ICONN Council President and Jasper Cheung President, Amazon, Japan SPAR UK, UK General Executive Director, 7-Eleven, MTY, Victor Chia CEO Singapore, Dairy Farm, Joe Sheetz President/CEO, Sheetz, USA Mexico Singapore Peter Tedeschi Former CEO, Tedeschi Walter Faria CEO of Martins Comércio Piper Chiu President, Simple Mart, Food Shops, USA e Servicios de Distribuião, Grupo Martins, Taiwan Matt Thornton President/CEO, Brasil Philippe Giard Managing Director – Thorntons, USA Guido Grinbaum CEO/Executive eCommerce Asia, AS Watsons, Hong Kong Henry Armour President/CEO, NACS, President, YOP, Argentina Cenk Gurol VP CEO eCommerce, Aeon, USA Mercedes Ramos Executive President, Japan Dae Kim VP Research, NACS, USA Grupo Ramos, REP. Santo Domingo Liu Junling Founder & Chairman, New Vicente Yañez Solloa ANTAD Executive Peak Group, China President, ANTAD, DF, Mexico RETAILING RESEARCH COUNCIL IX Meshvara Kanjaya CEO, Ranch Market, Indonesia Rod Antolock President, Harris Teeter, Kroger/Harris Teeter, USA EURASIA, MIDDLE EAST & NORTH AFRICA Gerry Lee Deputy CEO, Fair Price, Singapore Jonathan Berger General Manager, The Mustafa Altindag Chairman, Americas, The Consumer Goods Forum, ALTINDAG DANISMANLIK KURUMSAL Peter Love GM National Sales and USA HIZMETLER, Turkey Merchandise, Metcash, Australia Steven Goddard President and CEO, Anil Benard-Dendé COO, Nguyen Ngoc Hoa Chairman/ WinCo Foods, USA Showroomprivé, France Government Minister, Saigon Coop, Vietnam Steve Junqueiro Co-President/COO, The Richard Brasher CEO, Pick n Pay, South Save Mart Companies,USA Africa Victor Paterno CEO, 7-Eleven, Philippines Jay Marshall EVP and COO, Hy-Vee, USA Paresh Buch Retail Finance Manager Hans Prawira President Director, Spinneys, UAE Alfamart, Indonesia Rich Niemann President and CEO, Niemann Foods, USA Stephan DuCharme Chairman of the Paul Ritchie CEO Malaysia, Tesco, Supervisory Board, X5 Retail Group, UK, Malaysia Russia 32 CCRRC 2016 Global Retail Summit Report ACKNOWLEDGMENTS Dr Condoleezza Rice Muhtar Kent James Quincey

Kim Alexander Dr Bill Bishop Marc Bolland Chris Bowen Remco Brok Carla Buzasi Jacques Van Cauwenberge Sandy Douglas Enactus students Amy Green Joel Grewett Julie Hamilton Prof Ian Larkin Stephen A. Miles Dan O’Connor Carlos Olmos Michael Sansolo Ern Sherman Ethan Sinick Robert Wilkinson

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THE 2016

RETAILING RESEARCH COUNCILS GLOBAL RETAIL SUMMIT