Join my conversation about Uniqlo

Hi patient blog readers,

I’ve been making noise over at The Conversation again, this time about the arrival of various international retailers to Australia, including one of Japan’s finest: Uniqlo.

“Japanese fashion label Uniqlo and homeware store Muji will enter the Australian market next year, following other recent arrivals H&M, Topshop and Zara. Despite the purported decline of brick and mortar stores, Australian shoppers will finally be able to shop at stores they’d once only encountered overseas. It seems a far cry from only a few years ago…”

Read more here, make comments, tell you friends etc…

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My bro does the hard work for me

I was in the process of drafting a post about the recently announced Lion Nathan/Kirin takeover of Little World (the folks who brew Little Creatures and White Rabbit), but my little brother meet me to it.  So head to his always entertaining and insightful blog and read about it: It’s a Little World after all…

… OK, now that you’re back, I would add that this was a nice “long play” by Lion Nathan/Kirin given they had a ‘blocking’ shareholding in this growing firm from the outset (20% on formation, 35% since the IPO in 2005). This meant no rival brewer (i.e. Fosters, Coca Cola Amatil or Coopers) was going to get hold of this prospect without Lion getting a ‘right of reply’.

It was a very sensible ‘option’ to have taken on what has turned out to the most successful craftbrewer in Australia in terms of growth and brand awareness (Little World pitched themselves as the 5th biggest Aussie brewer in this document).

Lion does have a history with acquisitions of microbrewers, taking over Hahn back in 1993 (see here for a decent description of that move), which has evolved into James Squire.

And, Lion Nathan failed in a bid for Coopers a few years ago.

I agree with Leon that the biggest ‘kick’ that’ll come from this acquisition will be much greater reach for Little Creatures beers.  I would not be surprised to see the brand become a real challenger to Coopers in the medium-term (and wallop SAB Miller’s/Matilda Bay’s Fat Yak along the way).

And, meanwhile,the Casella/Yellowtail beer (that I mentioned back here) is finally on the shelves, and the winemakers are talking very ambitiously (their brewery reportedly has the capacity to service 7% of the Aussie market – that’s more than Coopers!).

Maybe even macro-brewing might get interesting in Australia in the coming couple of years.

 

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A little yuletide conversation

I’ve broken my blogging silence by voicing my opinion on the woes of Xmas retail over at the fancy Conversation website.

It kicks off like this:

The lead up to Christmas inevitably draws our attention to the actions and performance of retailers. This December there have been very few tales of cheer.

It gets better! Read on here.

Why Tiger Australia is so toothless

A couple of weeks ago I was contacted by a newspaper journalist seeking some comments on the troubles of low-cost airline Tiger Australia.

The reporter was specifically interested in the likely impact of the current grounding on the firm’s relations with its parent back in Singapore (with a particular focus on the cultural aspect of ‘losing face’).  I offered a few insights – that I couldn’t speak to any cultural dimension, but that HQ clearly was very worried given the group CEO was talking of basing himself in Australia presumably to kick some heads… and that the airline was clearly struggling well before pilots (allegedly) started flying a little recklessly.

These nuggets of wisdom never hit the papers, but I thought I should expand upon the latter point – namely why the firm hasn’t won the hearts or wallets of Aussie flyers.

Low-cost airlines have been a business revelation in the past decade or two.

Innovators like Ryanair and Easyjet, and copycats like Air Asia and Jetstar Asia have sliced enormous costs out of the process of offering international air travel.  This has both sliced into the market share of the older full-service airlines, and also expanded the pie considerably by bringing less wealthy passengers into the market (and also allowing greater frequency of short trips away).

In the typically moribund US domestic market (see Michael Porter’s excellent explanation of why US airlines are typically loss-making – from about the 2 min mark of this video), both Southwest Airlines and JetBlue have been very successful using a low-cost model.

Yet Tiger Australia has been a money pit since kicking off in late-2007. So what is Tiger doing so wrong?

It would seem this a combination of mis-reading the local environment and under delivering on customer value.

Air travel in Australia is an awkward exercise.  While there is little threat of substitutes due to the enormous distances between our major cities (other than Sydney-Canberra driving between mainland capitals takes >7 hours), the fact that there are single airports in pretty much every major city (other than Melbourne’s inconvenient Avalon option).

Low cost airlines typically seek to avoid the high landing costs (and associated parking costs etc for price-sensitive passengers) by using smaller second airports and secondary cities, especially to cross-subsidise those flights that must go through hubs.  In Australia that simply isn’t an option.  The two big local players have very stable and mutually beneficial arrangements with airport management, and upstarts like Tiger are burdened with either tin-shed outhouses or pricey general gates.

The concentration of Australia’s population into a small number of large cities, unlike the more dispersed US markets, has meant Tiger has developed no local monopolies, and struggled to find a niche of consumers willing to sacrifice certainty and convenience for the limited price savings on offer.

At an operational level the firm has also failed to deliver then minimum service required to develop any customer loyalty.  Too many flights are cancelled (and given the infrequent schedule, too long a wait ensues), and the airline is notorious for being close to uncontactable for assistance.

The current grounding of all flights could (and perhaps should) be the end of line for this failed business strategy.

Dueling Duopolists, or, who should we cheer for when bullies battle?

The Aussie news headlines have been buzzing in recent days with the competing cries of our embattled brewers and the ‘on the side of the consumer’ supermarket giants, over an alleged effort by the latter to sell the majors’ beers as ‘loss leaders’.  See here and here for a reasonable summary.

This is the latest staple product to get this sort of a run (after milk and petrol) as Woolworths and the revitalised Coles (as part of Wesfarmers) engage in some much-missed competition.  Of course, it isn’t competition via ‘across the board’ price cuts, but, rather, through trying to switch buying preferences from one chain to the other (utilising the grocer’s associated liquor chains).

And poor old Foster’s (and presumably the much quieter Lion Nathan) are worried that this (alleged) predatory pricing will hurt their margins, and those of independent liquor retailers.

The reality of all this is that we’re talking about two pairs of behemoths locking horns, and competition here is a very different beast to that envisaged in perfect markets.  Look at the numbers:

– Foster’s (48% market share) and Lion Nathan (44%) amount to 92 percent of the Aussie beer market

– Woolworths and Coles/Wesfarmers amount to roughly 50% of the Aussie liquor retailing market (with most other sales through small, independent retailers)

– Woolworths (around 40%) and Coles/Wesfarmers  (around 35%) amount to roughly 75% of the Aussie grocery market

Those are the sort of market shares we called oligopolistic, or indeed duopolistic, with competition often reaching a calm equilibrium through effective price signalling and/or maintenance of market share.

Foster’s are kicking and screaming, however, due to concerns about the buying power of the two retail giants. Now, if Foster’s had a significant retail arm it might be able to curb such a threat (and earn more of those nice rents from the duopoly power).

But back in 2003 the brewer sold off Australian Liquor and Hospitality Group (ALH), which operated 131 hotels and 109 bottle shops. ALH now runs 285 licensed venues and over 450 retail liquor outlets.  And guess who now owns 75% ALH… Woolworths.  It seems Foster’s handed Woolworths the stick it is now being beaten with.

There’s talk that this behaviour will all come under the scrutiny of some eagle-eyed politicians in Canberra in the coming weeks.  Now, we’d hope they know a lot about duopolies (i.e. systems with two powerful parties)…