We have a sense that today’s digital giants are unbeatable, but they are no more secure in their positions than the behemoths of old.Read More
Whitbread is continuing to open more Costa Coffee shops predicated on the continuing growth in demand. That growth has slowed, but the company believes we are entering a ‘third wave’ of coffee consumption, where we are willing to spend more per cup. Yes, that means you, with your single-estate cold brew.
While consumption patterns are interesting, I’m much more interested in what the continuing expansion of the chain says about our need for third space, a living room beyond our home, or a work space beyond the office. To the naked eye the coffee market looks saturated. And yet more and more continue to appear. Why?
The reality is that we are living in increasingly densely-packed circumstances. This is nothing to do with immigration, which is both culturally positive and economically necessary. Rather, it’s about housing.
Multi-generational homes are now increasingly common. As we stay single later and house prices grow ever more un-affordable, we’re sharing houses with our peers, later and later in life. Or renting the smaller spaces that we can afford in cities, where have little room to relax or socialise. Sometimes, we need to escape.
Developers are building what someone described to me yesterday as ‘student accommodation for grown-ups’: giant blocks of small apartments with high-quality shared spaces to make up for the lack of space to entertain or relax inside the flat itself.
The new pub
The irony is that we had a huge network of shared spaces in this country. Places that were designed to be the ‘home away from home’ for those who couldn’t afford the space, or the heat, in their own home. Places where groups could meet and socialise. Places where at one point in time, a lot of business was done. They’re called pubs, and they’ve been closing at a rate of 27 per week.
Of course we also had a very strong coffee shop culture in the past. Perhaps this is just cyclical. But nonetheless I think this trend is interesting, particularly for the way it counters this idea of us disappearing into our digital devices.
If we really were becoming an antisocial nation of nerds, lost to our laptops, then these physical meeting spaces would have much less value. Yet sat in one of my favourites yesterday (Manchester’s Chapter One bookshop/coffee shop), less than a quarter of the tables were occupied by solo workers. Most people were there to meet, talk, work and socialise. This was pretty typical of the other shops I stuck my head into. Hardly a scientific survey but enough to validate my suspicions: these are social spaces and they will continue to grow.
Human beings are collaborative by nature, fuelled by connection. We need spaces to make those connections, for business or pleasure. The pub fell out of favour for all sorts of reasons: homes well-equipped for entertainment, changing attitudes to alcohol, and a richer array of alternatives. But what’s clear from the continuing — almost baffling — growth of the coffee shop market, is that our need for connection has not gone away.
There is no better interface for a light bulb than a light switch.
This is not an absolute rule. In some contexts, for some people, a sensor response, a voice command, two claps, or hell, even an app, might be better.
But right now, for the vast majority of people, in the vast majority of contexts, a light switch is unbeatable. It is simple and familiar and most of all, it works. It doesn’t fail when AWS goes down. It doesn’t take five seconds to respond.
If a connected device can’t take those characteristics as a base line, conform to them within a reasonable margin, and improve on them with new features, then you have to ask yourself: does this object have a place in my home?
An increasingly analogue, digital world
It is spectacularly easy to make digital objects these days. Physical devices with internet connections are now a primary school project, with costs measured in the low pounds. Entirely virtual objects can now also be created with a primary school skills and at a cost measured in the pence.
Beyond the primary school, the state of the art is digital objects with analogue interfaces. How else to describe virtual, augmented or mixed reality? These are all interfaces to our digital systems designed to mimic physical interfaces. Physical interfaces that are intuitive to us thanks to millions of years of evolution.
Given this trend, to wrap the digital in the physical, why do we persist in wrapping connected physical devices with digital interfaces?
Analogue outside, digital inside
I’m rebuilding my home automation system at the moment, though since this seems to be a constant state of affairs, it might be more accurate to say it is undergoing continuous development. One of the design principles for this iteration is that every digital action must be clothed in an analogue interface that conforms as far as possible to the standards of the physical item it replaces.
This starts with the light switches.
If I get it right, they will look, and function just as they did before. But with the added benefit that they can — if desired — be remotely controlled and that the system will know their state.
But unless you know this, it will just be a plain old light switch. Because right now, there’s no better way to turn a light bulb on or off.
Yesterday, I joined a retail round table discussion hosted by my client Freeths solicitors. Senior executives from a range of big retail brands joined us for two hours of conversation and cracking food.
I kicked the discussion off with a little provocation. Here’s the five bullets I used to get people talking.
In the future…
…augmented reality personalises every space
The first thing you need to know is that our physical and digital experiences will continue to collide. In ten years I believe we will spend 10–12 hours each day experiencing the physical world through a digital lens. That is to say, in ‘augmented reality’ (AR) or ‘mixed reality’ (MR).
Initially this will mean that everyone starts to wear smart glasses containing a smart-phone-scale computer, a pair of digital lenses, and a front-facing camera, as well as a variety of user interfaces: eye-tracking, bone-conducting microphone and speaker.
There’s much scepticism about this idea, in the wake of Google Glass. But I think a lot has changed in the nearly five years since Glass launched. For a start, the amount of hours we spend glued to screen continues to rise, with the latest Deloitte figures showing many of us walk right across roads while staring at our phones. Secondly, our acceptance of cameras everywhere has grown. They’re now on many car dashboards, on cycle helmets, on drones, and in kids hands as little action cameras — every beach is peppered with people shooting in high definition. And no-one bats an eyelid.
This technology changes everything — particularly the front-facing camera. Now our machines can see what we see, and combined with all the other sensor data, including location, develop a hugely rich picture of our physical world interactions, as well as our digital interactions.
…more and more shopping is done for us
I’ve argued before that many of our low-engagement purchases will be handed over to a personal digital assistant. Toilet roll, tinned tomatoes, that sort of thing. No-one enjoys shopping for them, but no-one wants to run out. So why not let an AI-driven assistant ensure that you are kept supplied and never think about them again?
Increasingly I’m convinced that more of our high-engagement shopping might be taken over as well, or at the very least, assisted.
Right now, clothes shopping online remains a lottery. Inconsistent sizing, even within single brands, means that neither men nor women can shop confidently without trying goods on. And reverse logistics — the returning of goods — is an expensive nightmare for brands, especially when dealing with low-cost ‘fast fashion’.
Both of these issues can be solved. Manufacturing data could be applied to give the most detailed fit data, and supplemented with shared data from people who have tried goods on. With a digital personal assistant holding your measurements — updated daily every time your head-mounted camera catches a mirror — you could buy with extreme confidence something will fit.
Or your personal digital assistant could buy for you. Everyone loves surprise post. And we’re increasingly signing up for subscription-based purchases for everything from pants to organic vegetables. Why not give your AI some discretionary spend to surprise you with a new item of clothing every month — or even week.
With the rise of autonomous vehicle — including the rolling drones trialled in Greenwich last year — automated warehouses, and better integration of offline and on, the costs of reverse logistics start to fall. Brands can be more confident sending out goods that will fit and suit their clients. And know that if things do need to come back, it won’t cost the earth.
…but the tactile experience grows in value
All this suggests that there will be more damage to an already-challenged high street. But speak to 16–35 year-olds and it becomes clear that they have an enormous attachment to the high street and the physical experience it offers.
According to research I was involved with for the Salesforce Future Ready Retail programme, the high street is an important social venue for many (29%). 28% say they go for ‘something to do’ and 43% say they go just to get ‘out and about’. This trend is likely to increase: we have growing multiple occupancy in shrinking homes. People need a third space to escape to, so footfall shouldn’t be a problem.
But will they buy? Most of this cohort say they go to the high street to research or make purchases. 58% want to try items on or test them out. 54% want to touch or feel items before they buy. 51% value the high street for the instant access it provides them to goods. 38% are seeking ideas.
Altogether, 96% say they still like to visit actual shops on the high street and in shopping centres. The challenge though, is connecting this physical activity to digital commerce.
…necessity connects physical and digital
The reality is that many people try offline and buy online. Not only are the prices potentially better, but the convenience is increasingly greater. With rapid fulfilment, why lug your shopping back when it could be delivered to you, neatly packaged, by the time you arrive home?
As the figures above show, the offline experience is crucial to the buying process. The challenge is demonstrating that with enough confidence to continue investing in it. The widespread acceptance of augmented reality devices could solve this problem. The data will be there to track someone through a physical interaction with a product right through to their digital purchase. However, two problems remain.
First, we will not be able to make a causal connection, only a correlation. This shouldn’t be too much of an issue though: there is rarely a causal connection between physical advertising and the purchase, but nonetheless we continue to invest billions in it.
Second, there is no obvious mechanism for paying the provider of the physical world experience for the digital purchase. Should one retailer pay another because an online purchase was spurred by an offline experience in their store? Not likely.
More likely is that brands will start to have to foot the bill for physical exposure, and find ways to map the investment in one back to the returns in the other. In this scenario, department stores have an enormous opportunity, aggregating the costs of physical exposure and charging brands for the privilege. We may yet see the renaissance of the department store as a venue for people to touch and feel goods, even if their purchases are ultimately offline. Some may feel this is already what they have become, but in the future it may be a sustainable business model.
…in-store the focus is on product and service, not transaction
For those investing in stores, they will want to ensure that they can maximise the value of that investment. This means focusing on product exposure and service quality and not on the space currently devoted to transactions. Tills will largely disappear, replaced perhaps by RFID systems, but more likely in the long term by computer vision systems tracking goods around (and out of) the store — as seen with Amazon Go.
Human staff will be augmented by virtual assistants, powered by the full range of data captured about each shopper and what that shopper chooses to share from their own digital assistant.
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Have you heard of transactional memory? It’s the outsourcing of memory to other people around us. You don’t remember your nephew’s birthday because you know your other half will. You don’t need to remember to get the car MOT’d because you know your other half will. By outsourcing this way we can store much more than we can fit in our own heads.
Human beings have always been looking for ways to be more than our own biology allows. We’re a race of toolmakers, determined to turn every material we can find to our advantage. Whether it’s a stone axe or a smartphone, we’re keen to augment ourselves to be more than we could otherwise be. Do more than we could otherwise do.
This deep and ingrained comfort with transactional memory, and our own desire to augment ourselves, is why I think we will so happily accept AI extensions of our own selves. A transactional relationship with software agents that extend our memories, our processing power, and give us the ability to do what every busy person has always wanted: to be in two places at once.
Hold that thought.
For the time being, the biggest battleground in digital marketing is still search. What this means is people spending billions of pounds and using all sorts of sneaky means to ensure that when you type the relevant words into Google or Bing, theirs is the first brand that you see.
You may not think it, but Google and Bing are your friends here. Every day its engineers go to bat to make sure that what you see when you search is not what someone else wants you to see, but objectively the most relevant answer to your question.
On the other side though, every day, every brand’s agency is working to do the opposite. To ensure that whether you’re searching for car insurance or cat food, it’s their clients who appear right at the top of those search results.
Two sides locked in a constant battle.
Hold that thought.
Tell me: do you enjoy buying toilet paper? Really? Or tinned tomatoes? Or washing powder? All those things that make up a good chunk of your weekly shop. Things you really need, but honestly, do you really want? Do you lust after them? Are you fulfilled by finding that perfect pack of triple-ply?
What if you could have a transactional relationship with an artificial intelligence who ordered those things for you. Ensured that you never had to think about them again. They would always just be there. You would never run out of washing up liquid, or dog food, or nappies again. It has access to your credit card and an online store, and limited scope for discretionary spending against a list of key items.
Outsourcing plus tools.
Now imagine the battle that is going on behind the scenes. Today that battle is between marketing agencies and search engines. But what happens when you stop searching? When you allow an AI to do the searching for you? Imagine how much effort will go into influencing your AI to buy a particular brand. This is the next big battleground and there won’t be a single human on the front lines.
Personalised marketing engines will suck in huge amounts of data about you and your peers and serve endless offers at your AI, only for it to bat them back. 99% of them will be rejected. But every now and again, based on appealing to the criteria that your AI has been given, or learned, it will change your brand of toilet paper, cat food, shower gel, or, yes, cereal.
What might that data be? Let me give you some ideas.
For a start, we will all be wearing cameras on our heads, all the time. Your AI won’t just know what brands you buy, how much you use, and when you need more, it will know what your friends and family buy and use. People like you bought things like this? Imagine Amazon’s recommendation engine turned on its head and brought into the physical world.
Your smart glasses won’t just know what you ate elsewhere, they will know how much you enjoyed it. Heart rate monitors, breathing, galvanic skin response, even an EEG reading brain activity. All this is today’s technology the output of which can already be used to reliably interpret emotion by an AI. Sampled a different cereal elsewhere and liked it? You may find a box in your next order.
But only if it’s good for you. Your personal AI will know a lot about your health. We already pump data into systems like MyFitnessPal, recording our diets and streaming data from our Fitbits and connected scales. A few years ago I made a programme called ‘In the future, toilets will be our doctors’. I wasn’t kidding. You can learn a lot about what’s going on inside you by looking at what is coming out of you.
We are already on this journey. We have outsourced our memories to digital calendars. Our sense of direction to GPS.
We are increasingly comfortable with subscription-based shopping models for everything from films to food, razors to pants.
The future of retail — at least large chunks of FMCG — is automated. Decades of marketing to humans will increasingly be turned on the AIs that assist us, trying to game them into switching our brands. This is the new brand battleground.
Mum hasn’t gone to Iceland. Nor has dad. And they haven’t sent the kids. The AI has done the shopping and it has bought you exactly what you need.
Why there is more food, more noise, and more competition, and what to do about it
(Based on a talk I gave at the Independent Food and Drink Academy, Leeds, September 2017. I’ve also published this as a Medium Series designed to be read on a phone — if you’re a Medium user, I’d love your feedback: The Plenty Problem (Series))
The biggest driver of change right now is technology. It may not always feel like it, with Trump and Brexit, the economy and the climate.
But while all these things are changing the world at a linear rate, some of them in ways that can be reversed, technology continues to drive change at an exponential rate.
And you can’t un-invent technology (though if Lil’ Kim gets his way, we may be fighting the next World War with sticks and stones).
Technology drives change through one mechanism. It lowers friction.
Technology might just as well be called ‘tools’. What tools do is allow us to achieve a given end with less effort. It doesn’t matter whether that end is predicting the weather, putting a satellite in space, or portioning a chicken. The right tool makes this easier.
Of course once one person has the tools to do things quicker, faster, cheaper or better, everyone else needs them in order to keep up.
It is this competitive imperative that maintains the accelerating effect of technology, whether it’s an arms race between governments or a profit race between corporations.
Or, just us at home keeping up with the Joneses.
Where technology intersects with the other challenges that we all face, at home and at work, it has five distinct effects. I’m not going to talk through all of these today, but I want to pick out two with particular relevance to your businesses.
Diversity, and Performance.
Technology has lowered the friction involved in starting and running a business, to the point where we’ve had record numbers of start-ups in recent years. This might also be driven by the poor state of the employment market but technology is a very large factor.
I do a demonstration in some of my workshops where I get teams around a table to touch all the key sources they need to start a business. In the space of twenty minutes a small team can do almost everything they need to get a business going. Source supply, set up a website, register with companies house, create a marketing campaign.
What’s the one thing they can’t do in that time? Open a bank account. But finally that seems to be changing.
Opportunities and threats
The result of this growing diversity is both opportunity and threat.
Technology means you have access to more suppliers than ever before. There just are more, and they are more connected.
Global suppliers connected by high speed communications networks, shared payment systems, well-worn paths for goods, and common languages. And local suppliers, who previously may only have been found by word of mouth but who now tweet out their wares.
Technology means you have more competition. There’s more information about how to start. More sharing of a culture of food. More access to the information about skills, requirements, and where and how to sell. More competition for premises.
Technology means there’s more channels of communication between you and your customers. But also more noise on those channels.
And this brings me to the second change effect of technology. Information flow.
We all deal with a higher rate of inbound information now than at any point in the past. We are bombarded with multimedia messages across a huge range of channels from the billboard across the street to the little battery powered magic box in our pockets.
You might not be surprised to learn the results of some research I did with Salesforce on the future of retail.
We surveyed seven thousand millennials around the world, and far and away the greatest influence on them is not television or celebrities, but their peers.
This is what creates the environment for recommendations being so powerful but it also inserts a huge amount of distractions into your communications with a potential customer.
Attraction and retention
In short, there’s always somewhere else to eat and always a friend trying to drag them there.
So what do you do about this?
One approach is to keep attracting. Pulling a constant stream of new visitors to your pop-up, stall, restaurant or bar. But increasingly large brands are directing their attention to retention. I recently spent some time with the heads of direct marketing agencies and they were all conscious of their clients investing in the tools of retention: customer experience and customer communication.
Is this a better approach for food start-ups?
The problem with building relationships is that it is expensive. It takes time to build engagement, and at small scale there’s limited opportunity for, or value from, automation. If you’re going to build a relationship, there have to be better returns from it for you than the occasional dinner.
One option is to sell more than food. The early days of any start-up — not least a food or drink start-up — is about building a brand. If your brand appeals there may be all sorts of opportunity to sell beyond your experience. Just look what you can sell by sticking the Frozen sisters on a product.
Perhaps you can become a retailer for your suppliers? Perhaps your brand is strong enough to support your own merchandise?
Circle of influence
The other option is to turn those customers you invest in, into your marketing force. This is something I see a lot as a judge of the UK Social Media Communications awards. The conscious creation of a circle of influence to amplify your message, achieving both attraction and retention.
(Something I don’t see many food start-ups doing is maximising the value of the content they already produce to feed this hungry group of influencers. Not actual food but information and media around it. The kitchen is a rich source of content. Share it.)
When doing this though, you have to be aware of the changing context of the world that your customers live in. And here the news is perhaps more positive.
Macbook. Fixie. Beard.
I’m fond of joking that there is a generation of young men in cities across the UK who own nothing but a Macbook, a fixie, and a beard. You could probably generalise by dropping the beard.
The point is that much of the media clutter of past eras has been eliminated by digital platforms, at the same time as a clear cultural shift from acquisition to experience — as shown in recent ONS stats.
Demand for third space
In parallel with this demand for more experiences, we are seeing people face declining space in their homes. More people are sharing homes, later and later in life. That might be single people or couples sharing houses for longer because of the cost of getting on the property ladder. Or it might be four generations sharing the same home.
I recently contributed to a project on the 4G (four generation) kitchen being run by the National Innovation Centre for Ageing at Newcastle University. There were considerations of safety and accessibility but also design: how do you make a shared space desirable to everyone? Perhaps you can’t.
Of course, we used to have a shared space we could all go to, to get out of the home. It was called the pub. But over time the meaning of the pub has shifted, its role in community declined, and ultimately many of the older pubs that fulfilled this role have closed.
Maybe it’s time for a renaissance?
Desire for the physical
The third contextual trend to consider, is the growing valuation of physical experiences in an increasingly digital world.
There’s no doubting the convenience of digital — it’s very low friction. And hence it consumes the bulk of the market. But the resurgence in vinyl that we have seen, as well as the sustained viability of print books, suggests we still value a tactile experience. In fact, we value it all the more.
And, bar one, there is no more tactile experience than eating.
The best of times, the worst of times
In summary then, you are starting up at perhaps the best moment for a food business. A growing share of household spend goes on eating out. There is a clear focus on experience in popular culture. And a rising appreciation of physical experiences in contrast to the increasingly digital nature of the everyday.
But you also face some of the greatest challenges. More competition. And more noise for you to cut through to reach potential customers. You have access to ‘weapons grade’ marketing tools unavailable to any previous generation. But so does everyone else.
Amazon is to test drone delivery in the UK. Will the future post mean drone delivery to your palm?
Right now, next day delivery via Royal Mail will set you back 64p for a letter up to 100g. It’s such an ancient service that giving that weight measurement in metric form just seems incongruous. The letter, so often analogised in modern digital communications systems, has been in decline for years. Meanwhile, parcels are on the rise, as we do more and more of our shopping remotely. Last year, studies from both Barclays (with Conlumino) and Metapack (with the IMRG) suggest we topped the 1bn parcel mark.
Hence the interest in this area. Deliveries are slow, awkward, expensive and labour intensive. For now.
For not much more than that 100g letter, Starship’s rolling drone can carry two shopping bags over the last mile from store to door. And now Amazon is testing flying drones here to deliver goods to your door. Or more likely, a coded mat in your back garden.
These feel like interim steps, for different reasons.
The Starship drone delivers to selected time slots right now. It can’t be long before we allow our supermarkets access to our location so that they know we are at home — or even on our way there — and they send the goods along to meet us. Does this carry all sorts of terrifying implications for security and privacy? Absolutely. But the lesson of the last few years is that we will trade an awful lot for convenience. And if they get this service right, it could be very convenient.
Imagine combining subscription-based purchasing with autonomous delivery. You’re on the train home from work when you get a message from your supermarket of choice: “You’re running low on some key items at home. We notice you’re on your way. Is it OK if we drop your goods off in 15 minutes? Click to confirm.” You get another message when the drone is one minute away so that you can meet it at the door.
Amazon’s drone experiments feel like interim steps not because of the timing but because of the location to which they will deliver. Static delivery locations already feels rather last-century in our mobile modern world. We move around a lot, both our homes (increasingly rented) and our workplaces (increasingly a selection of stopping points and coffee shops). And some of the goods we want to order, we want wherever we are.
One payment provider did an experiment (I won’t name them because a quick search didn’t bring up public information about this) where they offered people delivery to their location, wherever they were — even if they were on the move, by tracking their phones. What did people buy? Things like phone charging cables. The accoutrements of modern day life, the lack of which they can’t easily complete a day without.
On day one, delivery like this will feel like a novelty. But I don’t think it would take long to become normality. Forgot your phone charger? Your drone will meet you outside in 5…4…3…2…
But there’s limited demand for this. As the Barclays study showed, clothes and accessories make up a huge proportion of deliveries and their growth. I can think of a few situations (and have experienced some) where you want fresh clothes delivering to your exact location. But it’s not an everyday experience. At least not for most of us.
Drones continue to present practical problems too. To be of a size and power to deliver anything of scale they will continue to be relatively large and noisy, though efforts are being made to diminish both factors. Right now you don’t want one up in your face, and you certainly don’t want an army of them dropping goods to every person at a bus stop: the injuries would only be outweighed by the irritation.
Future post is drone delivery of one form or another. Time to suit our needs and delivered to our location. But physical deliveries will always be bound by the realities of the physical world.
While preparing a pair of foresight workshops for a new consulting client, I came across what on face value is a blatant challenge to one of our five Vectors of Change: Diversity.
The Diversity argument goes that in an an increasingly connected world of globalised trade, where increasing access to technology is lowering the barriers to market entry, you will see greater diversity at every stage in the supply chain. More manufacturers, more distributors, more retailers, and a greater range of products and services flowing from one end to the other.
But this doesn’t appear to be the case in my client’s market, food. On the contrary, major retailers in the UK have been dramatically cutting their SKUs, the number of product lines and variants that they stock.
Is this the exception that proves the rule or a challenge to the very principle behind it?
Thankfully, it’s neither. Though to understand what’s happening you have to examine each stage in the food supply chain separately: each is at a different point in its evolution.
To use Deloitte’s terminology from its 2013 report on the food value chain, there are four main stages: producer, processor, distributor and consumer.
The production side of food is very diverse but in an undeveloped state. The Diversity vector was identified while focusing on developed markets where there has been consolidation and now the opportunity created by technology is driving a challenge to the established players.
It’s clear that we need to consider the position of a market segment on a timeline of development when deciding whether it’s ripe for diversification.
Looking at the UK market, producers are under pressure and as this story highlights, going under at record rates. But technological innovation is starting to show where Diversification could come from. Groups like Biospheric Studio are now producing high-grade ingredients in cities and close to their customers (mostly restaurants) using connected indoor ‘farms’. The price of this technology is collapsing and its accessibility climbing. I don’t think it’s long before it goes from maker grade to consumer grade: the ultimate diversification.
At the processor stage there’s no slowdown in the production of new products, as this article shows. This diversity just causes an accelerated shakeout of winners and losers as the products succeed, or mostly fail, when they enter the retail environment.
At the distributor level is where there appears to be an aggressive trend to reverse diversification, most extremely at Tesco, but also at other retailers and across categories. But is this about a reduction in choice? Or is it really a rather unsophisticated answer to the discovery problem?
The discovery problem is a natural consequence of Diversity: how do you navigate the variety of options? Given the cost that diversity presents up the supply chain for supermarkets, as well as in-store, it’s a natural step to try to slim down. But do consumers really want less choice? Or do they just want not to have to think too hard about which choice is right for them in the moment they are walking down the aisles? In other words, choice is great until it is hard work.
Some choices are clearly without value: no-one, I would argue, needs “three bays of air freshener.” But a gluten free biscuit option? That adds value. The consumer just needs a better way to find what is right for them, and the retailer needs to be smarter about what they stock.
Given the increasing diversity of retailers — about to grow by one as Amazon Fresh enters the market — the total number of lines stocked here in the UK is likely growing*. It’s just that individual retailers have learned that trying to be all things to all people (and taking payments from suppliers to stock their multiple lines) is counter productive.
The lesson: Diversity is real and it isn’t going away. But some approaches to tackling it can disguise its presence. And it is only in maximum effect in developed segments that have already been through some consolidation.
*This is perhaps a controversial argument given the loss of so many smaller stores in the face of the 80s and 90s supermarket onslaught. But IGD’s most recent few years of figures suggest a decline in the prevalence of the hypermarket model and a growing diversification. For example, inside the online channel is a ~£250m market for organic veg box delivery. Elsewhere there is an increasing range of ethnic food stores up and down UK suburban high streets.
I talk a lot about diversity in my work. Not in the sense of a more balanced and equal workplace or society, important though that is. But rather how technology has lowered the barriers to innovation and market entry, inviting more competition at every stage in the value chain.
This is one of our five ‘Vectors of Change’ that form part of our Intersections foresight tool.
Sometimes the rapid innovation of new entrants will completely kill off incumbents. In describing one of our other Vectors of Change, Agility, we give lots of examples of this. Companies that were so bound to their way of doing things that they couldn’t change when the time came, even if they saw it coming. Kodak, Blockbuster, HMV. There are many more.
Most of the time though, new entrants don’t completely destroy the incumbent. They just diminish them. Limit their opportunities for growth.
Like physical music sales in the face of digital. Often when I’m speaking to an audience and talk about digital music destroying HMV, people retort that HMV has returned from administration and is now profitable again. That vinyl sales are on the up.
These things are true, and I give my hearty congratulations to Hilco, which has turned HMV around. But this success needs to be put into perspective.
Over the last year, worldwide revenues from digital music sales — downloads and streams — significantly overtook those from physical sales. 45% to 39%. In the UK, streaming climbed 82% with digital formats now representing 54% of all UK music consumption. Vinyl accounted for just 1.7% of album sales, albeit it saw significant growth. CD sales fell (as did downloads) in the face of streaming growth.
When you take into account other physical format sales, like video (down 15% by these figures), the future does not look bright for large-scale high-street media stores. That’s not to say that there won’t be retailers of physical media, but they will probably be relegated to cheaper back-street locations where the economics make more sense.
Low-friction, digital formats increasingly hoover up the mass market — half a billion music streams a week just in the UK. But the physical formats still have a place. Their retailers will still be in the market in the future, but will represent a small proportion of it, catering to one niche in an increasingly diverse economy.
The caveat to this is experience. Based on some research I’ve been doing for a client recently, there remains a big demand for the physical shopping experience. People like to experience goods and socialise around shopping. The challenge is translating this experience into revenue, but solve that problem and our high streets may stay a little more diverse.
On Saturday morning, 2nd Jan you can see me on Channel 5’s Saturday Show. One of the questions I’ll be asked is ‘what’s big for 2016′? In case I don’t do a very good job of answering it*, here’s what I hope is a better attempt.
In 2016 it will become clear that the niche trumps the trend.
Fashion is a funny concept. The idea that people of a whole range of shapes and sizes, tastes, cultures, colours and personalities will each season choose to sport the same set of styles? I’m sure you could make sense of it with some pop-evolutionary psychology: that it’s a status marker, or creates a sense of belonging. In fact, a quick google search throws up a number of academic papers and presentations to this effect.
But in a globally connected age, with access to so many different options and influences, do we all need to dress the same?
Our sense of belonging doesn’t need to be established with the people who are geographically close to us. Or more likely, we can suffice with a smaller group of local peers if we know we’re a part of a larger tribe online.
With access to global supply chains, we can source the fashion to suit our style at any time, and suppliers can find a market for products that previously may have been too niche to manufacture economically.
This rule doesn’t just apply to fashion. It applies to music, film, and television. We may all get swept up in Star Wars fever but at home we’re watching a hugely diverse array of programming.
The same rule applies at work as well. The low-friction nature of international, digital commerce seems to be dividing companies into ‘platforms’ and ‘players’. Platforms are horizontally relevant (across industries), high volume service providers that connect and support others: Google, Amazon, Facebook. Everyone else is a player: small, niche companies offering high value in small volumes, to an increasingly global market**.
Fashions and dominant trends, in any sector, are not going away. But I believe their importance will decline as the oracles that we each follow begin to diversify.
* Let’s just say I’ve seen the future…
** This makes the middle ground much harder to occupy, something I will write about more.
One of the best pieces of anecdotal evidence for an accelerating commercial world comes from order sizes. In an uncertain world that is changing fast, companies don’t want to gamble on big orders, instead preferring smaller, more frequent deliveries from their suppliers.
This morning at the Insider ‘Made in Manchester’ event where I was speaking, two very successful but completely different manufacturing firms reported that their customers were asking for just this: faster turnaround times on smaller volumes.
Holding large amounts of stock has always been problematic for businesses. While it gives you — and perhaps your downstream customers — reassurance, it ties up capital and requires you to operate a larger warehouse yourself.
Practices like Just in Time (JIT) were designed to eliminate a lot of excess stock, freeing capital and reducing operating costs. But while they had the cash and the certainty, lots of companies continued to hold large amounts of product in their warehouses.
The alternative was more challenging: capital investment in the skills and systems to manage a leaner process. This in itself is risky: just look at how many large IT projects fail. Screw this up and you could have catastrophic customer service issues. So companies put off the investment, preferring the certainty of higher stock levels.
Until recently. Because while cash (debt) remains relatively cheap for those who can get it, certainty has been eliminated. Now companies are doing anything that they can to minimise the consequences of a misstep.
This manifests itself as smaller and more frequent orders — perhaps made possible by improved technology. But it also manifests as changes to employment practices — the increasing use of freelancers and the rise of the zero-hours contract.
If you’re sceptical about the idea of a faster-moving, more uncertain business environment, just speak to a manufacturer.
I just signed up to thread.com and had a consultation with a personal stylist. A pretty eminent one too. She asked me some questions about what I wear, and the brands I like, and she looked at some pictures of me (poor woman). Then she recommended some outfits.
The result: I liked most of what she plumped for. In fact I already owned a couple of very similar items. Clearly I have a better sense of style than I thought…
The site already had my sizes. I handed over my credit card details and picked my favourite items. I’ll try them on at home, and if I like them, keep them. The site — and my stylist — take a margin on the transactions.
It’s a very personal service: even mediated via webchat you know you’re dealing with a real person. It feels premium, yet it costs you nothing. But most important are the recommendations.
Amazon has reportedly spent millions of dollars building its recommendation engine — the software that drives the suggested purchases at the bottom of the page. Yet I find I am much more likely to find something I want to buy on a walk around Waterstones.
This is a problem both for the online retailer and the high street.
The online retailer would like to replicate the feel of a premium high street store where an attentive shop assistant helps you find what you want and recommends suitable purchases. Why? Because you will spend more.
Doing this economically usually means automating the recommendations. This is not something computers are necessarily good at — hence why Amazon has spent so much.
The high street has a problem because more and more of us are discovering what we want on the high street and then buying it — usually cheaper — online. So-called ‘showrooming’.
Thread.com has avoided the multi-million-dollar development costs by giving stylists a way to earn a few extra bucks. Work as a stylist — I can believe — is not 9–5, Monday-Friday. It is intermittent: frantic weeks followed by frantic worry. With a few minutes here and there, and an internet connection you can earn some cash just by doing what you do from the comfort of your home, your bed, coffee shop or local bar.
This is a prime example of the sort of secondary income that I believe many of us will need and have in the future. But it is also evidence of the current limitations of personalisation technology and recommendation engines.
One of our long-term goals with CANDDi was to recreate the local shop experience, where the retailer knew you just well enough to create a personal, engaging shopping experience. We can do a lot of great stuff with the software, but we can’t do that — yet.
Even when we can, personal recommendations will retain a premium value. Dealing with a real human being will be something we pay for, either directly or via a margin as with thread.com. High street stores may start to offer virtualised personal shoppers — real people but communicating with us remotely — as a way of providing more support in-store but with a lower cost (and potentially more knowledgeable service) than a body in-store.
Whether they are recommending boots or books, gadgets or grub, human recommendation engines are here to stay.