Communities benefit from business support
Across the globe, all types of businesses are responding to the COVID-19 pandemic. For some, the crisis has essentially stopped them from being able to operate as usual, others are busier than ever.
Supermarket chains in Australia saw an unprecedented rise in transactions as people stock-piled food (and toilet paper) as they moved into isolation.
Ritchies IGA supermarket CEO, Fred Harrison, recently joined ANZ CEO Shayne Elliott on a call to Australian-based staff to discuss how the chain is responding to the crisis, looking after its staff, supporting local communities and taking advantage of small wins.
Below is an edited copy of their conversation.
Shayne Elliott: Fred, thanks for joining us. We know COVID-19 has literally decimated some industries like tourism and hospitality, and quite rightly we're all talking about those and they are getting front and centre in the news and as it should be. But there are other industries that are actually doing incredibly well and yours is one of them.
Ritchies IGA has just celebrated 150 years of operation which means you have been around through world wars, recessions, all sorts of crises, plus just good old-fashioned fierce competition.
You've personally been around for a long time, you've got a lot of experience, what has this last month been like for you? Can you tell us - without giving any secrets away - how does March look from a numbers point of view compared to say, February for example, which in today's world is ancient history. I imagine the change is quite dramatic.
Fred Harrison: Spot on and it's been a long seven weeks because really it all broke out for us on about the weekend of 1 March. The headline of The Herald Sun in Melbourne was that the recommendation from the Health Department was to stock up with two weeks' supply of groceries. And mayhem broke out, panic buying broke out in Victoria. I've been in the industry 45 years and I have never experienced six or seven weeks like we've been through through March and early April.
To put the numbers in perspective, as a business, from 1 July last year through to 28 February this year, so that eight month window, we were tracking up 6 per cent year-to-date on the previous year. For the month of March we were 52 per cent up on the same month in 2019.
Shayne Elliott: That's extraordinary.
Fred Harrison: A phenomenal increase.
Stock piling slowing
Shayne Elliott: I guess some of that was driven by exactly what you mentioned, panic buying. But it's interesting because food security has never actually been an issue in Australia. It's not like we're going to run out of food given our country actually exports a lot of what it produces. But are you seeing people change their behaviour now? Are they getting back to normal or are there still people stockpiling and really concerned about certain items on your shelf?
Fred Harrison: Look, we are absolutely still seeing some panic buying. On toilet rolls, I kid you not, more than 12 months of toilet rolls have been sold in about a period of six weeks. So I don't know what the garages or the spare rooms are like at people's houses but it is bizarre that so much toilet roll has been put away.
We're still seeing products such as flour, cleaning items, soaps, cake mix, sanitisers, rice - anything where people can buy food to cook meals at home is where we're really genuinely struggling to fill the shelves at the moment. We're ordering these products every order and a lot of our stores have daily orders but we're lucky to be receiving 50 per cent of what we're ordering at the moment.
Tomorrow we might get half a dozen pallets turn up but those half a dozen pallets could sell out within a couple of hours. We try and hold a bit of stock back because at the same time we're trying to support the senior citizens in our community during the community hour of shopping (between 7:00 am and 8:00 am).
So we're still seeing - I won't necessarily say it's panic buying - but when stock hits the shelves it is selling out very quickly.
Adaptable supply chains
Shayne Elliott: Yes, I noticed at my local supermarket it's sort of feast or famine. The shelves are either completely empty or you can't turn around with being confronted with a whole mountain of stuff.
Now, obviously we talk about supply chain a lot and you've just mentioned it there. There's the whole manufacturing piece, logistics, getting freight, and even all the way down to the farms that are producing it. You're talking about the massive uptick in demand, so they've all had to adapt really quickly. I imagine you've had to rethink who you partner with, who you can rely on, who is adaptable, who isn't.
Do you think this will change things forever as the company thinks about your supply chain and who you partner with? Or do you think things will just go back to where they were and normal transmission will be resumed at some point?
Fred Harrison: We are people of habit by nature but going back to old habits isn't going to happen in a hurry - it might take three, four or five years. I think there are going to be some changes forever.
I think one of the important things we've discovered is just how reliant as an industry we've been on China. Not that we bring a lot of food in from China but we certainly do bring a lot of bottles, containers, lids, caps, packaging generally.
And when China went off the air for a period of time and nothing was coming out, all of a sudden a lot of manufacturers started to run short. Even today one of our biggest issues is basically that we've got the raw product - we've got the liquid - but we don't have the bottles or the caps or the lids to put it on. So many suppliers are finding that they have no Plan B.
The big lesson for business - and it's for us too – is you cannot have all your eggs in one basket, you can't be totally reliant on one manufacturer because if a disaster happens of some magnitude, all of a sudden you're up the proverbial creek with nowhere to go. So I think having a Plan B will become a much bigger part of our strategy going forward.
Manufacturers have worked out pretty quickly that they too can't rely on just one aspect of their business, they need to spread their risk and I think you'll see people and business doing that a lot more into the future.
Shayne Elliott: Now, these are extraordinary times and we've seen all sorts of extraordinary measures in terms of government policy and everybody trying to do the right thing. One of the changes we've seen is from the Australian Competition and Consumer Commission (ACCC) which has allowed supermarkets to coordinate with each other when negotiating with manufacturers, suppliers, transport and logistics providers. Has that made any real changes and what is the real benefit of when the ACCC does something like that?
Fred Harrison: Look, it sounds good but I truly believe it's only had minimal impact. Although in saying that, it's more behavioural related.
The government has been very good about making sure there are no obstacles or hurdles to get food supplies into business, no red tapes slowing things down. They've been good around the behavioural issues.
So for example when there was talk about social distancing and what is the maximum number of people you can have in a store - how do you come up with numbers? Woolworths wanted to do their own set of numbers for their stores but Coles CEO Steven Cain said: “Hold on, we really need to do this one as an industry”. So we worked out the industry-wide number. We presented that to the government and the government accepted that. So that's one thing we did together.
But as far as stock, it is a little bit dog-eat-dog and if a supermarket chain can find some toilet rolls or hand sanitiser, they go for it and get as much of it as they can. So it's not being portioned out evenly.
But the ACCC is making sure that no one's profiteering. There's been a lot of activity from the ACCC asking questions of Metcash, Ritchies, Coles and Woolworths – asking why our promotional pamphlets smaller in size? Why aren't you promoting as much? So, the ACCC is out there trying to make sure that no one is trying to profiteer from their actions.
Capturing market share
Shayne Elliott: You live in a very competitive market. How have you approached that because you've got a bit of a rising tide here - there's been a lot of activity in the sector. How are you approaching it from a competitive point of view? Do you see this as opportunity for your business?
Fred Harrison: Interestingly, the numbers for March just came out through Nielsen – our industry ratings company - and IGA’s market share was sitting at 7 per cent nationally but we've jumped in March to 10 per cent market share.
Costco was up another 2 per cent as well, which makes sense because of the big bulk packs it has. Woolworths, Coles and and particularly Aldi are down. So, there has been a distinct change in market share.
A little bit has been on the back that people now are wanting to shop local. They don't necessarily want to go into the big shopping centres and have all the different touch points, they're happy to get in their car, travel a kilometre to pop into the local IGA. So it's been a great win for independents.
The key for us now is not to give this market share back to the chains. There's been a depth of change in people's shopping habits. If we're not fast to restock our shelves, we're going to undo all the good work that's been done over the past five or six weeks. So we're now saying to the manufacturers and suppliers - our market share is up so this needs to be reflected in the portion of product we are receiving and they agree. They are seeing that increase in our market share.
Shayne Elliott: I imagine that one of the changes we'll see will be a greater sense of community spirit. And I think a lot of customers are going to think about the companies that did the right thing through this - that are living their purpose and doing more than we might otherwise expect.
And one of the similarities between our business and yours is that strong sense of purpose around the local community. And you've got the Community Benefit program which has raised more than $A50 million for schools, clubs and charities. How important do you think that is at a time like this?
Fred Harrison: In times of crisis, your brand is so important. Is your brand one that consumers trust? And sometimes you work hard in your market and advertise hard and you think “gee, what's that achieved?” But in times of crisis, your brand is everything and I think the Ritchies brand is good.
We are there for our communities and we've just processed our 50 millionth donation to local communities. So, there is that trust because we do put our money where our mouth is. We actually deliver the cash. And I think the Community Benefit card has been critical to our credibility.
Keeping in touch
Shayne Elliott: As you mentioned, you're seven weeks into this new environment. At some level, in the first seven weeks it's all a bit exciting. People rally around. I'm sure your teams feel very motivated about the impact they're having and doing the right thing and people work a little bit harder. But you can't rely on that forever.
How prepared do you think your business is to sustain working in this unusual environment, not forever, but for a sustained period. How prepared are you for that and what's your biggest challenge in thinking through how you're prepared to continue to operate in this environment?
Fred Harrison: Look, although COVID-19 came out of the blue, we almost had a test run - if I can put it that way - in January with the bushfires. We had a number of our stores heavily impacted by that.
Our Bright store, for example, was 90 per cent down most weeks because the town had been evacuated. We were basically feeding TV crews and a couple of the locals. And that was something we weren't really preparing for - we had a lot of stock in those stores. I think we would all say we haven't done a perfect job with the pandemic but we've been taking notes.
One thing - it's all about communication. You cannot over communicate. I've been speaking to our team basically every day of the week, whether it be our senior team or store managers. We are keeping our people up to date but also listening to what they've got because sometimes you sit around an office desk and you put good plans in place but we have a little saying - it's only the execution at store level that counts.
So, the feedback we get from our stores, what customers are saying, where the trends are going with people's behaviour - we need to get that from the stores. So one thing we've learned is that even in good times when there are no pandemics or bushfires, we need to communicate more often and more closely with the people working in our stores.
We have to be flexible. We have to be nimble. We may have rules, we may have done it a certain way for 20 years and it's worked, but that doesn't mean there isn't a better way or another way. So I think we should always question the way we've done things traditionally, to say “you know what, if the world is tipped upside down, how quickly can we change and react?”.
And the good businesses can do that and adapt and you're not going to have people sitting in the corners saying “I want it to be like it was 20 years ago”. So, to me, one of the key take outs is better and more communication with our - not only our senior team, but people out on the shop floor or in the banks in your case.
It's also our people, our teams. That was an issue at the start - we didn't have enough staff. In our business we tend to rely on those who are hard-working and long-serving. You might have casuals doing 30 or 40 hours a week, and that's well and good, but when the stress goes on, you can't bump them up to 60 or 70 hours a week. You need to have a slightly bigger workforce so you can share the load around and have the responsibility shared around as well. So that's made us realise that we need to be a bit heavier on numbers, particularly casuals so we can gear up quickly if we need to.
One other thing we did - and there was no science to it – but when our people were putting in a huge effort a few weeks in, we gave all our permanent and casual staff a Ritchies voucher to say thanks which was really well recieved.
But one of the things I'm really spruiking is that we don't get too far ahead of ourselves. In some respects, if I put it in a humbling sort of way, we've had a pretty lucky six or seven weeks, but we had an unlucky January with the bushfires.
It's not like Ritchies have found this magnificent, exclusive new product or we've magically upgraded all our stores overnight and now we've got the best-looking supermarkets in Australia. So while the numbers are impressive, the reality is this has come out of a pretty unfortunate circumstance that won't last forever. As a business we must still focus on our core standards, goals and expectations and not to deviate, because the wheel turns.
We know in business, in life, nothing remains the same forever. We've had a good run now but we're mindful that over the next 12 months unemployment and finance might be tight, people might have more debt to pay off, so we're mindful of that.
Shayne Elliott: Understandably we have heard a lot of sad stories and those are definitely a focus. We're doing our bit to try and support people going through a really difficult time but of course there's also opportunity in these times.
It's about the value of relationships, of being flexible and being able to adapt quickly to the new environment. It's about the value of people and culture. That is ultimately what differentiates Ritchies and will differentiate us. It's also about being really respectful of all of our stakeholders, including the broader community.
Thank you very much for joining us. I really appreciate the chance to have a conversation with you. Best of luck.
Fred Harrison: Cheers Shayne.
Shayne Elliott is CEO of ANZ
Elliott: we’ll help you through this