This opinion paper looks at some aspects, challenges and opportunities that branding concept faces on local retailing business.
The Romanian retail landscape is changing under the pressure of global and international retailers’ presence and consumers’ life style change. Can Romanian local retail companies cope with this threat?
We refer to retail as to the activity of selling goods and services for use and consumption, from hypermarkets, supermarkets, discounters, category killers specialty and proximity store, DIY, etc. to food service, drugstores, phone dealers, fashion stores, home lifestyle stores, etc..
From the perspective of the retail activity position in the value chain, there are different types of business:
— businesses that are in fact retailers (hypermarkets, supermarkets, department stores, discounters, DIY, etc.);
— businesses where retail occupies a certain place in the value chain among other activities (eg. banking, drugstores, etc.);
— businesses where the retail component happens through a retailer (most of FMCG, pharmaceutical companies, etc.);
— businesses that, through their nature, don’t imply any retail activity (most of B2B services, Internet-based businesses, mass media, etc.).
In this article, we will refer to retailers that are doing retail as core activity.
According to Brandient for BusinessWeek Top 50 Romanian brands 2006 study, the most valuable Romanian brands have actually a strong retail component in their value chain. Gas stations, banks, drugstores, specialty dealers, home appliance traders, they all see retail as a vital part of their value chain. Retail is for sure a very strong brand awareness builder and this could be part of the explanation. Being a visibility and communication tool, retail space can be used in order to achieve better brand performance — a fascia placed in a key-location and a “clean” window can outperform the efficiency of an advertising campaign and work on a long term. On the other hand, a good retail brand means that by entering a retail place, a consumer should instantly learn what that brand stands for. But, what is more important, retail is the place where the brand meets the client. Few brands have this possibility; most of them wait on the shelf to be picked by the consumer. In this case, brands have the power to actively attract the client, and thus, increase the chances of closing the deal.
If managed right, retail can improve the performance of the brand, and hence, secure the business future.
A JUDGMENT OF THE ACTUAL SITUATION
The Romanian retail landscape is a colorful, mottled, and crowded place, due to both the dynamics of the local entrepreneurs and the penetration of foreign international and global companies. It is a rapidly changing and growing market, as the figures show a 25% rise in the retail turnover for 2006 and we can claim that in urban area, retail has become ubiquitous. Still, it is yet an immature market, in the growing stage: for example, in France, there is one hypermarket to 44.000 inhabitants, in Poland (the largest retail market in the CEE), one hypermarket to 200.000 inhabitants, while in Romania, there is one hypermarket to 450.000 inhabitants. We can also observe a passive attitude on the supply side, as demand still exceeds the supply. The trading philosophy of the local companies is another sign of the immaturity of the retailing sector: local entrepreneurs are just very good traders, margin collectors, they are not looking to create and sell added value. On the other hand, the consumer is in the transition stage from the “I need” to “I expect”; although decreasing, the Romanian consumers’ food expenditure still makes up about 50% of their total spending, comparing to 18% in the UK and 15% in France.
Another sign of immaturity is the fact that comparing with countries with more developed retail sector, local private labels account for less than 5% of the market (on average 45% of products bought in Europe are private labels, according to John Stanley Associates; in Hungary, the best ranked, private labels account only 12.3%). Private and own labels are a maturity sign in retailing, as they reflect a deep understanding of the importance and role of the brand, an evolution from the trader status to the retail brand status. A few local retailers have introduced in their portfolio own and private labels, capable to assure them high growth and control on value segments.
While observing the important quantitative growth of the Romanian retailing sector, the qualitative angle of growth will have also relevancy in our approach. A few aspects are to be taken into consideration here:
a. Retail chains power is based on the number of locations and, yes, especially now, it is about good shareholder value to get in the real estate business. The truth is that just a few of the local retail chains have good location from the perspective of traffic. A potential comment here is around the fact that Romanian communism destroyed the commercial areas of cities, as result of poor knowledge in city systematization job or as result of the communist leaders fear to get together large number of people. Therefore, the big local retailers are owning in average 100 to 200 outlets in food business and electronics for example, but just one out of tree is good located in traffic.
b. The store aspect reflects the trader philosophy; with some exceptions, the store is reduced generally to its storage function and the knocked together PVC shops prove a profound misunderstanding of the business (entrepreneurs are not striving to satisfy the consumer, but only to cash the money). The poor signage — not scarce, but visually unattractive — stands for a chaotic transition to market economy. The lack of functional aspects is another characteristic of local outlets. And probably the most important observation is that the store is not seen yet as a tool of differentiation and communication, so it misses an important role in building the brand image.
c. Romanian entrepreneurs hardly make the difference between company name and commercial brand, thus names are totally unappealing and are rather appropriate to small family businesses. There is also an abundance of “prod”, “impex” particles in the local verbal identities. There are also cases in which entrepreneurs did invest in their names for years (through expensive advertising campaigns) and they haven’t had trademark property on that names, being obliged to pay fortunes to get the right of owning their names.
d. Range is rather selective, and covers predominantly the lower segments of the needs’ pyramid. Retail shops can’t afford to offer a wide range of products and lot of the businesses in the countryside due their “glory” to the Chinese merchandise. Range is for sure a key success factor in retailing and the huge success of Carrefour, home improvements, DIY and other big boxes concepts just prove it.
e. The market is value for money for most categories, while the rural retailing system has become a driver of the low-end products. Price is the main hook that attracts customers in the shops.
As price is the main buying criterion — even the leaders have to be competitive in price, most retailers are trapped in the low price race and this battle is far from being over. Category killers tend to become the dominant model in retailing (actually it has the highest rate of growth globally). Still, focus on price is not enough, when the in-store services are low or non-existent. The Romanian entrepreneurs are concentrated on transactions, not on lifetime customer value. The customer relationship management must assure the control of all aspects of selling. Local retailers are aware that services only do not attract success if there is not price competitiveness – which is good, but they do reduce their promises to the price only.
f. The in store and post services strive to find their place in the value chain of retailers; in spite of the fact that services are a major component of any retail business, they are not given enough importance; a possible explanation could be the fact that price is so important and it doesn’t cover “premium” services (such as the attitude and the civility of the salesman). Some retailers seized the opportunity and use services as a competitive advantage or even a positioning tool. Still, in this stage retailer do not understand yet that the key success factors rely on price and range, but the differentiation is built on services.
Nevertheless local retailers do not believe in branding and therefore their entire effort misses the right answer to the contemporaneous dilemma in trading: store choice versus product choice. Apparently, customers firstly choose the store and then, the product brand.
Traditional way of building and managing brands applied in retail does not work. At the question what retail branding does mean, the answer is a little bit more intricate: retail brand is more than product brand, more than services brand and more than location/environment brand – it is about all of them together. Of course that the basic principles of branding do apply. Plus the difficulty in segmentation and in reaching customer loyalty. The main problem in segmentation is based on the multiplicity of retail brand attributes. It is hard to do a good segmentation job when in the majority of cases the outlet want to sell to everyone, everything. Brand differentiation is a major challenge in any store – being it a DIY or a supermarket or a category killers outlet.
Differentiation was not an important task for local retailers, so there is a lack of brand distinctiveness. The Positioning Statements are weak, non-credible and non-relevant from the perspective of consumers. Some of the retailers also promise things that they are not capable to deliver, because they have no understanding of their own competitive advantages (if any). Some of the local chains have already started creating distinctiveness through design, and this reflects a change in their approach.
But distinctiveness is not enough in retail. Consumer trust is actually the lord of this industry. Brand loyalty in retail is based on customer trust. In order to deliver this, a melange of pragmatism, functionality, emotions and entertainment must be delivered. The name of this game is brand experience. Customer trust means customer loyalty and we have to admit that it is quite difficult to deliver reliability, availability, integrity, empathy, openness when 1000 frontline employees have no idea about the companies’ way of doing things or about the consumer expectations. And here the brand engagement programs will make a difference.
Another sign of branding weakness in retail is the lack of private and own label, a point we have already reached above.
Brand Identity in local retail is poor rated: consumers have no idea of what they should associate the brand with. They did lots of advertising, but without a clear identity, they usually failed to build genuine brand image. The ones making a difference are situated in the Top 20 Romanian local brands. Identity is linked with the organizational values and vision and the problem is that to grab opportunities and to reach good transactions was the only mission statement that local retailers used to have.
On Romanian consumers — they are changing, of course. They are changing day after day, and over the past two — tree years they have passed through a process of significant shift in their expectations: the lowest price is not anymore enough to attract them, but it is a must in their needs; they learn that there is no free lunch and “the lowest possible prices for the highest quality products” does not exist. So their expectations are directed now to a fair honest price and to a good ration price quality. They are avid for information and they need trust and no surprises. They want retailers to simplify their choices, protect their time and offer them solutions — from advices in buying to financial help and post services in usage. They need to belong to a certain group and they request both aspirational way of living and pragmatism.
COULD THE TRANSITION FROM A TRADER TO A RETAIL BRAND BE ATTAINED?
The competition is fierce, and the consumer, elusive. The only way to fight (the foreign invasion) is through the brand. Nowadays it is impossible to believe that a retailer could survive or grow in the years to come without building a brand.
We identified a few main opportunities in retail brand building:
a. Focus on consumers, not on merchandise transactions.
The best opportunity for a retailer on a rapidly growing market is to take his mind off the trade margin and immediate sales, and to start thinking of building his way up to 10-50 years leadership on the market. Building a brand is key to any business, but in Romania, for retail, the necessity of branding is maybe too often shadowed by proximity advantages and still higher shopper needs compared to the retail offer. Focus on consumers means know and understand the consumers and the way they are changing. Romanian retailers are good traders. There is the momentum to move on. On the consumer part. On the consumer game.
b. Position in order to win in a more competitive environment. But pay attention, positioning is often a differentiation trap.
When the consumers’ rush for low prices makes all retailers in a segment to try to identify their brand with “lowest prices”, this is a trap: for the consumer, everybody promises the same thing, and indeed the consumer will chose most of the times based on proximity. To avoid the trap of positioning, the necessary criterion for choosing a brand positioning is uniqueness, and the most reachable inspiration for the positioning consists of consumer insights. Building on this, imagine positioning a retail brand not on prices, nor services, but on the shopping experience; brand X delights his clients with the most pleasurable shopping experience – at the level of range, fair prices, design of locations, attitude and knowledge of front line people.
In order to reach a clear and valuable positioning, try to know yourself, your capabilities and your competencies.
Do not forget – design is a strong appeal in choosing a store, and we are not talking here about colors and pictures on the walls, but about functionality and empathy.
A bolder, appealing and distinct visual identity will drive visibility and help the decision process.
c. Work with clear shopping experience strategies capable to reach long-term growth objective, and this mean to focus on consumer’s relationship.
In an underdeveloped market, there are always other consumers to stay in the line for something, but on the long run the name of the game is loyalty. Loyalty programs sound familiar, Romanian consumers already have some loyalty cards in their wallets (for pharmacies, the total lack of differentiation affects particularly the basic merchandise: the drugs). Convincing customers to come back is a tough job, and it won’t happen because of promises; in order to make an effort, consumers must be either in close touch with the retailer and to consider it their partner, either to receive incentives to come back (discount, loyalty points). However, if all pharmacies offer discount, consumer’s will again chose where to buy based on proximity (so, loyalty programs are also affected by differentiation, isn’t it?).
Loyalty programs don’t necessarily mean putting money back in consumers’ pockets. Retailers have to think broad about loyalty: maybe the “best shopping experience” positioning would do the loyalty trick on its own, and there is no need for a 5% discount card. Maybe the only loyalty tool that is currently well developed in Romania is direct marketing: people receive leaflets with the promotional offer from the nearest hypermarket. Taking this further would mean really connecting with consumers, understanding their needs and making the leaflet/recommendation personal. Broadly speaking, in loyalty campaigns retailers have to get out of “informing consumers”, and go to the era of “consumer engaging”. And while we’re here, let’s not forget about Internet, with huge potential on personalized content.
d. Build company culture—start by setting up clear values, vision and objectives and transfer them in organizational behavior.
Best strategies, best visual identities, and best image advertising campaigns and best positioning could collapse because of the front line people. Invest in their education. This is the only one way to make brands working in retail.
Most successful local retailers have been built from the scratch virtually overnight. How many will succeed? The ones who will understand that retailing is working on methods and rules, and that the “intuitive” era has gone. Trying another perspective – of building certitude in businesses through branding is a safer way.
Aneta Bogdan, FCIM, Chartered Marketer
Managing Partner Brandient
September 2007