taking the road to
Retail disruption
We first came across Mok O'Keeffe, Founder of The Innovation Beehive last year when Mok was a speaker at Daniel Priestley's 'Key Person of Influence' conference held at The British Library...
Imagine our delight to discover that Mok and his team are not based in a sprawling city but have chosen the Cotswolds as their base, helping some of the world's leading organisations, including Google and McDonald's, to release their creative potential.
With a wealth of experience Mok, who has worked as HR director for organisations including Boots, KFC and Harrods created 'The Innovation Ecosystem', a unique way of enabling companies, of every size and stage of life, to stay one step ahead in business.
So how does that work in retail? We feature extracts from Mok's new white paper 'High Street Disrupted' to find out...
THE RETAIL AND HOSPITALITY CHALLENGE
We are living through disruptive times. Every day we read about and experience new challenges: global warming, technological advances, the emergence of AI, economic instability, and political uncertainty.
DISRUPTION IMPACTS BEHAVIOUR
The ways we connect, shop, eat, live, and receive our news are constantly changing. This is having a profound impact in business models, as consumers respond to meta-challenges with a desire for more transparency, convenience, localisation, and sustainability.
The impact of this disruption is seen most acutely in retail and hospitality. Consumer habits are changing, old business models no longer provide the economic efficiencies they once did, and our high streets are declining. The great promise of the mega out of town box stores has failed to deliver and the explosion of mid-market casual dining propositions, which served a smaller than the number of brands could tolerate, has confounded the problem.
BEHAVIOUR IMPACTS BUSINESS
In the last year we have seen big name brands such as BHS, Karen Millen, Maplin, Jack Wills and Patisserie Valerie close their doors or enter administration. Others such as Homebase, New Look and Arcadia have been forced to seek legal agreements with their landlords to avoid insolvency. PWC reports that, in the UK, 16 stores closed their doors every day in the first half of 2019 and the Office for National Statistics reports that there are 57,000 less people employed in the retail and hospitality sector at the end of August 2019 than in the previous year.
A recent report found that that there has been a net decline of 1,234 chain stores on the high street which is the highest since monitoring began in 2010.1
There is no doubt that high rents and business rates have contributed significantly to retail and hospitality challenges, along with increases in supply chain costs, precipitated by the uncertainty of Brexit. Alongside this, the rise in the minimum wage and pension auto enrolment have contributed to an increased cost base. Perhaps the most disruptive element at play in our sector is the impact of technology and on-line spending, contributing to less footfall on the high street which in turn makes a physical presence less economically rewarding.
Additionally, it then fails to provide the number of consumers required to support dining propositions. The closure of Jamie’s Italian in the summer of 2019 was in part due to an incorrect estates management strategy which focussed on oversized assets. There is simply no escaping the fact that, if consumers are not going to the high street to shop, they are less likely to go there to dine.
BUSINESS IMPACT IS REAL
Yet the retail and hospitality sector is still a significant contributor to the UK economy. 89% of UK sales are still generated through physical retail. 2 But this also means that £1 in every £10 is now spent online, compared to just 5% a decade ago.3
WHAT’S TO BE DONE?
The decline in our high streets have attracted a significant amount of Government attention and investment. In October 2018, the UK Government published a Policy Paper which recognised the significant structural and technological forces impacting the high street 4 and has committee £1b to attempt to address its decline.5
So with challenge come opportunities. Amazon, which accounts for £4 of every £100 spent,6 has announced that it plans to open 3000 physical Amazon Go stores by 2021.7 They are blending the best in machine learning, AI and customer journey mapping to create a shopping concept fit for the future. And there are other retail and hospitality brands who are taking these challenges and creating solutions that will future proof their business and ensure they thrive. If the giants of online retail are investing in the high street, they must see opportunity there.
So how are they doing it and what can we learn from them?
BUILD AN INNOVATION ECOSYSTEM
Rising to the challenge of disruption in retail and hospitality requires a different way of working and more innovative solutions. Those retail and hospitality brands who are building an organisation that is able to adapt to changing consumer trends and technological advancements are creating their own Innovation Ecosystem.
In The Innovation Ecosystem – How to Turbocharge Innovation in your Business, Mok identified four key elements that exist in the world’s most innovative organisations. Whatever the industry or organisation size, these four elements can be seen again and again. They form an Ecosystem which provides focus, pace, experimentation and empowerment.
1 theguardian.com/business/2019/sep/11/retailers-call-for-action-as-high-street-store-closures-soar
2 thedrum.com/opinion/2019/07/02/disruption-will-lead-innovation-our-high-streets
3 moneyweek.com/500758/the-high-street-retailers-defying-the-online-onslaught
4 gov.uk/government/publications/future-high-streets-fund/future-high-street-fund
5 theguardian.com/business/2019/aug/26/struggling-high-streets-fund-increased-to-1bn
6 moneyweek.com/500758/the-high-street-retailers-defying-the-online-onslaught/
7 youtube.com/watch?v=NrmMk1Myrxc
We take a look at how The Innovation Ecosytem has been used successfully by The Innovation Beehive's client McDonald's:
MCDONALD’S:
WINNING IN A COMPETITIVE LANDSCAPE
McDonald’s operates in over 120 markets and have close to 40,000 restaurants worldwide. They have continued to remain number one by a relentless focus on listening to the customer, working closely with their franchisees to ensure the economics of the system work for all parties and actively promoting a positive and rewarding culture.
However, the quick service restaurant market is under pressure. New entrants such as GBK and Nando’s increased consumer expectations of the food quality. Changing consumer diets, a greater awareness of the environment, a decline in high street footfall and the need to recruit thousands of team members to keep up with expansion plans, means they have had to create their own Innovation Ecosystem.
DIRECTION
In 2018 McDonald’s Corporate declared their vision to be “A modern relevant burger company”. The UK and Ireland business articulated their Direction “to be the UK and Ireland’s best loved restaurant company”. Best loved is a highly ambitious goal to set. They created this Direction in partnership with their Franchisees and partners and launched it formally at their AGM in 2018.
ENVIRONMENT
Best loved has key three stakeholders and continues a strategy at McDonald’s called “the three-legged stool”. This strategy sets out that the business must operate for the benefit and success of all its stakeholders:
- the franchisees
- the company and its people
- their suppliers
Only when a new innovation can satisfy each leg of the three-legged stool, can it be introduced into the system. Supporting their best loved Direction, McDonald’s UK and Ireland have embarked on a wholesale culture transformation to be Customer Obsessed, Better Together and Committed to Lead.
Every leader in the business has engaged in conversations, workshops and events that have encouraged them to consider the Environment their Leadership creates to support these three cultural pillars. Potential Franchisees are assessed against their leadership capability in the cultural pillars. Head Office in Chicago developed a Culture Playbook which shared examples of global best practice in each of the cultural pillars and invited the markets to learn from what other restaurant teams around the world were delivering. This is a very different approach from a traditional approach of creating a sheep dip culture change programme which can often be observed in large scale culture transformation programmes.
ENGINE
A key element of McDonald’s Engine is ensuring they listen to the voice of the customer. They have ended mystery dining programmes and introduced real customer feedback with their Food for Thoughts Programme. Supporting this, the Executive spend time out in the high street in an organised market visit, looking at emerging consumer trends and understanding what will continue to build brand loyalty, repeat visits and attract new customers into the brand.
This closeness to the customer has enabled McDonald’s to quickly respond to changing consumer tastes – in response to flexitarian diets and the rise of vegetarianism they have introduce a range of meatless wraps. Taking Costa and Starbucks on at their own game, they have upgraded their Rainforest Alliance certified coffee and are now number two in coffee sales in the UK. Recognising early how technology can help speed up service, for the past three years they have introduced kiosks into their restaurants, so customers can order and customise exactly what they want. Their order is then sent directly to the kitchen where it is made up – thus doing away with pre-prepared burgers which compromised quality and reduced perceptions of the brand overall. Customers can even have their order delivered to their table.
ENABLERS
McDonald’s UK and Ireland employs almost 130,000 people. With unemployment remaining around 4% and the uncertainty over labour supply with Brexit, their people strategy focussed on creating the Enablers to create a “loved’ environment for their people so that they really enjoy their work and are therefore more likely to deliver greater customer satisfaction.
Taking a lead from the Direction to the be UK and Ireland’s Best Loved Restaurant Company, they co-created a Service Ambition for the restaurants that focussed on “taking care of each other so we all leave a little happier”. The concept of “leaving a little happier” is just as important for employees as it is for customers. They believe everyone should leave happy, whether it is after having a quarter pounder with cheese meal or having completed an overnight shift. To support their Service Ambition, they cocreated The Big Conversation with employees and Franchisees, testing several prototypes in restaurants.
The Big Conversation is a 90-minute structured discussion on culture, how the team in the restaurant can take care of each other on shift and how they can therefore take care of their customers. It departs starkly from traditional culture or customer service training programme – it actively considers the motivation of a crew member to smile and encourages every in the restaurant to take care of everyone in the restaurant – customers and employees alike. CEO Paul Pomroy says The Big Conversation has “created a culture where there’s an honesty about how you talk to people and a reflective moment where a manager goes back to a crew member and says sorry, or says to a customer ‘I’m really sorry but we’re short of staff".9
This focus on honest conversations and Enabling people to take care of each other has seen sustained increases in customer and employee satisfaction. McDonald’s continues to be the market leader and has sustained 50 consecutive quarters of growth.
8 telegraph.co.uk/business/2018/05/05/mcdonalds-uk-ceo-chain-embracing-21st-century-made-mistakes
9 hrmagazine.co.uk/article-details/matthew-taylor-in-conversation-with-paul-pomroy