mc kinsey on cooperatives the retail coop's guide to industry trends

International Summit

of Cooperatives

Any use of this material without specific permission of McKinsey & Company is strictly prohibitedCopyright © 2012. All rights reserved

October 2012

The retail coop’s guide to industry trends

McKinsey & Company

Copyright © 2012. All rights reserved1|

Six key trends will redefine the retail sector over the next decade

Retailers will provide a seamless multichannel customer experience and differentiate themselves by having a clear value proposition

The “all-channel”experience

1

Retailers will invest in advanced analytical capabilities to

improve customer segmentation and strategic positioningStrategies and operations driven by big data

2

Growth will be strong and sustained in emerging markets, and these markets will represent a much larger share of the world’s retail revenue

Growth in emerging markets

4

The consumer revolution currently underway will move power away from retailersPower to the people3

Retailers will face higher volatility of input costs and of theeconomic and political environments in which they operateVolatility in input costs6

Stagnant growth and a highly competitive environment will put pressure on retailers’ margins and force them to cut costs

Pressure on margins and capital productivity in developed economies

5

McKinsey & Company


Five key questions arise for cooperative retailers

1 How can coops keep their physical store networks relevant?

2 How can coops maintain an edge in customer satisfaction?

3 How can coops use the internet and social media to improve member relations?

4 How will coops grow?

5 Are there opportunities for alliances among non-competing cooperatives?

McKinsey & Company


Overview of key trendsOverview of key trends

Contents

Detailed questions for coop retailers

McKinsey & Company


Customers will demand a seamless multichannel experience – the “all-channel” experience


1

Strategies and operations driven by big data

2

Power to the people3


4


5

Volatility in input costs

6

1

Context Implications

▪ The online channel is growing and becoming increasingly important in driving offline sales

– In fact, consumers highly value the ability to use multiple channels throughout the shopping experience

▪ Retailers are adopting new technologies to support or work alongside store associates

– For example: in-store kiosks, mobile devices, and tablets

▪ Many product and service categories are moving more clearly into the digital battleground, and online research is rapidly becoming a key trigger in the customer journey

– For example: clothing, footwear, furniture, and home improvement are moving into the digital battleground

▪ The boundary between brick-and-mortar and online stores is blurring

– Multichannel integration has the potential to bridge the growing gap between the physical and the virtual world

▪ Physical stores must differentiate themselves by offering distinctive value to customers

▪ Big-box stores, in particular, have an advantage in distribution compared to their smaller rivals, including coops

McKinsey & Company


9

2009

2.616

40

2.968

36

59

11

33

8

50

2011

14

2008

2.500

2.728

5468

20131

2.886

20151

3.053

25

7

2007

36

10

42

45

2.407

2010

28

74

20

13

56

2.648

20121

6

2006

58

33

2.370

2.806

49

16

20141

78

16

6

SOURCE: Forrester; McKinsey analysis

1 Assumes that online sales and online-influenced sales will increase at the rate of 15% per year and that total sales will increase at their historical rate

of 3% per year

Offline sales not influencedby online presence

Online-influenced sales

Online sales

CAGR 2006-2011Percent

Total US retail salesUSD Billions, percentage of total

The online channel is growing and becoming increasingly important in driving offline sales

+15

+21

-5

+3

1

McKinsey & Company


15

17

23

14

23

41

38

62

36 41

32 51

32 54

3227

2933

100%

41

24

35

Not important

Somewhat important

Important or extremely important

SOURCE: iConsumer 2011 - RT16bb

Print coupons online, use them in a store 62

Check online to see if the store has a certain item available

69

Book in-store appointments online 11

Use an online website to customizethe products they buy

15

Access enhanced online content for product research, purchase in store

28

Buy online and return the item to the store 29

Buy online, but pick up in the store 43

Importance of multichannel functions among survey participants

Consumers highly value the ability to use multiple channels throughout the shopping experience

Percentage of respondents; N = 3,738

1

Importance to those using servicePercent using service

McKinsey & Company

Copyright © 2012. All rights reserved7|SOURCE: CBRE Econometric Advisors; Internet Retailer

Retailers are adopting technologies ranging from in-store kiosks to mobile devices and tablets for store associates

In-store kiosks for consumers to order items or sizes online when not available in the store

Mobile devices and tablets for store associates to access customer purchase history, create outfits, checkout, etc.

Quick Response code tags that consumers can scan to obtain more product information

1

McKinsey & Company


0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80

Purchased online1

Percentage of respondents

Research onlinePercentage of respondents

Footwear

Homedecor

Furniture

Home improvement

Office supplies

Household products

HBA

Clothing

Grocery

Videogames

DVD/videos

Books

ElectronicsComputer hardware/software

SOURCE: iConsumer

Many product and service categories are moving more clearly into the digital battleground, and online research is rapidly gaining in importance

2009

2010

Moved to digital

Digital battleground

Still in stores

1

1 As a percentage of those who bought a product in the respective category in the past 6 months

McKinsey & Company


As a result, the boundary between brick-and-mortar and online stores is blurring

SOURCE: Press search

▪ In August 2011, Tesco started testing a virtual store in the subway in Seoul, South Korea. Commuters can shop on the go using their smartphones

– Using Tesco’s local Homeplus banner app, commuters can scan barcodes of 500+ popular products, and the app will automatically order them

– Orders placed before 1 pm are delivered to homes the same evening

Tesco’s virtual store in Korean subway Adidas’ virtual footwear wall

▪ In collaboration with Intel, Adidas developed adiVerse, a virtual footwear wall

– Customers can access expanded online inventory

– They can view each item in 3D and rotate it to any angle, zoom it, get more product information (price, customer reviews, etc.), and make a purchase

– Built-in anonymous video analytics provide metrics on shopper trends and shopping patterns, enabling Adidas to provide a more personalized experience

1

McKinsey & Company


Retailers will invest in advanced analytical capabilities to identify and capture value


1


2



4


5


6

2


▪ During the next decade, businesses will leverage the growth of available data and computational capacity to inform strategy and influence operations

– Data is available for analysis in all key functions, such as merchandising, marketing, supply chain, and human resources

– Some retailers have already used big data to create a significant competitive advantage for themselves; for example, Tesco leverages shopper and loyalty data to better target, market, and price products

▪ Consumers now seek specific, tailored items that online retailers have the ability to deliver

– Customers are increasingly expecting such low-volume niche products

– The long tail of the product mix is becoming more accessible to retailers

▪ Demand for deep analytical talent in the United States could exceed supply by ~50% in the next few years

– The market has a general shortage of qualified statisticians and data analysts

McKinsey & Company

Copyright © 2012. All rights reserved11|SOURCE: IDC Digital universe study 2011 and 2010; Hilbert and López, “The world’s technological capacity to store, communicate,

and compute information,” Science, 2011; www.vetta.org; McKinsey analysis; McKinsey Global Institute

35,000

7,900

1,30011050

2000 2020201520102005

Exabytes (= 1 billion gigabytes)

1 Floating-point operations per second 2 Rmax FLOPS

198019701960

16

1E+19

1E+17

1E+15

1E+9

1E+7

1E+5

201020001990

1E+13

1E+11

FLOPS,1 2 log scale

Today’s fastest computers are more than 10 trillion times faster than those of 1960

All the information stored inside the US Library of Congress amounts to

< 0.00025 exabytes

Data generated worldwide Computational capacity of the world’s fastest computers

▪ Scale: data sets will be massive, > 1 multipetabyte (1 million gigabytes) in size, and built to be easily scaled up

▪ Distribution: data will come from and be distributed both within and outside the organization

▪ Diversity: data will be semi-structured, unstructured, or a combination of different types

▪ Timeliness: data will be captured and analyzed in real time, allowing for immediate response

Available data will be characterized by its scale, distribution, diversity, and timeliness

During the next decade, businesses will leverage the explosive growth of available data and of computational capacity

2

McKinsey & Company


Products

Po

pu

lari

ty

The long tail of the product mix is becoming more accessible

▪ The long tail refers to the large portion of products that have little mass appeal

▪ The reduced overhead costs of online retailers allow them to carry more niche products than traditional stores

– Amazon.com currently offersa selection of more than 35 million books, whereas brick-and-mortar stores are limited to ~100,000 books

▪ Consequently, customers are increasingly expecting that products on the long tail will be available and are demanding such products

Mass products

The long tail: low-volume niche products

Consumers now seek specific, tailored items that online retailers have the ability to deliver

2

McKinsey & Company


Supply and demand of deep analytical talent by 2018

Thousands of people

30030180

150

2018

projected

demand

440-490

Talent gap

140-190

2018

supply

Other1Graduates

with deep

analytical

talent

2008

employment

SOURCE: US Bureau of Labor Statistics; US Census; Dun & Bradstreet; interviews; McKinsey Global Institute analysis

In the next few years, demand for deep analytical talent in the United States could exceed supply by ~50%

~50% gap

relative to

2018

supply

1 Other supply drivers include attrition (-), immigration (+), and reemploying previously unemployed deep analytical talent (+)

2

McKinsey & Company


The retail sector is undergoing a consumer revolution that will move power away from retailers


1


2



4


5


6

3


▪ Consumers are gaining in bargaining power as they increasingly visit retailers’ websites before making purchases

▪ Consumers increasingly trust and use social media and community input such as other users on retail websites, site-generated recommendations, and user-generated product reviews

▪ Mobile research puts information on product features and prices at consumers’fingertips, even within stores

▪ Consumers are leveraging the capabilities of their smartphones to get product information and shopping aid on the go – for example, using smartphones to scan barcodes in brick-and-mortar stores, consumers instantly receive relevant information

▪ Transparency of information creates purer competition, which means retailers must explore capabilities to respond with more agility and create distinctive offerings that competitors are unable to match

McKinsey & Company

Copyright © 2012. All rights reserved15|SOURCE: iConsumer retail survey, November 2010; US Internet users aged 13 years and older

Consumers are gaining in bargaining power as they increasingly visit retailers’ websites before making purchases

6

9

14

19

20

32

49

Grocery (e.g., food)

Health and beauty products

Clothing (not

including footwear)

Books

Office supplies

Footwear

Electronics (e.g., TV, digital

camera, gaming console)

34

38

35

58

41

44

67

27

29

21

39

21

12

18

2009 2010 Difference

Consumers visiting a retailer’s website before purchasing in its store

Percent

US EXAMPLE3

McKinsey & Company

Copyright © 2012. All rights reserved16|SOURCE: iConsumer 2011 – RT9L, RT9K

31

37

42

47

57

User-generated videos

Recommendations generated from SNS3

User-generated product reviews

Site-generated recommendations

Other users onretail websites

1 As a share of all respondents

2 N = 3,738 (2011), 3,970 (2010), 4,168 (2009)

3 Social networking service

2021

18

201120102009

Today, consumers increasingly trust and use social media and community input

Recommendations that consumers trust

Consumers that trust, or somewhat trust, reviews1

Percent, N = 3,738

Consumer recommendation rate

Consumers leaving comments or recommendations1

Percent, N > 3,7382

3

McKinsey & Company

Copyright © 2012. All rights reserved17|SOURCE: iConsumer 2011

Percentage of respondents using mobile research, N = 853 (2011)

Share of population in any categoryN = 375 (2011)

32

33

17

18

26

1715

37

28

16

25

38

40

43

Visited different store website

Visited same store website

Took photo of product

Scanned barcode

Used mobile coupon

Texted

Used price comparison app

Because mobile research puts information on product features and prices at consumers’ fingertips, even within stores…

Place of mobile research Mobile activity penetration

20112010

US EXAMPLE

26

44

78

Other

In store

At home

Increase from 33% in 2010

3

McKinsey & Company


…consumers are leveraging the capabilities of their smartphones to get product information and shopping aid on the go

SOURCE: Gartner; press searches; RedLaser; GroceryIQ

Mobile devices are enabling consumers to compare prices when they are in stores

RedLaser

▪ Using smartphones to scan barcodes in

brick-and-mortar stores, consumers instantly receive relevant information

▪ Consumers can compare online and offline inventory, pricing, and time-to-delivery/

distance

Consumers are leveraging mobile tools to support offline shopping

▪ Apps such as

GroceryIQ help consumers organize shopping lists and prioritize needs

▪ Barcode scanning

allows users to quickly

add items they are running out of or remove items purchased from lists

3

McKinsey & Company


Growth will be strong and sustained in emerging markets, which will represent a much larger share of the world’s retail revenue


1


2


4


5


6

4



▪ Emerging markets will continue to drive retail growth in the next decade

– While retail markets are stagnating or growing very slowly

in most developed countries, emerging markets are showing growth in excess of 5% per annum

– The fastest growth will be in Southeast Asia

▪ Emerging markets will add more than 160 million middle-class households by 2020

– GDP growth will be twice as fast in emerging countries as in developed economies

– The growing middle class will rapidly drive up internal consumption

▪ More than half of the growth in global retail revenue will come from emerging markets during the next decade

– China and other emerging

markets will account for 31% of the world’s retail sales in 2020, up from 25% in 2010

– Emerging markets will account for more than half of the absolute growth in retail sales worldwide in the next decade

McKinsey & Company


Emerging markets will continue to drive retail growth in the next decade

SOURCE: Global Insights World Industry Service

Real retail revenue CAGR for 2011-2020, by country, percent

4.0-5.0

3.5-4.0

0-3.5

0 > 5.0

No data

▪ All the fast-growing retail markets are in the emerging world

▪ In particular, most Southeast Asian countries will experience phenomenal growth of over 5% per year during the next decade

▪ Most developed markets will experience relatively sluggish growth

4

McKinsey & Company


Emerging markets will grow more than twice as fast as developed economies and add more than 160 million middle-class households by 2020

SOURCE: IHS Global Insight; Global Insight; McKinsey analysis

15.1

11.1

26.2

2020

70.5

44.3

2010-2020growth

19.3

8.2

2010

51.2

36.1

Developed countries

Emerging countries

5.7%

2.1%

Note: Numbers may not sum to total due to rounding

1 Income categories defined per annual income in USD PPP

1,085

945

139

Householdincome< USD 25,000

Householdincome≥ USD 25,000

2020

1,206

900

306

2011

Evolution of world real GDPby regionReal 2005 USD Trillions

Equivalent annual real growth from 2010 to 2020Percent

Evolution of households income distribution in emerging markets1

Millions of households

▪ There will be more than 160 million new middle-class households in emerging countries, which is more than the current total number of house-holds in the US

▪ This rising middle class will rapidly drive up internal consumption

4

McKinsey & Company

Copyright © 2012. All rights reserved22|SOURCE: Global Insights World Industry Service

100% =

US

Western Europe

Other developed1

Other emerging

China

2020

4.2

27

26

15

26

5

2010

3.2

28

31

16

22

3

As a result, more than half of the growth in global retail revenue will come from emerging markets during the next decade

1 Includes Australia, Canada, Japan, New Zealand, and South Korea

Retail total sales Origin of the absolute change in retail sales

USD Trillions, 2010-2020Percent

Percent, 2010-2020

12US

23

WesternEurope

12

Otherdeveloped

12

Otheremerging

40

China

4

McKinsey & Company


Stagnant growth and a highly competitive environment will put pressure on retailers’ margins and force them to cut costs


1


2



4


5


6

5


▪ To achieve significant cost savings, retailers are turning to technology such as mobile points of sale, electronic shelf labels, and planograms, all of which can reduce costs while improving the customer experience or increasing flexibility for retailers

▪ Retail operations are transformed through massive improvements in the handling and tracking of goodsby both retailers and consumers

– Retailers can improve their operational efficiency by using RFID1 and similar signal technologies

– Embedding signal technology for all items in a retail store will improve the customer experience and avoid missed sales because items can’t be located within the store (e.g., misplaced clothing items at Bloomingdale’s)

▪ Since the crisis, retailers are moving toward smaller store formats, with major retailers reducing their average store sizes by up to 50% in some cases

▪ Some retailers are experimenting withstore formats

– Smallbox stores are used to expand in urban areas where larger footprints are difficult or expensive to install

– Online supporter locations and pop-ups allow retailers to add capacity quickly while using alternative or temporary distribution channels

– Market research centres are used to test new formats and examine retail behaviours

1 Radio frequency identification

McKinsey & Company


To achieve significant cost savings, retailers are turning to technology

Technology Description BenefitsCost-savingpotential

Handheld POS in the store to supplement checkout stations

Breaks bottleneck at checkout at busiest times, in a cost-effective way

Mobile points of sale

Programmable wireless devices on store shelves

No manual price changes necessary, increased pricing flexibility

Electronic shelf label

Software for product placement on store shelves

Increased sales and profits, fewer stockouts, and decreased administrative and labour costs

Planograms

Low

Medium

High

Examples of new technologies with cost-saving potential

5

McKinsey & Company


Retail operations are transformed through massive improvements in the handling and tracking of goods by both retailers and consumers

SOURCE: PCWorld; RFID Journal

Using RFID and similar signal technologies, retailers can improve their operational

efficiency

▪ Retailers can optimize inventory management and automate the purchasing

process using RFID to track all incoming and

outgoing stock

▪ Walmart pioneered RFID in inventory, leading

to an estimated ~USD 290 million in savings

Embedding signal technology for all items in a retail store will improve the customer

experience

▪ Apparel retailers, where goods are easily

misplaced, are using RFID to locate and count

goods in stores

▪ Bloomingdale’s recently implemented RFID tags for individual items, improving stock

accuracy and location for customers

5

McKinsey & Company

Copyright © 2012. All rights reserved26|SOURCE: CBRE Econometric Advisors; Internet Retailer

111

33

166

68

168

162

134

49

131

56

16

152

130

43

Average new store sizeThousands of square feet

2011 vs. 2008Percent

-12

-3

-6

-51

-17

-33

-22

2011

2008Since the crisis, retailers are moving away from large store formats

5

McKinsey & Company


Retailers are experimenting with new and innovative store formats and concepts in test markets to address pressure on margins

Emerging store format category

Market research centres

▪ Nordstrom launched Treasure & Bond in August 2011 and currently has one location in Manhattan

▪ The store is much smaller than traditional Nordstrom stores and offers different products

▪ The store is used to gain market insights on the shopping habits of the population. Profits from the store are donated to local charities

Example companies Selected examples

Smallbox

▪ Tesco and Walmart use smaller formats to expand into more urban markets where real estate is limited or at a premium

– Tesco launched Fresh & Easy Express in November 2011, with stores one third the size of normal formats

– Walmart Express stores, launched in 2011, are already profitable and are being deployed in dense, as well as in smaller, markets

Online supporter

▪ Walmart temporarily opened pop-up stores during the 2011 holiday season to direct consumer traffic to its website

▪ In-store goods used for display purposes for customers to purchase items online

▪ Customers can access the website in the store through tablets and PCs to make purchases

SOURCE: Reuters; Los Angeles Times; New York Times

5

McKinsey & Company


Retailers will face higher volatility from their input costs and from the economic and political environments in which they operate


1


2



4


5


6

6


▪ Recent spikes in food prices reflect the volatility of costs that retailers face

– The food price spike and economic downturn reversed a historical trend of decreasing poverty and hunger prior to 2008, with 925 million still hungry in 2010

▪ Some factors that contributed to the crises are still relevant, for example

– Slowing growth in agricultural production

– Population growth and rising meat consumption

– Mandates incentivizing biofuelproduction

– Rising crude oil price

– Adverse weather

– Export restrictions

– Civil strife

▪ Retailers now must understand the risks to which they are exposed

▪ Cooperatives are equally exposed to many of these risks as their traditional competitors

▪ Retailers must take action to mitigate these risks, including ensuring that they have suitable risk measurement and management capabilities, especially in

– Finance

– Contracting

– Operations

– Strategy

McKinsey & Company


Food price index2003-2004 = 100

SOURCE: Food and Agriculture Organization of the United Nations food-price index; Ronald Trostle, US Department of Agriculture; Peter Timmer, Agriculture and Pro-Poor Growth: An Asian Perspective, Centre for Global Development Working Paper No. 63, July 2005; World Bank

Recent spikes in food prices reflect the volatility of costs that retailers must face

240

200

160

120

80

40

0

109590 0500

Factors that contributed to the crises and that are still relevant

▪ Slowing growth in agricultural production

▪ Population growth and rising meat consumption

▪ Mandates incentivizing biofuel production

▪ Rising crude oil price

▪ Adverse weather

▪ Export restrictions

▪ Civil strife

The food price spike and economic downturn reversed a historical trend of decreasing poverty and hunger prior to 2008, with 925 million still hungry by 2010

2nd peak in February 2011 pushed > 45 million people into extreme poverty

6

McKinsey & Company


Financial

Contracting (sales

and purchasing)

Operational/

merchandising

▪ Develop alternative

product

formulations/wider specifications

▪ Redesign products

▪ Use substitutes

▪ Optimize pack size/

price/quality across

channels/

geography

▪ Optimize go-to-

market strategies

▪ Optimize trade

spend/marketing

dollars

▪ Align purchasing

and sales

contracts in

timing/terms

▪ Use escalator

clauses and/or

formula pricing

▪ Leverage traditional

financial

instruments

▪ Seek structured

products

Strategic

▪ Integrate vertically

to balance buy-

side/sell-side

▪ Develop

partnerships

▪ Invest in pure

plays or counter-

cyclical

businesses

To mitigate risks associated with high volatility, retailers can use a variety of levers beyond traditional financial instruments

McKinsey & Company


Detailed questions for coop retailersDetailed questions for coop retailers

Overview of key trends

Contents

McKinsey & Company


How can coops keep their physical store networks relevant?

▪ The advent of e-commerce makes consumers less

likely to visit brick-and-mortar stores

▪ Physical networks of stores have become less central to the customer relationship

▪ Coops are dispro-portionately affected because of their unusually large network

▪ The links to the community on which coops have historically relied are disappearing

1

Context Questions to ponder

A

How can the geographical proximity of your physical network still give you a significant advantage as social and business interactions go virtual? How can you build stronger relationships with your customers and the communities you serve to improve loyalty? How can the physical network differentiate your offer and better engage your members?

B

How can you provide a distinct and significant reason for the customer to enter your physical store (e.g., expertise or convenience)? How can you maximize your multichannel strategy to provide interaction between online, mobile, and your physical network of retail stores?

Should the role of the network evolve to preserve the traditional advantage of geographical proximity while remaining profitable? How can your network be made less costly? How can you leverage your network by adding new services needed by your members? Which new member needs are you best able to serve?

C

How can you use local knowledge and managers’ entrepreneurial nature to optimize store formats offered in different communities? How much flexibility should store managers and local staff have to experiment with store formats based on their knowledge of the local market? How can you effectively disseminate the information on optimal formats throughout your network?

D

How can you make product offering a point of differentiation through physical stores?How can you source more products locally, and will this please your customer base? How can you use knowledge of local tastes and preferences to tailor offerings on a store-by-store basis? What advantages do you have to tailor product assortment to local preferences?

E

McKinsey & Company


How can coops maintain an edge in customer satisfaction? 2

▪ Historically, coop retailers tend to prioritize customer service

▪ By leveraging

technology, competition integrates a multi-channel approach to satisfy customers

▪ Thus, coops need to redefine their customer experience to remain relevant and competitive in the market

Context Questions to ponder

A

What key elements do your customers truly care about and consider when deciding where to shop? How are you stronger or weaker than your competitors on these dimensions? What elements would be easiest to improve upon in your cooperative – and would they make a significant difference?

What investments could ensure that customers feel that there is something distinctly different about shopping in your cooperative? Do customers feel that their input is valued and that they help shape the direction of your cooperative? For consumer coops, how much do your members feel like owners? How can you create an atmosphere where consumers feel more important than in your competitors’ stores? How can you play a leading role in protecting and promoting customer rights and interests (e.g., by ensuring the quality of all your products meets certain standards, by always being transparent and fair in your offering to members)?

B

Where are competitors cutting or lacking in customer service? Where are there opportunities for you to fill gaps your competitors leave and to attract consumers on that platform, while at the same time fulfilling your cooperative mission?

C

What should be the general guiding strategy to improve customer satisfaction in an environment in which costs need to be cut and operations need to be more efficient?To what extent can you improve customer service by harnessing technology, big data, and the transformation to multichannel, while also controlling costs? Will you require more labour and will the current workforce need more training, or will you need to have a leaner labour force?

D

Given the resources available, what specific investments and initiatives should you prioritize to satisfy customer needs? How can you strike the appropriate balance between dimensions of service that are most feasible and economical and those that customers appreciate the most, and between initiatives that will yield more tangible payoffs in the short term and those that offer more delayed benefits?

E

McKinsey & Company


Questions to ponderContext

How can coops use the internet and social media to improve member relations?

▪ Coops traditionally relied on physical presence to engage

with members

▪ Now, the internet and social media are connecting communities of all kinds

▪ Increasingly, members are expecting their coop to connect with them virtually

3

How will the “virtualization” of business and social interactions affect cooperatives’traditional proximity advantage and how should your coop adjust? As customers spend more time online and as attachment with their local communities is weakening, how will you still be able to engage them via your branch network? What novel ways can you use to engage

members?

A

How can you harness the power of new online media and the internet to deepen relationships with your customers and better understand their needs? How can you engage customers online to know them better and to elicit their input?

B

How can you use new media and the internet to revitalize the democratic dimension of your governance structure? How can you allow members to vote and engage in the democratic process over the internet? How can you leverage social media to energize an already open communication channel with members (e.g., let a special committee interact via social media)?

C

Should you review and redesign your organizational structure to better adapt to the virtualization of interactions? Is your decentralized structure revolving around local branches still optimal? Should you consider structures in which members interact directly with the broader cooperative and not via their branch?

D

McKinsey & Company


How will coops grow? 4

Context

▪ Growth plays a different role in coops than in traditional corporations

▪ Today, some markets are saturated and some environments are recessionary

▪ What will be the next development path for coops in that context?

Questions to ponder

A

How is growth essential to a cooperative’s business model, or how can it be successful without continued growth? How is continuous growth necessary (or not) for you to remain relevant and to fulfill your mission to members? What are the implications of a no-growth business for your members?

Should you look for growth opportunities outside your domestic market (e.g., emerging markets)? How do your members stand to benefit from the growth in emerging markets? How could your cooperative suffer competitively in its home market in the future if it does not expand abroad (e.g., through lack of scale)? How difficult would it be to seize growth opportunities in emerging markets?

B

How can you add new products or services to the retail offering? To what extent are there growth opportunities through new products that would complement the current mix? How can you add unrelated products in which your customers have gained an interest? How would such a move affect your image and position in your traditional market?

C

How can your cooperative grow by filling some of the gaps left by the shrinking of the welfare state? How can you leverage your brand, your physical network, and your financial resources to grow in some of the areas left unoccupied by the withdrawing welfare state? How can your cooperative build the credibility and the capabilities to fill some of the gaps? How would these new ventures benefit your members and affect your positioning?

D

Why should you focus (or not) on taking market shares from competitors in the domestic market to fuel growth? How can you build a platform to gain market shares from the competition (e.g., better customer service)? How competitive is the landscape – are your competitors likely to retaliate and attempt to attract your customer base, or is their attention focused elsewhere?

E

McKinsey & Company


Are there opportunities for alliances among non-competing cooperatives?

5

Context

▪ Retail cooperatives face larger, more

powerful competitors

▪ Larger competitors enjoy economies of scale that are not attainable by coops

▪ Alliances and joint ventures offer the potential to access the benefits of size

Questions to ponder

AWhat are the most promising areas for collaboration with other non-competing cooperatives, both in retailing (in other regions) and in other sectors? How can you form alliances to pool purchasing power or to develop private labels? How can you form a joint private label that would be more cost-effective and create a stronger brand? How can synergies be exploited to optimize international supply chain logistics? How can you establish cooperative academies to jointly train workers? How can you exploit M&A opportunities in core and adjacent businesses (e.g., discount, pharma, travel)? How can you undertake joint ventures with other co-ops to tackle a new market or a new product?

How can you create a forum with other cooperatives to discuss the challenges you face, identify best practices, and educate policymakers? How could you work together to help improve your public image and make policymakers more aware of the unique aspects of your model? How can you initiate a benchmarking effort across cooperatives to identify and share best practices?

B

What are the main obstacles to collaboration and how can they be overcome? What has prevented you from collaborating more with other cooperatives until now? What steps could you take to overcome these obstacles? How favourable are your members to the possibility of joining forces with other coops?

C

What strategic next steps should leaders take in the short term to help foster collaboration between cooperatives? Which non-competing cooperatives should you contact to jointly explore possible avenues for collaboration?

D

mc kinsey on cooperatives the retail coop's guide to industry trends

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