Two cents blog

Nobody Wants to Look Like a Dick

by Paul Cornwell on 27 July 2018

Yesterday Dick Smith announced that Dick Smith foods will cease operation after 19 years in business.

During the announcement Smith blamed Aldi for the reason behind his decision.

He went on to claim that Aldi exploited cheap overseas labour to keep costs down and therefore doesn’t support the economy.

So, let’s now dissect Smith’s reasoning for the shut-down.

The fact is, that whilst Aldi is growing rapidly it is still only 13.2% of total grocery sales.  According to the latest Roy Morgan figures Australians spent $90.3 billion at supermarkets during the 12 months to March 2017.  Of that, Woolworths attracted 35.7% of spend and Coles sat at 33.2%.  IGA captured 9.3% and Aldi grew from 12.5% to 13.2%.

Smith acknowledged the ongoing support of Coles, Woolies and IGA, yet he failed to mention that between them they command nearly 80% of the grocery market.

So, Dick Smith Foods had 80% distribution in grocery, yet claim a retailer with only 13.2% share was his undoing. Hmmm.

Dick Smith’s standard jingoistic rhetoric was central to this announcement; “your formula of employing less staff per dollar turnover compared to the typical Australian owned supermarkets will ultimately mean less Australians employed,” he ranted.

What does a staff per dollar ratio in a grocery retailer have to do with Dick Smith’s Food products selling?  Lower cost operations might mean lower prices perhaps? So, is Aldi’s offer cheaper than Dick Smith’s?

Let’s take Vegemite for example.  An Australia household standard.

Based on a 560g pack, Coles sells Vegemite at $1.43 per 100g.  Woolies sell at $1.43 per 100g too.  Based on a 455g pack Aldi sells Vegemite at $1.43 per 100g.  And of course the larger pack sizes are better value per 100g than the smaller ones.

Unfortunately, Dick Smith Foods’ Ozemite only sells a 175g pack in Coles and Woolies which sells at $2.69 per 100g.

So, was it Aldi’s lower pricing on Vegemite, for example, that killed Dick Smith Foods’ business? After all they are the same per 100g price on Vegemite as Coles and Woolies.  Or was it the fact that Dick Smith Foods’ Ozemite doesn’t have a larger pack size in Coles and Woolies?  Consumers are pretty savvy these days and many work out the per unit or per gram price to determine best value.

And what about Dick Smith’s Foods product and offer?

The Dick Smith Foods brand is built on a proposition with one dimension.  That it’s Australian.

Every consumer research study I’ve been involved with in recent times tells me that this simply isn’t enough.

Why is the product better? Where does it come from? What’s it’s provenance? What’s in it? How is it made? Why does it taste better? What’s its value proposition?

It seems to me that Dick Smith didn’t bother addressing any of these important consumer triggers and just focused on the fact that it’s Australian. And in my opinion that’s not enough.

Additionally, Dick is up against Vegemite which is a brand we’ve all grown up with. It’s familiar and evokes lots of warm childhood memories.  And now that it’s back in Australian hands, being owned by Bega, it’s about as Australian as you can get.

So, whilst it’s convenient to blame Aldi, Dick’s problems with his food business are much more complex than that.

He had the distribution but not the sales.

He had a range of Vegemite-type alternative products but their brand narrative was one dimensional.

His didn’t have the range to compete for many of his products on a value-for-money comparison

And he failed to convince consumers that his product offer was superior.

It’s marketing 101 really.

But blaming the demise of a brand, that failed to connect with consumers, on one retailer who has only 13% share of grocery says so much about how little Dick Smith knows about grocery marketing.

If anyone else did that they’d look a bit silly.

And nobody wants to look like a Dick.

Paul Cornwell is a Managing Director at BCM

- Gemma B on July 27

Great blog Paul!

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