Where are the savings when all the savings have been made?
Kraft Heinz was looking for growth in its $143bn bid for Unilever, having got a big profit jump last year through cost cutting. It felt that its only option now was growth through further scale and market share. Now, it will have to look elsewhere.
Retailers, however, can look closer to home.
When replenishment, pricing and promotions plan and operate independently, the only efficiencies are to be found inside each department. And they are likely to be modest, when compared to the rich rewards to be gained from having assortment plans for every product, category, format and channel. No retailer is there yet, but this is the correct direction of travel.
Armed with data on all the major inputs – sales, seasonal patterns, customer behaviour, consumer trends, weather, category performance across industry, supply chain response, order lead times and so on – then it is possible to cut waste and overstocks through perfect assortments based on intelligent predictions.
However, only machines can process data at this volume, and only machines can determine what decisions need to be taken; there is simply too much data and too many decisions for the human brain to manage.
This gives rise to two fear factors inside retail. The first is that cross-departmental collaboration will lead to first round job cuts and a loss of status; the second is that machines will cause second round job cuts, and on a much bigger scale.
I’m not here to argue the ethics of man versus machines; computers have caused human redundancy for nearly 50 years. Now, the pace is accelerating, causing anyone who makes a living from understanding and acting on data to have a think about their future economic value (me included).
I wonder if the taxi drivers in Milan – who went on strike for 7 days right up to the start of Fashion Week, and forced me to take the bus and metro during a business trip this week – understand that the machine will put their future in jeopardy. And that the machine is not another car, but Uber’s app.
In retail, the potential gains from allowing machines to make and take more decisions are so significant that businesses operating in killer markets, which have sacrificed top for bottom line growth, can start to look again at winning market share. Not living in the shadow of Aldi, Lidl or Amazon Fresh.
Clearly it will take courage to reverse the business model that has seen demand go to supply for 100 years. That of course is the CEO’s job, but it’s no easy thing to start believing in the head rather than the gut.