>>APMG 8119: DIGITAL ENTERPRISE

REPORT PREPARED FOR:

 

(Mariia, Deepthi, Alexi & Shriram) 

POSTGRADUATE DIPLOMA IN BUSINESSAPMG 8119: DIGITAL ENTERPRISE

2015

By Digix

>>APMG 8119: DIGITAL ENTERPRISE

CONTENT

Global Trends in Retail Market Space

Countdown Today

Digital Business Model

Emerging Digital Model

Theoretical & Managerial Implication

>>APMG 8119: DIGITAL ENTERPRISE

Global Trends in Retail Market Space Online Grocery business is much less profitable than in-store retailing (PWC, 2014)

Even in developed e-commerce markets like UK online grocery shopping is just 6% of the grocery spending in 2014 (PWC, 2014) .

We’ll buy 25% of our groceries online in 10 year (Rabobank, 2015)

Demand Side Problem

Delivery Fees

Delivery Time Slots

Perishable Items

Supply Side Problem

Technology Platform

Distribution Network

Last Mile Delivery

>>APMG 8119: DIGITAL ENTERPRISE

Countdown Today

Owned by the Woolworths Limited it has 230 Supermarkets Across New Zealand including 59 Franchise Store.

18000 team members. 102 stores providing “Click & Collect” Services.

4 Dry Grocery & 3 Fresh product distribution centre, 2 Meat & 1 Sea food processing plant and 1 central office.

Hub to Store travel is 17 Million Km per year, making over 250,000 deliveries.

>>APMG 8119: DIGITAL ENTERPRISE

Ranking based research – (First Digital,2015)

Countdown weekly online orders – 20000 i.e. 1.04 Million yearly orders

>>APMG 8119: DIGITAL ENTERPRISE

Digital Business Model – (KPMG International,2009).

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Digital Convergence Equalizer – (KPMG, 2009)D

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>>APMG 8119: DIGITAL ENTERPRISE

Countdown Digital Customer Segmentation

Double Income No Kids

Singles Younger than 40

High Income

With Children

(Countdown, 2015)

>>APMG 8119: DIGITAL ENTERPRISE

Countdown Revenue – Woolworths Limited, Annual Report - 2014

PARTICULARS FY’14

($ Million) %

Store Sales** 5529 96%Online Sales* 208 4%Delivery Charges* 6 -TOTAL SALES 5737 100%

* (Stuff.co.nz, 2015) ** (Countdown, 2015)

96% of revenue selling >20000 products in its brick and mortar store.

Countdown has been offering online shopping to customers for >20 years. Online sales contributes to only 4% of overall sale equivalent to 4 stores.

Delivery charges though a part of the revenue it is one of the biggest reason for online sale not picking up.

19% of the online sales is from the Click & Collect model (Capgemini, 2014)

>>APMG 8119: DIGITAL ENTERPRISE

Countdown Cost – Woolworths Limited, Annual Report - 2014

PARTICULARS FY’14

($ Million) %

Cost Of Goods Sold** 4379 81%Salary Cost 630 12%Cost Of Doing Business** 335 5%Advertising Cost 83 2%Total Cost 5427 100%

* (Stuff.co.nz, 2015) ** (Countdown, 2015)

81% of cost pertains to procurement of goods sold, only way to reduce the same is by increasing the volume. Salary is average $35000 p.a. for its 18000 employees.

Cost of doing business pertains to Running Stores, Energy, Rent, IT & delivery of goods from Hub to stores.

Advertising cost of $82.63, includes digital medium.

>>APMG 8119: DIGITAL ENTERPRISE

Countdown Profit & Loss – Woolworths Limited, Annual Report - 2014

PARTICULARS FY’14

($ Million) %

Sales 5737Cost Of Goods Sold 4379 76%Gross Margin 1358 24%Other Costs 1048 18%EBIT 310 5%

(% Of Sales)

(% Of Sales)

Countdown works on a high volume low margin model.

They have extended the “mass convenience” value proposition offered in-store to the online experience: same range, same prices, and same promotions.

>>APMG 8119: DIGITAL ENTERPRISE

Finding Profits In Complexity Sweet Spots – (MIT, 2014)

Do Countdown Customers buy from competitors? Why? – YES. Low Product Complexity & Convenience or Less Process Simplification

Is there work that Countdown Customers do which Countdown can do? Yes. Shop & Deliver

>>APMG 8119: DIGITAL ENTERPRISE

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EMERGING DIGITAL MODEL COUNTDOWN - 5 to 10 Years

>>APMG 8119: DIGITAL ENTERPRISE

Customer Segment, Revenue & Pricing Model

Focused

Broad

BroadFocusedScope Of Shopping Trip

Target Consumer Segment

Basic Stock-Up Service

Basic Staple Goods at regular Intervals with

a very low delivery cost to start with

Pre-Defined Shopping basket

E.g. Easy to prepare meals

each week

Premium Convenience

Premium Products not available in Store.

Consumer are willing to pay higher.

Click & collect, Pick-up at central location,

Office Delivery, Find a Pick-up (Uber).

Mass ConveniencePremium

Pricing

Pay Per Use

Subscription Based

PRICING MODEL

>>APMG 8119: DIGITAL ENTERPRISE

Finding Profits In Complexity Sweet Spots – (MIT, 2014)

Increase online product assortment

Allow customers to form communities

Improve search capabilities

Add Location based service

Personalized login page

Improve mass convenience by adding more click & collect locations

Implement modern mobile applications

Improve customer convenience by offering office delivery or customer pick up

Offer more bundled services which will improve customer convenience & revenue

>>APMG 8119: DIGITAL ENTERPRISE

Post 10 Year Value PropositionD

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Theoretical Implication:- KPMG Digital Business Model provides a structured approach to developing

digital strategy.

- Digital Convergence Equalizer is an excellent device for identifying key value proposition which is critical for any organization to succeed.

- MITs complexity sweet spot helped in devising a futuristic plan by increasing product variety while maintaining process simplicity.

Managerial Implications:

- Replicating Mass Convenience model from offline to online is not enough.

- Digital equalizer can be used to identify its key value proposition and improving the same

- New Revenue Model options will help increase its sales volume and overcome high fixed store operating cost.

- Improve its complexity sweet spot by increasing its product assortment and further simplifying the delivery process.

>>APMG 8119: DIGITAL ENTERPRISE

References:Agriland. (2015). We’ll be buying 25% of our groceries online in 10 years new report

says. Retrieved from http://www.agriland.ie/farming-news/well-be-buying-25-of-our-groceries-online-in-10-years-new-report-says/

First Digital. (2015). Groceries Online Report – NZ SEO Reach. Retrieved from http://www.firstdigital.co.nz/blog/2015/03/24/groceries-online-industry-report-nz/

KPMG. (2009). Emerging Business Models to Help Serve Tomorrow’s Digital Tribes. Retrieved from https://

www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/emerging-business-models-O-0906.pdf

Massachusetts Institute Of Technology. (2014). Revisiting Complexity in the Digital Age. Retrieved from http://mitsmr.com/1pcP4Kn

PWC. (2014). Click and Cash How to profit in Online Grocery Shopping. Retrieved from http://www.strategyand.pwc.com/media/file/Strategyand_Click-and-cash.pdf

Stuff.co.nz. (2015). Online Grocery Shopping is beginning to click with Kiwis. Retrieved from http://www.stuff.co.nz/business/money/70321955/Online-grocery-

shopping-is- beginning-to-click-with-Kiwis

>>APMG 8119: DIGITAL ENTERPRISE

References:

Stuff.co.nz.(2014). Click, Collect? The retailers fighting back. Retrieved from http://www.stuff.co.nz/dominion-post/business/9725676/Click-collect-The-retailers-

fighting-back  Strategyzer. (2015). The Business Model Canvas. Retrieved from http://businessmodelgeneration.com/canvas/bmc?_ga=1.213998992.645013967.1

441919694

Strategy-Business. (2013). What if Clay Christen is right about the gorcery business (and Amazon is wrong)?. Retrieved from http://www.strategy-

business.com/blog/What-if-Clay-Christensen-Is-Right-about-the-Grocery-Business-and-Amazon-Is-Wrong?gko=58cde%20-

The Guardian. (2009). Digital Tribes. Retrieved from http://www.theguardian.com/digital-tribes/interactive/digital-equaliser

Woolworths Limited. (2014). Annual Report 2014. Retrieved from http://www.woolworthslimited.com.au/annualreport/2014/index.html

>>APMG 8119: DIGITAL ENTERPRISE

References:

Woolworth Limited. (2015). Woolworth Strategy. Retrieved from http://ausfoodnews.com.au/2015/05/06/woolworths-announces-new-strategies-to-win-over-grocery-shoppers-afn-reveals-full-detail.html

From the Business Model Canvas The Digital Business Model concentrates on three ImporImportants aspects i.e. Value Proposition, Customers i.e. Ditital Tribes and Revenue Modeli.e. Cost and Revenue We have used the kmpg business model for our analysis. Connecting countdowns digital business model canvas to this model we can look at three important aspects.

>>APMG 8119: DIGITAL ENTERPRISE

THANK YOU

>>APMG 8119: DIGITAL ENTERPRISE

The Business Model Canvas – (Strategyzer,2015).

>>APMG 8119: DIGITAL ENTERPRISE

Value Proposition Contd…

(Strategy + Business, 2013)

- Shopping occasion’s cut across traditional customer segmentation, it can be Top-Up or Fill-In & Stock-Up

- In next few years as grocery business will cater to larger % of Stock-Up needs Countdown can concentrate on the same.