Your Shout: Massimo Franzese: Getting Offies back on track

"Technology can play a fundamental role in ensuring the survival of an off-licence" says Massimo Franzese, retail director of UK consultancy Leadent

There are very few industries flourishing today that do not have technology at the heart of their strategy. Customer relations, good product and good brand credentials are all important but these days each is facilitated by technology, and the off-licence is no exception.

This is an industry that has been under fire for quite some time. Supermarkets and online retailers have led the onslaught, with low prices and convenience their main weapons. To date, there have been casualties such as Unwins, but also great triumphs like Majestic which announced impressive results last month. Despite this, Tesco, Sainsbury’s et al seem indomitable in this field. But I firmly believe that off-licence chains can compete in a number of ways, and even flourish. To do so, however, they need to transform their business processes to become leaner, smarter and shrewder. 

Off-licences are never going to compete on price, hours or shelf space. Supermarkets, however, cannot compete in terms of expertise. This potential to demonstrate competence and knowledge beyond the call of duty at the high end of the market presents a huge opportunity for off-licences. But this is a “soft” solution. Where my experience lies is in operational efficiency and I’m afraid, for the technophobes out there, this means revisiting the IT infrastructure. 

Technology can play a fundamental role in ensuring the survival of an off-licence business and there are four key elements that should be addressed: cost structure; telephony and networking; inventory and price optimisation; and e-commerce. 

Cost structure

The issue of cost structure is as relevant to back office applications such as HR and supply chain as it is to IT. The theory is simple, in that the balance of costs should be transferred from fixed to variable. This ensures that if market share decreases so will costs. While this sounds like falling off a log it is not all that easy to set in motion, but establishing a “pay per use” base when it comes to IT costs is certainly worth persevering with. First and foremost, charges should be structured on a per store basis so that if the store chain changes, due to sales or acquisitions, this is immediately reflected in the variable fees. Traditionally, very few IT outsourcing providers have worked towards this but it is something that is now becoming increasingly available and retailers, particularly high-street off-licences, given the uncertainty of the market, should really consider taking advantage of.

First, an assessment should be conducted to look into the cost distribution and establish what degree is actually fixed rather than variable. This is generally not as simple as it seems as often costs that are considered to be variable are actually fixed as they do not depend on outputs but on actual use, which is not always related to performance. In fact, low-performing organisations often seem trapped in a vicious circle whereby costs increase as performance deteriorates!

Telephony and networking
Voice-over IP technology is the current buzz phrase in the comms industry and deservedly so. Essentially calls are carried over an IP network such as the internet and, as a consequence, costs can be drastically reduced, significantly affecting the bottom line. Largely, store support calls are routed through an 0800 number into the head office or via an outsourced provider such as a call centre – this can all now be managed at a flat rate.

E-commerce
While IT can enable off-licences to reduce infrastructure costs, it can also provide opportunities for improving profit and generating sales. Online retailing is now old news in most sectors but off-licences have not yet jumped on this bandwagon. Developing an e-commerce architecture is vastly preferable to opening a new, potentially unprofitable location. When it comes to on-line retailing, customer service in many cases is lacking and, again, this could present off-licences with a real opportunity. The ability to deliver from depots as well as from the closest store, in addition to extending delivery hours is highly desirable if e-tailing is to succeed in this market. In essence, e-tailing needs to work with the existing supply chain and not create further complexities.

Inventory and price optimisation

Inventory and price optimisation solutions have come a long way in recent years and are far more user-friendly than before. Merchandisers effectively no longer need skills in statistics. These systems also give a powerful insight into aspects such as discounts, promotions and replenishment that has not been available so far.

This is really just a summary of what technology is out there and available for off-licences to exploit. If implemented properly, bottom-line profits can be improved by anything from at least 2% to 5% which, given the competition in the market, is hugely significant.

Essentially, customers want choice and advice and if off-licences supply this through a cost-effective infrastructure there will be opportunities for them to assume a leading position in a more focused, but highly profitable, market.

© db August 2006

Massimo Franzese is retail director of Leadent, one of the UK’s fastest growing consultancy businesses