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Liberalization
& Empowered Consumers
By Michael Alan Hamlin
April 26, 1999
The closest I’ve ever gotten
to meeting Henry Sy is seeing him from a distance at SM Megamall,
where he was proudly showing guests around Asia’s third-largest
shopping center. Mr. Sy, I’m told, intends to build Asia’s
largest shopping center — The Mall of Asia — along Roxas
Boulevard early in the next century. Meanwhile, he’s constructed
smaller versions of his trophy malls in strategic locations throughout
Metro Manila and in growing commercial centers and residential clusters
in the provinces.
But is saturating commercial and
residential enclaves all Mr. Sy is doing as he, and the retail industry,
react to increased competition and the expectation of substantial
liberalization of the retail sector later this year? In my view,
like other visionary business leaders in Asia, Mr. Sy is also investing
heavily in people and technology, apparently convinced that the
best minds and the latest technology are also critical components
of viable competitive strategy.
Recently, I’ve had the opportunity
to meet up a couple of times with Roberto D. San Juan, who is assistant
vice president of the MIS Department of Supervalue, Inc., which
is the SM supermarkets. Mr. San Juan — along with his boss,
SM managing director Manuel J. Fong — is one of the key people
Shoemart has recruited to drive continuous development of one of
Asia’s top retailers.
To understand why the investment
in people and technology is so critical for SM, consider the challenges
before the retail sector. As we already know, the Asian financial
crisis, globalization, and liberalization are dramatically changing
the way business is done in the Philippines — and Asia. For
the retail industry, market leadership — as the sector does
liberalize and becomes even more competitive — will ultimately
be determined by how well companies do three things.
The first thing is to capably manage
the extended value chain as if it were a virtual corporation. The
extended value chain must be linked from raw material producers
to retailers and even consumers. Efficiency and productivity enhancements
depend on how well the extended value chain is managed. Mr. San
Juan defines the extended value chain as "a collection of business
entities or assets involved in the flow of products from raw materials
procurement, through manufacturing and logistics, to delivery of
finished goods to customers."
In the Philippines today, "businesses
are now beginning to view the supply chain as a single, integrated
flow across all of the functions of their business," Mr. San
Juan says, that addresses three challenges to increased efficiency
and productivity: 1) excess inventory; 2) high warehousing and transportation
costs; and, 3) poor communication. Excess inventory ties up capital
exposes the supply chain to sudden shifts in consumer preferences.
High warehousing and transportation costs likewise tie up financial
resources. Poor communication increases the costs of transactions
and prevents synchronization of production to demand.
The benefits of better extended value
chain management, according to Mr. San Juan, are: 1) reduced inventories;
2) reduced operating costs; 3) improved product availability, 4)
better freshness and quality of short-life products; 5) better product
and category management; and, 6) more choices for consumers.
To realize these benefits, Supervalue
has developed SVINet, an e-commerce solution that links the company
with its suppliers to ultimately provide better service to customers.
SVINet moves transactions from the realm of hard copy shuffled between
the elements of the extended value chain to electronic bits that
zoom around the network. The benefits include better alignment between
costs and consumer prices, virtually instantaneous purchase orders
and confirmations, better tracking of returns, clear, electronic
audit trails, prompt payment, and accurate sales, inventory, and
tax reports.
The second thing retail industry
leaders must do, given fast-moving market conditions, is develop
systems that provide the right information, at the right time, and
then to put that information to work. Accurate information is crucial
to assure that the right product mix is available to consumers when
— and where — they want it. At any given time of the day,
managers need to know what product is moving, how quickly it must
be replenished, and the impact on cash flow and profitability.
Mr. San Juan uses the example of
7-11 Stores in Japan to illustrate how this works. "Product
mix changes three times a day," he says. In the morning, the
stores are configured to prominently provide products that the company’s
information systems say are in demand by customers rushing about
beginning their day. Following the morning rush, the shelves are
reconfigured to reflect less urgent mid-day buying patterns. The
third time product is shuffled it is done to meet the needs of consumers
rushing home from work, after a frenzied day: a container of milk,
diapers for the baby, or a sack of flour.
Finally, increasing share of customer
is vital to profitability, not market share. To increase the share
of business retailers do with their most profitable customers, they
must gather, understand, and put to effective use information on
what drives customer buying decisions. Putting this information
to use means developing practical, interactive relationships that
communicate value and convenience to the customer.
There are a number of ways that Supervalue
— and other retailers — are thinking about how to do this.
One is customer loyalty programs, where customers are presented
cards that are swiped through POS scanners. Using this information,
the company can accurately determine what customers are its most
profitable, and reward them with special promotions and well thought-out
discounts, especially on products these customers are not currently
using. The discount enhances the relationship, and encourages the
customer to try new products.
Another way is through Internet commerce,
or e-shopping, an area Mr. San Juan is looking very closely at.
While malling may be a habit that is fun, grocery shopping usually
isn’t. If Internet shopping frees up additional time for malling
— or other enjoyable pastimes — then it’s likely
to be a hit. Sure, customers will have to be satisfied that it’s
not necessary to smell or poke the produce to guarantee quality
and freshness, but a couple of deliveries that come up to standard
should do the trick. And Supervalue can leave the decision to accept
delivery up to the customer, to encourage them.
Customer-centric organizations that
do these things are changing the rules of competition in Asian retail.
Mr. San Juan, and Supervalue, appear to be at the forefront of change
— right where one would expect them to be.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
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