Wednesday 21 February 2018

How the little guys can find ways to challenge big competition

SMEs are challenged every day with competition from larger organisations and coping with change. Stock image
SMEs are challenged every day with competition from larger organisations and coping with change. Stock image

Alan O'Neill

Wherever and whenever you go to do your shopping for groceries, clothes or shoes, you'll have noticed that retail is constantly changing. Indeed, the world is changing at a rapid pace. Think of the film and music industries and how we now stream or buy online. Think of the travel industry and how we have all become 'expert' travel agents.

While technology has been the main driver of change in those industries, the reasons why pharmacies are changing is quite different. In the early days, pharmacies made their money in the back of the shop, ie the dispensary. The front of house retail was just an add-on, even sometimes considered an inconvenience by some traditional pharmacists.

I remember working with HCR Chemists in the 1990s, before they were acquired by Boots. Because I have a retail background, the missed retail opportunities were very apparent to me. Now in 2018, while the culture in the sector is very definitely changing, many independent pharmacies are still stuck in the old model.

We will see a lot more of them changing, simply because they have to. Legislation has introduced reference pricing which cut the cost of prescription medicine dramatically. Pharmacies now make much less in the back of the shop and have no choice now but to think as retailers.

Lilly's Pharmacy, Ratoath

Owned and run by Ola El Garawany (mother) and Sally El-Banna (daughter), Lilly's Pharmacy in Ratoath, Co Meath has embraced retail in a very positive way. While the dispensing side of the business is still strong for them, they have successfully diversified with a very eclectic and internationally sourced mix of giftware.

More importantly however, is how they have also followed their passion and beliefs for how health and wellness can be achieved in an alternative way. They have great respect and time for conventional medicine. But they also believe that the usual model of prescribing medicine treats the symptoms, rather than the cause of the ailment. As qualified diet counsellors and nutritionists, they give great preventative advice.

There are two things that struck me while I was in their store. One is the amount of space that is dedicated to health foods and supplements. Lest you might think that that's all about money and they're simply diverting customers to higher margin product - that's not the case.

The second thing that struck me is that they sometimes encourage customers not to buy anything. With my commercial hat, I questioned this. They convinced me that in their pursuit of wanting to genuinely help people to get better, their reward comes in customer loyalty and repeat business over the long term.

Challenges for small business

This typifies why I believe there will always be a role for a local community pharmacist, grocer, butcher or boutique. Regular and local customers get great comfort from knowing their local expert. The advice that Ola and Sally can and do give can never be replicated in a somewhat anonymous chain of stores.

But local independent businesses should never be complacent. There is no entitlement to custom and in a very competitive price sensitive environment, local independent retailers need to differentiate from chain stores. They're unlikely to compete on price as the big guys have more buying power.

Change tips

When facilitating strategy and business plans with organisations, I will always challenge them to think about differentiation. Whether it's €2bn retailer like Karstadt in Germany or Lilly's in Ratoath, this question is the same.

Competing on price alone is a dangerous model, as there is always a competitor ready to drop prices or buy better than you. You need serious volume to make up for the lower margin that comes with discounting. Don't forget that "sales are vanity but profit is sanity".

Here are two areas for consideration, that I believe are essential for any business of any size.

1 Differentiate through great customer service Customer service will be interpreted differently across all industries, B2C and B2B. Even within an industry it can mean different things. For example, picture a five-star restaurant in contrast with a fast food restaurant. The interpretation of what good looks like will, of course, be different.

Customers judge you on your product mix, your people, and your place (that's your store if you're a retailer or your route to market, if you're B2B). In the case of Lilly's Pharmacy, Ola and Sally major on people and have developed an authentic local community presence. They are consistent, friendly, knowledgeable, honest.

2 Develop authority and ownership in some relevant product category -a category killer What do you 'own' is a very important question for every business. What product or service can you get behind with real authority for which you are seen to be the go-to guys?

For example, Arnotts is a vast department store with many departments, but you can safely say that it 'owns' furniture in Dublin city centre. It gives the department lots of space and does it with real authority. Lilly's Pharmacy 'owns' health foods and nutrition in Co Meath. This shows in the stock, the space allocated to it and most importantly - the quality of advice.

Summary

SMEs are challenged every day with competition from larger organisations and coping with change. Knee-jerk reactions like discounting just don't work in the long term. Consider how you can differentiate. Find something that makes you relevant just like Lilly's Pharmacy did.

Alan O'Neill is a change consultant and non-executive director. For 25-plus years he has been supporting global and iconic brands through change. Alan-oneill.com. Business advice questions for Alan can be sent to sundaybusiness@independent.ie

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