Woolworths' revolution gathers pace

The next stage in the Australian retailing revolution will be more dramatic than anything we have seen so far.

The next stage in the Australian retailing revolution will be even more dramatic than anything we have seen so far.

I do not think Australia fully understands the change that will come from the Woolworths’ Mercury Two program. Coles and other retailers have not yet announced a response but I can’t imagine Wesfarmers chief Richard Goyder will allow Woolies CEO Grant O’Brien to use Mercury Two to decimate Coles in the same way that former Woolies boss Roger Corbett used Mercury One to gain a huge lead over Coles.

It’s taken Wesfarmers some seven years to catch up to Corbett’s Mercury One. But Woolworths has already taken the first step in Mercury Two — the installation of a flexible SAP system — that will provide the base for the changes that are to be incorporated in Mercury Two.

Down the track Woolworths suppliers will also need to change their systems. And of course the changes that come with Mercury Two are in addition to the payment and marketing changes coming from the use of mobile phone technology and systems.

Mercury One was about making the Woolworths supply chain equal to the best in the world. But it was focused on supermarkets as the retail outlet.

Mercury Two starts with the customer-buying pattern tracking information systems that Woolworths acquired when it bought 50 per cent of Quantium. The systems enable Woolworths to know not only what customers are buying but to anticipate what they will buy.

Woolworths will open talks with suppliers on the basis that they will be able to tailor their systems to these Woolworths-Quantium demand predictions. In other words, Woolworths will open its books to suppliers to improve the system’s efficiency.

Also, Woolworths believes there is a coming transformation of the way people shop. Saying there will be a further swing to online purchasing is an over-simplification. An essential part of online trading is making sure customers can obtain delivery of the goods in a way that suits them. In this part of the transformation everything is on the table in Mercury Two.

It may be that delivery of goods from one Woolworths outlet should be available for collection at another — supermarket orders can be collected, say, at Big W, Dan Murphy’s or Caltex service stations. It is possible refrigerated vans will be at rail stations at night so customers can collect goods ordered earlier in the day. Woolworths has already started trials to tailor customer delivery preferences to different areas. In preparation, it is necessary to reconstruct the supply chain and the facilities.

Most goods will probably go from suppliers to customers via a Woolworths distribution point. But some goods, particularly from Big W, will go direct from supplier to customer. Given there will be costs in a more complex distribution system Woolworths will be seeking ideas from vendors and their own people as to how the supply chain can be made more efficient.

A drawback of Mercury One was it was often harder for smaller suppliers to gain a foothold. In the liquor business, Dan Murphy’s has developed systems so smaller wine makers can sell their products via the Dan Murphy’s website even if their products are not in the stores. So there will be a wider choice of product on the site than in the stores.

Woolworths sells about 4 per cent of its goods online. When online shopping can reliably deliver the goods people order, offer a wider section of goods than the stores and a distribution system tailored to customers needs, then we are looking at a totally different proposition.

Add to this Woolworths’ purchase of EziBuy in New Zealand, which enhanced the skills in direct selling, and we are looking at very large rises in online shopping. Whether it ends at 10, 15 or 20 per cent of sales online no one knows. But is going to be a more than 4 per cent. That is going to make life very hard for the competition and shopping centres that will have to reinvent themselves.

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