BUSINESS ADAGE:
What gets measured
gets done.
SENATE INQUIRY ADAGE:
What politicians measure
can be dumb.
Senator Nick McKim gained profile and notoriety, with one question in his exchange with Woolworths Chief Executive Officer, Brad Banducci, during the Senate Inquiry on supermarket prices.
“What is your return on equity?” seemed innocuous. It is one of at least forty metrics which can be applied to supermarket and business performance. Most are not applied or closely monitored in isolation, and therefore have little influence on day-to-day operations.
WHAT’S THE DIFFERENCE
Comparing the ratios of supermarkets with those of Australia’s leading banks was ill-founded and largely meaningless.
It may have escaped the Senator’s notice that banks do not have warehouses, fulfilment centres, shelves that have up to (and beyond) 30,000 physical stockkeeping units, significant logistics fleets (read: trucks) and retail premises that are typically 50 times and greater in area than bank branches.
Woolworths has over 1,000 supermarkets (and growing). CBA, Australia’s largest bank, operates a similar number of branches (and decreasing). The decline in branch numbers will accelerate later this year with the closure of Bankwest premises.
The differences, and varying performance measures are striking. Those same principles apply to legal firms, accountancy practices, engineering consultancies and advertising agencies, whose primary assets leave the premises at the close of each trading day.
INCOMPARABLE
It would be well for the Senator to visit the fruit and vegetable sector of a Woolworths supermarket and note that the stock levels and prices of apples, oranges, strawberries, cucumbers and lettuce differ appreciably. So too, the profit margins, costs and financial returns, measured on a host of metrics.
Validity applies
when you compare
apples with apples.
Perishable merchandise pervades the aisles and display stands of supermarkets. That is an inherent cost of doing business, which does not relate to banks.
A KERRY PACKER MOMENT
What was needed was a Kerry Packer moment. Bringing enquiring Senators to account would have been revealing.
Kerry where are you, when you’re needed most?
INCREASING COMPETITION
A key focus and conspicuous undercurrent of the Senate Inquiry on supermarkets and their pricing policies, which is chaired by Senator McKim, is the desire to increase competition, improve choice and to lower prices to the advantage of consumers, who are being subjected to cost-of-living pressures.
One significant fact in the Australian supermarket sector is that since its entry into the national marketplace in 2001 Aldi has opened and now operates some 593 outlets.
It has a presence in each state and territory, except one, Tasmania.
Nick McKim is a Senator representing Tasmania.
One is left to ponder when he will approach the owners and senior management of Aldi, highlight the gap in its national network, negotiate, detail the infilled potential of an attractive, if not inflated return on equity in the island state and conclude agreement for early entry in the local marketplace.
He could doubtlessly capitalise on his experience and expertise as a wilderness guide and employee in advertising.
His 12 years in Tasmanian State politics, during which time he did not occupy a finance or economic portfolio, may have only marginal relevance. That might be a political point.
MARKET ANALYSIS
Leading and managing larger Australian businesses, supermarkets in particular, is complex, challenging and subject to volatility, rapid change, intense competition and increases in the cost of doing business.
Specific skills , training, experience, expertise, systems and infrastructural support are required.
The margins for error and profits can be, and often are, wafer-thin. Current business liquidations, failures and administration rates are stark reference points.
External resources are often sought, retained and introduced to improve performance.
It is noticeable that input from practicing politicians is seldom solicited.
Gratuitous advice from that source is typically valued at cost. That is, nothing.
The pre-requisite qualifications for politicians is questionable, often not qualifiable. In Western Australia, with one notorious Cabal power-elite, the over-riding pre-requisite was an ability in branch-stacking.
Some things simply don’t add up. Many are not equitable, and therefore returns on that equity is questionable.
One irrefutable fact for supermarkets and all businesses is the need for fairness and equity in the dealings with suppliers, wholesalers, distributors, growers and farmers.
FOR INTERVIEWS:
CONTACT:
Barry Urquhart
Marketing Focus
M: 041 983 5555