Until now, big was best.
Companies like Wal-Mart and Tesco have created their own virtuous circle. The bigger they are, the more buying power they have, the lower their prices, the bigger they get.
So what will stop worldwide retail from being dominated by one humungous supermarket?
The Internet, that’s what.
The Internet will do to today’s business dinosaurs what meteorites did for the Triceratops. More slowly, more subtly, but just as surely as a hive of bees will bring down a buffalo.
The Expelliarmus effect.
The Internet allows small companies to do something that the giants can’t. No matter how hard they try. We call it the Expelliarmus effect. It gives small companies a structural cost/price benefit over big companies.
And the nice thing is…it works through collaboration rather than confrontation. i.e. suppliers get to make more money rather than less.
If you think that sounds like Internet Alchemy work, it is! But it really works. For two simple reasons. If we use the wine business as an example…
1. Uncorking genius.
For the first time since the wine industry went global, 3000 years ago, a star winemaker can make the wines they want, without compromise. Naked Wines will
• Finance them – buy the grapes, the barrels the bottles…
• Handle the logistics, from bottling to last mile delivery
• Sell it all.
By connecting winemakers directly with consumers, we have freed them up to show what they can do when they don’t have to compromise.
2. Eliminating the costs you can’t taste.
Why pay to be sold to?
More than half the money most people pay for wine is wasted. Dead. It adds nothing to the taste of the wine. Even the supermarkets, after all these years or remorselessly grinding costs down, still spend an unhealthy % of sales on non-product costs.
There is a new option in town
Up till now, people have to choose. Cheap and dull supermarket wines. Or delicious but expensive boutique wines.
Now they can have Delicious and Cheap.
To illustrate the point, the cost of making a great wine is not a lot more than the cost of making a mediocre wine. Le Pin, which sells for €2200 a bottle, costs €11 to make. A 0.5% cost of goods.
At the more down to earth end of the market, the difference in price between bog standard Marlborough sauvignon grapes and the top quality grapes is around 16p a bottle.
The supermarkets will gladly sacrifice that 16p, and then spend £1 on running a “3 for the price of 2″ offer
This is just the beginning.
New business models that use the power of the web to create completely new models are popping up everywhere. Take a look at Unbound. Take a look at Made.
The difference is that these companies are not just making an existing business model more efficient. They are creating products that would not exist, at prices an individual can’t get.
Don’t get me wrong.
I’m not suggesting for a second that Tesco’s enviable growth rate will slow any time soon. They are way too good at what they do.
But as Dan Jago, Tesco’s wine buyer, says, “Naked Wines is like UKIP…hugely loved by a very small group of people”.
Which is just fine by me.
