20 March 2006

Coles without Myer, still short on strategy.

Coles is now without Myer. Most market speculation is that the group will continue as before but with the capital inflow benefit of the sale used for other acquisitions, a share buy back or special return to shareholders.

DIFFUSION thinks one of the main reasons why Coles continues to lag behind Woolworths has been Coles' CEO John Fletcher’s inability and unwillingness to develop a coherent brand strategy for the whole group. As far back as 2004 Fletcher was telling people, like the ABC’s Alan Kohler, that he thought the group’s “brand strategy is something the rest of the world have already been to”, except it is clearly something that he hasn’t been to. In May 2004 DIFFUSION, along with a major Sydney advertising group, developed a group brand strategy as part of mulitmillion dollar pitch but was roundly dismissed by Fletcher as not a requirement for the company “right now”.

Now the same question IS being asked of Fletcher with market analysts in recent days wondering what’s next for the group. Sure, at this stage we don’t anticipate any radical renaming and there's not even speculation about that – it will likely become Coles Group and they will just redo the logo and the stationery (a quick flick across to the corporate website and they still haven’t dealt with the issue, a week after the sale went through) but we think it needs far more than that. Coles has blamed the worse than anticipated slow growth on “customer service problems at some of its supermarkets” (what service we ask?), fuel price rises and increased competition and promotional activity by Woolworths”. These seem to be excuses and illustrate how clearly Coles’ and Fletcher’s problem is one of strategy.

Now more than ever Coles needs to decide who it is. What is the brand? What does it stand for? How will it be described now that Myer is no longer part of the group brand structure? How any halo or gloss from the name Myer and it’s department stores association will change both customer and other stakeholder’s perception of the group? Of its existing companies, which will be lead brand vehicle for group? [There’s not a lot of sexiness in supermarkets.] These are important issues that need to be dealt with and not passed over. People never understood what Coles Myer stood for apart from a federated group of companies, now there’s even more reason for Coles to start working it out. Growth for growth’s sake is not enough anymore, expected sales growth of 9 per cent versus Woolworth’s 22 per cent might pull the fiscal heartstrings but it doesn’t sing anymore in the hearts of the customers. And that’s been the case for some time.