Then Nakumatt supermarkets surfaced and thrived to the chagrin of Uchumi. file photo | nmg
The essential fact about capitalism is
the process of creative destruction espoused by Austrian American
economist, Joseph Schumpeter.
The paradoxical term
“creative destruction” in economic terms implied that an entrepreneur is
one who would ceaselessly destroy the old by ceaselessly creating a new
one.
In other words, to succeed as an entrepreneur,
one must constantly create new forms (innovate) of enterprise, processes
and product.
Several explanations on why the retail sector is going through turbulent times have been advanced.
While
management of these retail stores blame their woes on the effect of
terrorism, pilferage and sabotage, customers and government say the
reasons for their poor performance is tied to mismanagement, poor
leadership and competition.
Neither side uses the Schumpeterian model to analyse the problem.
Uchumi
Supermarkets thrived when it was a monopoly. Then Nakumatt supermarkets
surfaced and thrived to the chagrin of the former.
The entry of Tuskys, Food Plus (Chandarana), Naivas, Mulei, Tumaini, and now Quickmart and Cleanshelf intensified competition.
With
the exception of Naivas and Tuskys, all retailers in the country
virtually offered the same products range under the same business model.
Tuskys and Naivas differentiated themselves by taking their stores
closer to customers.
Some of the stores came up with new innovative ways of dispensing milk at a lower price.
Tuskys specifically introduced potato bread that is gluten-free.
The
two retailers were first to introduce delicatessens that proved popular
with the millennials, forcing the other retailers to shift to new areas
of operation.
Then came e-commerce providers like
Jumia, Twiga Foods, Kalimoni Greens and many others that are nimble and
providing the customer with what, when, and they want it.
The new entrants’ had, in effect, deployed customer-centred strategies, providing unparalleled service performance.
To
date, none of the retailers, despite having enormous customer data,
has employed data analytics to better understand the customer.
Rapid
expansion without leveraging data, especially mobile data, backfired.
In some cases, the major decisions are made without the benefit of data.
Pilferage continues in spite of the Internet of things.
Now, they are closing branches they assumed would bring in more revenue.
With
the Big Data they possess, they should do more to understand not just
the customer, but how to optimise their processes and improve on areas
with the greatest potential for instant impact on the enterprise.
Not
many people sympathise with the failure of these giant retailers since
many of them have abused their purchasing power by failing to pay their
small-scale suppliers.
Their turnaround will depend
on the kind of supply chain management they put in place and create
sustainable partnerships with small suppliers by making prompt payments.
For now they will make do with upfront cash payments
even to the most desperate supplier and this is what is putting a
strain on the cash flow at the moment.
They have time
to turn around but if they delay, some technology company will in the
not-too-distant future buy them out and develop a mega platform for
distribution.
We are not too far off from having something similar to Amazon purchase of Truefoods.
The
inefficiencies in the retail sector are too appetising not to convert
them into profit. In their turnaround, the worst that can happen is
going back to the old business model. It won’t work in a country that
has more than 75 per cent of population below age 30.
Most of millennials don’t watch TV in ways that we know, they don’t read newspapers, so a full-page advert does not get them.
These
young customers will probably be fidgeting with some digital gadget.
Any time that you want to catch their attention, you must be ready to go
where they are and meet them in their own turf.
Therefore, any turnaround will have to incorporate these lifestyle changes that impact on all enterprises.
Schumpeter was right. Let’s abandon excuses and constantly innovate to remain relevant.
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