AOTO: The 20 Item Supermarket

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Executive Summary

What if you could shop at a supermarket that only sold twenty items? AOTO is a proposal for an independently run mobile shop franchise that circumvents traditional considerations for convenience goods, driven by behavioural economic principles. Extensive research in progressive retail psychology suggests that speed, not choice, is a determining factor in number of goods bought in any one transaction. AOTO does not just limit choice, it eliminates choice altogether; which radically transforms traditional property and logistical overheads into a viable proposal and creates a interesting context for purchasing convenience goods. The Paradox of Choice

“A large array of options may discourage consumers because it forces an increase in the effort that goes into making a decision. So consumers decide not to decide, and don’t buy the product.” - Barry Scwartz, The Paradox of Choice Psychologist Barry Schwartz’s seminal book The Paradox of Choice reveals a fair deal about a particular paradox in human behaviour - the more choices you have, the less likely you are to make a choice. One of the most ubiquitous and everyday occurrences of this paradox of choice in real life is of course, going to the supermarket. Everyone is aware to some degree that on their floor space, supermarket operators will do everything possible to increase the volume of purchases made in any one trip. Operators provide a clean homogenous environment geared towards choice and convenience, but when confronted with thirty different types of soup in aisle 6, one questions how convenient broad choice really is. A typical supermarket will offer anywhere between 30,000 to 40,000 items on its floor space, and yet the average household will only purchase 1% of that number over the course of the year1, because items bought week after week are habitual2; part of the strength of the supermarket therefore, is being able to accommodate the shopping habits of many different shoppers.

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Confused? Too much choice often has a detrimental effect on decision making. image: UKretailing

AOTO - The No Choice Supermarket, University of Sheffield Enterprise Competition Commercial Category 2012


Time is Money: When 20 > 20,000 Rory Sutherland, Vice-Chairman of the Ogilvy group makes a clear distinction between the intrinsic motivations behind consumer behaviour; those who engage in maximising their purchases (getting the best thing they can for the money), and those who satisfice (to suffice and satisfy) - where risk aversion is high in the mind of someone about to make a purchase. According to Sutherland, the difference between maximising and satisficing is thus:

“‘What is the best meal you have ever had in your life?’ You may recall ‘a charming little back street in Rome’ or ‘this place in Paris’. And how many times have you eaten there? Once?” 3 Understanding the need to satisfice as a primary driver for consumer purchasing behaviour is the key to successful satisficing brands such as McDonalds, who pride themselves on familiarity and speed. The most effective marketing allows clarity of decision making and angst management for the consumer, and when one realises that most purchases are motivated by satisficing and not maximising, then brands begin to make sense.4 Research published by Herb Sorensen, the world’s leading retail psychologist suggests that major supermarket operators are focusing on the wrong metric - determining factors in supermarket viability base profit projections on money spent per square foot, and yet 80% of any one shopping trip is spent navigating aisles and expending mental energy trying to decide what goods consumers wish to buy5. Sorensen further suggests that shaving off half a minute off any trip can double sales, underscoring the principle that the faster you close a sale, the less time is wasted for the consumer, which results in more sales; shifting the value metric from money spent square foot to money spent per second. To compound this efficiency, eliminating choice mitigates decision angst and emphasises satisficing motivations for purchase. Stew Leonards is a large American supermarket operator that consistently outsells other similarly sized operators year after year with revenues in excess of USD$100 million, largely attributed to reducing their stock to just 2000 items, and a shop layout that mitigates navigational angst6. In effect, the operator makes the decisions for the consumers, and are rewarded accordingly.

Research suggests that the longer the transaction, the less money is spent. Source: Shopper Scientist

The effects of radically downsizing By eliminating choice altogether, the floorspace needed to display physical goods is drastically reduced, becoming no larger than a kiosk which has enormous potential for mobility, if for example occupying the space of a converted electric milk float. AOTO’s categorisation of a hyper-convenient mobile supermarket becomes the domain of a new independent retailer. This radical reduction in size drastically affects the logistical considerations of the franchise operator. In the same way elimination of choice liberates the consumer from choice angst, independently franchised operators are liberated from inventory decisions and associated operational costs, whilst being able to take advantage of economies of scale in volume wholesale purchasing; dictated simply by what the top selling brands are being sold in the top twenty selling items bought by the public.

“Ease and choice of delivery mechanism makes more difference to us (and quality of product far less difference) than we ever care to admit... in determining the size, breadth, nature and reaction of your target audience, the medium of engagement is far more important that what might be conventionally called the ‘core product offering.’” - Rory Sutherland, Wiki Man With many brands focusing on consumer experience, AOTO’s hyper-convenience is the experience. AOTO’s target audience is not one based around price sensitivity, but rather time sensitivity - shoppers who make impulse purchases, or simply wish to take the angst out of the compulsory shop for grocery items.

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AOTO - The No Choice Supermarket, University of Sheffield Enterprise Competition Commercial Category 2012


A modified electric milk float provides mobility and drastically reduced overheads. Image: SEEV Ltd.

Significant revenue streams can be made in areas with no shop presence. Image: Manor Rights

Counter Veblen Goods

Limitations

Successful brands today rely on supplementing consumer experience with a range of Veblen goods, in which the demand for Veblen goods such an Apple iPhone or a Starbucks Coffee increases even if the unit price increases, as you pay a premium for the status conferred to you through its ownership and consumption. Items sold by AOTO are in effect, counter-Veblen goods. The top selling brand of carbonated drink is Coca Cola Classic, a consumer item that should be perceived to be socially inferior due to its ubiquity, but is in fact a wonderful social leveller. As Andy Warhol put it, the President of America cannot obtain a better can of Coca Cola than Joe Average. Items are sold by AOTO due to their consistency, familiarity and brand perception, their static positive social status confers no social stigma when bought in public, eliminating consumer snobbery.7

AOTO’s largest weakness lies in managing the perceived lack of choice, in addition to the bland homogeneity of only selling the best selling brands, as its modus operandi goes against decades of retail psychology commissioned by some of the worlds largest companies. After food scientist Howard Masckowicz pioneered the idea of horizontal segmentation, where companies and operators can make substantially more profit by offering multiple variations their core product offering, consumers as a whole shifted their brand perceptions with the maxim of more is better.

If the ultimate effective tactic of supermarket operators is to place the right product in front of the right shopper at the right time, then AOTO’s elimination of choice and hyper-convenience is best leveraged at locations that also act as social levellers: the High Street, outside train and bus stations and public parks - the effort spent otherwise securing a prominent shop location in traditional retail can now be spent in obtaining trading permits and finding the optimum location for footfall.

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However, as this proposal and behavioural economics suggests, this may not be the case, but this particular brand of mobile shop has not been explored in this configuration, as similarly sized mobile shops or kiosks still provide multiple choices on a smaller range of items than their convenience store or supermarket counterparts. It is better to think of AOTO operating not too dissimilar than an ice cream van, being able to exploit geographical or time based contexts, such as being able to operate in housing developments that are not serviced conveniently by a large operator or corner shop. AOTO acknowledges that consumers on the whole demand choice and enjoy spending time shopping, in addition to growing existing consumer trends towards locally sourced food. However, AOTO is prepared to make a concession in this area by supplying locally sourced items such as broccoli, if no national brand is found. In addition, prime locations for the mobile shops are key to their success, and would involve a considerable discussion with local authorities to issue mobile street trading permits once potential catchment areas are identified. AOTO operates for those are time sensitive and would rather have decisions made for them; and as late Apple founder Steve Jobs once remarked, ‘a lot of times, people don’t know what they want until you show it to them.’8

AOTO - The No Choice Supermarket, University of Sheffield Enterprise Competition Commercial Category 2012


The Distributed Sustainable Network

Start Here

Due to the extremely small size of the AOTO outlets and their reconfigured no-choice inventory, the concept provides an attractive franchise option for small independent traders, with relatively minimal capital outlay compared to other small businesses. Furthermore, operational costs are minimised due to a minimal inventory - as the inventory volumes are fixed, storage space can be calculated to a high degree of accuracy, and optimum inventory stacking can be formulated.

It is proposed that AOTO begins by renting an electric milk float with temporary signage and branding handled by the School of Architecture or the University’s Print Services. Initial inventory stock and card readers can be largely sourced by the Student Union Shop. Consumers are encouraged to use cash and prices are rounded up to the nearest 10 pence for convenience. Initial placement of the first AOTO outlet can be determined at a later stage, but it is suggested that the concourse is used, and then a travelling route to student accommodation such as Endcliffe Village have a large enough footfall to generate revenue - all profits derived from this initial experimental phase can be split between the Union Shop and funding AOTO’s initial development.

Initial capital costs for an electric milk float can be as little as £500 secondhand, with the largest expense being incurred in the form of battery replacement every 5 years. In addition, electric milk floats are exempt from vehicle excise duty, with the running costs of the float being at around 10 pence per mile, based on a usage of 10.2 pence p/kwh.9 Given the micro scale of the operation and its unique categorisation, AOTO operates away from other independent corner shops and newsagents, and is simply too small to be considered competitive to large supermarket operators. The distributed network allows several or dozens of AOTO’s operating within a city to simply contract or expand depending on demand. To save overheads in the initial phase, franchisees may simply wish to install an electric charge point in their own households and keep an independent inventory. Should the operation expand, warehouse space can be leased at minimal cost if located outside a city centre; the milk floats being able to achieve anywhere between 60-80 miles before a new charge is required.

To minimise overheads and to keep in character with the no frills approach of AOTO, it is suggested that marketing is kept to a minimum at the early stages and simply let AOTO spread by word of mouth or through the University’s email. Consumers may wish to buy a AOTO branded canvas bag on top of their purchases. Business Objectives • • • • • •

No more than 20 items are sold by AOTO; Reduce transaction times to under one minute; Inventory is dictated by current top brands of the top twenty selling items; Up to half the items sold at AOTO such as chicken can be locally sourced; Using converted electrical milk floats, several or dozens of AOTO’s can service a city sized catchment area, with only a single recharge point and inventory store needed; Small capital outlay for franchisees;

Endnotes 1 Herb Sorensen, Inside the Mind of a Shopper: The Science of Retailing, Prentice Hall; 1 edition (6 May 2009) 2 http://blogs.tnsglobal.com/ retail_shopper/2011/01/index. html 3 Rory Sutherland, Accountability is not enough, British Brands Group, 2011

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4 Ibid 5 Herb Sorensen, Inside the Mind of a Shopper: The Science of Retailing, Prentice Hall; 1 edition (6 May 2009) 6 Ibid

7 Rory Sutherland, The Wiki Man, It’s Nice That and Ogilvy Group UK; 1st edition (2011) 8 http://www.businessweek. com/1998/21/b3579165.htm 9 http://www.milkfloats.org.uk/ faq.html

AOTO - The No Choice Supermarket, University of Sheffield Enterprise Competition Commercial Category 2012


Top Selling Items & Profit Projections Item Sliced white bread Ready salted crisps Tin of chopped tomatoes Bananas Large bottle of cola Broccoli Small pack of chocolate wafer biscuits Packet of minced beef steak Packet of breakfast tea Salmon fillets Chicken fillets Eggs A jar of instant coffee Mature cheddar A bottle of white Australian wine Tomato ketchup Strawberry jam Semi Skimmed Milk

Top Brand / Remarks

Wholesale Price

Profit Margin

Warburtons Thick Sized Loaf Walkers Ready Salted Crisps, 34.5g Standard Bags Napolina Chopped Tomatoes, 400g Can Del Monte or locally sourced bandannas Coca Cola Classic, 330ml can Locally Sourced Nestle Kit Kat, 4 Finger packets

£0.8 per loaf £19.19 x 48 packets

£40 pence per loaf £14.41 per 48 packets

£15 x 24 cans

£4.20 per 24 cans

£0.94 per kilo

£2.06 per kilo sold

£5.99 x 24 cans £6.50 per kilo £18.19 x 48 packet box

£8.41 per 24 cans £2.00 per kilo £5.81 per 48 pack box

Locally Sourced PG Tips Breakfast Tea Bags, 250g, 80 tea bag Box Locally Sourced Locally Sourced Locally Sourced Nescafe Gold Blend Instant Coffee, 200g Jar Locally Sourced Jacobs Creek Regional Cabernet Sauvignon, 75cl Bottle Heinz Tomato Ketchup, 540g squeeze bottle Hartley’s Strawberry Jam, 454g Jar Locally Sourced

£6.80 per kilo £1.80 per box

£2.94 per kilo sold £0.70 per box

£12.00 per kilo £0.30 per 100g £0.50 per dozen £3.20 per jar

£3.39 per kilo £1.79 per 100g £1.20 per dozen £0.80 per jar

£2.20 per kilo £38.79 for 6 bottles

£5.76 per kilo sold £2.50 per bottle sold

£0.90

£0.85 per bottle sold

£1.00

£0.49 per jar sold

£0.29 per litre

£0.60 per litre

List source: The Telegraph Size adjustments for convenience of carrying, price projections are indicative and subject to change.

Other Initial Capital Costs Mobile Street Trading License

£230/annum from Sheffield City Council

Electric Milk Float Model FTF120 from South East Electric Vehicle Services Ltd

Between £500 - £1200 including branding Details TBC if developed

© 2012 Jordan J Llloyd and the University of Sheffield Enterprise

Info: jordan.lloyd@sheffield.ac.uk

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