Growth. Businesses must drive growth in order to pay shareholders and to invest in future growth initiatives. While the majority of companies have a “growth strategy”, achieving the desired level of growth still remains elusive for many.
At this time of year, when so many of us are looking to build growth plans for 2015, we wanted to take a look at a few examples of growth strategies that have met significant challenges in the Canadian retail sector and draw some learning that we can inject into our own business plans.
So what constitutes a successful growth strategy and which companies are more successful than others with planned business expansions?
There are plenty of examples where the desired results of growth strategies have not been attained. For example, Target Canada met with a high amount of criticism after its Canadian expansion produced lackluster results. A glitch in the inventory systems backlogged merchandise in warehouses so that products were not ready on store shelves for customers. As a result, many store shelves remained empty and customers went elsewhere to find the products they needed. The company has been working on fixing the system and has the ability to bounce back, but the initial launch into Canada has eroded short-term profits.
A rapid growth drive such as the one conducted by Target Canada has increased risks involved. Companies are not always able to sustain normal business flows in such an environment since normal business practices are under increasing pressures.
In other situations, the growth plan was solid but the market shifted from underneath those plans. Both Staples and Rona employed rapid growth strategies and subsequently consumer demand and company capabilities did not keep up with those plans.
Staples has approximately 2,200 stores worldwide and approximately 1,500 are in the United States and 330 in Canada. Now with the office supply category moving rapidly on-line, the company plans to close up to 225 stores in the U.S. and Canada by the end of next year since it is looking to trim about $500 million in costs annually by 2015.
The home improvement sector has undergone significant changes as a slow down in the economy and the home improvement market overall has forced companies to merge or scale back. In 2012, Rona rejected a takeover offer from Lowe’s and then underwent a major restructuring the following year. It laid off approximately 1,000 employees and managers and closed 11 big-box stores and 4 satellite distribution centres.
The Home Depot put up as many as 200 new stores a year until the housing market collapsed in 2008. At that time, it had approximately 2,200 stores. That year it decided to close 15 stores and changed its plans to open 50 new stores over the next four years.
In the foodservice sector, Tim Hortons recently announced plans to open another 300 stores in the United States. To date, the company has been very successful in Canada but has yet to tap the US market in a major way. The company prides itself on maintaining high levels of quality, efficiency and customer service and prices are very reasonable. This is a company that puts significant effort into constantly improving the value of its operations.
However, Tim Hortons faces some well-engrained competition in the US. It will be competing with the likes of Starbucks, Dunkin Donuts McDonalds and other fast food chains. Dunkin Donuts offers very similar product offerings compared to Tim Hortons and company operations are slick and successful.
On the other hand, Dunkin Donuts pulled out of Canada due to competition with Tim Hortons where it has a very strong home team advantage.
Dunkin Donuts has a heavy concentration of stores especially around the Northeastern United States. At the end of 2011, the company had approximately 10,000 stores worldwide, including approximately 7,000 in the US.
In order to be successful in the US, Tim Hortons may want to consider setting up shop in US markets that have a lower concentration of Dunkin Donuts locations. They will also need to set up a strong brand / marketing strategy designed to appeal to US consumers in these new regional markets.
In order to be successful for growth, companies need to finely tune and exploit their distinctive competencies. They need to create the right mix of resources, services and people in order to entice demand for their products and services in new markets. They also need to be innovative. Growth strategies founded on offering unique products or services are almost always more successful than a distribution driven growth strategy.
In the end, the Canadian retail market did not become bigger because Target entered Canada. That means that Target had to steal share from the incumbents such as Loblaw and Walmart, both of whom have stepped up their game in the three years since Target first announced it would come to Canada. As we now know, Target struggled to compete and steal market share.
As we enter business planning “season”, let’s remember that growth cannot be driven in isolation. We all work in very competitive markets where every company wants to drive growth. Only those with the best consumer proposition (innovation, price, brand, marketing, etc.) actually stand a chance to meet their growth plans.
If you are planning to grow +5% in a category growing at +2% you need to answer these two questions:
1) Who are you going to “steal” that growth from?
2) Are they really just going to let you “steal” their business without reacting?
Happy Business Planning Season!