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In our inaugural episode of Simplicity Talks, Robert Costelloe and Mitchell Kirkham-Cooper speak with John Matthews, strategy director for Europe, and Camilla Butcher, strategist in the Siegel+Gale London office. In this episode they address the following:
- Casual dining and those UK companies currently stuck in the meaningless middle ground
- An immediate opportunity for private equity firms to break ranks and really set themselves apart
- Car makers trying to find their place in the fast-approaching world of autonomous vehicles
Our Simplicity Talks podcast gathers insight from across the global Siegel+Gale network on the issues and trends shaping the business landscape. Stay tuned.
Please note: the following details key questions and insights from the episode, edited for clarity.
- Casual dining and the meaningless middle
Rob Costelloe: Over the past few weeks we’ve seen Carluccio’s and House of Fraser announcing store closures. It’s clear they’ve been stuck in this rut of the middle ground for a while. John, what does this mean for the high street? Why is this happening? What’s changed? Does the high street in fact need a dose of destruction?
John Matthews: I think it’s important that we make a distinction between the high street as a social place or as the center of our towns, and the high street as a series of commercial organizations. Let’s put to one side the idea that it’s important in our urban life to have thriving high streets and then think about the organizations that populate them. It seems like they’re being decimated at the moment and that’s probably not a bad thing. I’m not sure that anyone actually has a God given right to be on the high street. We read articles constantly about the decline of retailers and the headwinds they’re facing – whether that’s from the Internet or from the weather.
I worry when I hear those things because they’re very successful retailers. Yet, I don’t necessarily think those people have a right to be there. I think it is good for them to have a dose of disruption. The ones that adapt are the ones that improve. Waterstones I think is a really interesting case. They are one of those businesses that everyone assumed was going to fall by the wayside. Waterstones looked to see what advantages it did have overall on bookselling and what they could do with their brand. Waterstones has gradually pulled back into profit and has just been reacquired. Companies must change and adapt in order to survive. If you just want to rely on the old certainties, then good luck.
MKC: You mentioned the internet. The unspoken entity here is Amazon. People, including Donald Trump, seem to blame Amazon and the other internet Goliaths for the woes affecting retailers at the moment. Are they right?
JM: I don’t think so. I think Amazon has been, in many ways, a positive force in terms of retail. I think it has disrupted the previous drivers of success for retailers. Previously, there were some fairly fundamental levers that you could pull. You could operate on price and be the cheapest. You could operate on range and have the widest selection. You could even operate on quality, or service. But the first point of call in retail is availability. So your location would be almost the first driver of choice. Amazon has taken those levers away from retailers. They cannot compete on price or range, and locations are utterly irrelevant now because the aggregation of both demand and supply through the internet has destroyed that.
If I am a retailer, I can take a risk of going by price. Otherwise, what I have to do is try and compete on quality. Quality is multi-dimensional. That’s experience. That’s service. That’s the immersive nature of retail. That’s lots and lots of different things that you can do just within. If you’re still just trying to pull the old levers, I personally think you’re screwed.
Millie Butcher: When you say Waterstones I instantly think Waterstone’s Cafe. I think about actually going in there and going to get a hot chocolate with a book I’ve just bought and spending a nice afternoon. They don’t take Amazon on in their own game but take them on in the stuff Amazon can’t do and that will always be in the experience of shopping.
- A sea of sameness: Breaking up the boys club in private equity.
MKC: So, it sounds like the high street needs to go through this process of cutting through the background noise with a clear message. We’ve been talking a lot about how to differentiate in a “sea of sameness” within financial services, particularly private equity. It’s an interesting time in that sector. Private equity investment in Europe is at its highest level since 2007. Bridgepoint just sold Pret A Manger for £1.5 billion. Surely, it’s a fantastic time to be a PE firm isn’t it?
MB: At first glance it seems so. There is a huge amount of cash that is there for the taking. We are at the top of the market. But with that obviously comes complexity too. There is naturally much more competition. There are more private equity funds than there have ever been, meaning there is more competition for fundraising. But there is a real lack of people standing out and presenting a clear and present value over and above their competitors. It is, as you say, a sea of sameness.
There are these two dominant narratives that seem to come up again and again and again. It’s actually kind of farcical. Google “private equity” and “potential” and you’ll get five hundred different hits because each firm has the same tag-line. They all talk about “realizing potential” and “being responsible”. I think the responsibility idea is especially interesting because responsible capitalism, responsible investment, has to be the cornerstone of your brand. But because everybody is saying it, it stops having an effect. It becomes meaningless. It’s that classic issue of “stop saying you’re funny and just tell us a joke”.
PE firms really need to consider how they can move from declaring that they are something to really demonstrating it in their actions. These firms need to identify brand behaviors that they can use to demonstrate responsibility externally and internally. For example, what is the tone of voice that you can own that really brings that home? That’s a really exciting opportunity for these guys to look into.
MKC: Do private equity firms need to be thinking about their brand following a 10-year period of boom? Why did they need to be thinking about the brand now?
MB: I think there’s a couple of reasons to look at your brand at the moment. Number one, as we’ve mentioned, is differentiation because there are more and more players in that landscape than there ever have been. Another thing to consider is the value of brand in periods of underperformance. A strong brand will always be a safety net. If these private equity firms go through a period of underperformance, the brand will carry them through. Another interesting commercial argument for brand in this space is the idea of the halo effect. If the fund’s own brand is strong then the positive effect on the companies that they would acquire is likely to be stronger. They carry that brand equity over into their acquisitions and are therefore are likely to get a better return.
RC: A little bit of a shift here – women in private equity…
MB: It shouldn’t be contentious but it’s a difficult topic. I think private equity seems to be the last one to catch up, even within financial services. I just saw a report the other day that said only six percent of senior personnel in private equity firms are women which is sadly believable. But, I think there are a couple of issues at play. There’s a heritage issue. I think it’s just so hard for young women to see role models within the space. It’s often a place that people go to later in their career when they have more experience in other elements of financial services. So, if the problem exists in the industry then, it’s going to be the last sector to address the issue.
MKC: Is there a commercial reason for promoting diversity?
MB: More and more research is being done all the time. I recently read a McKinsey report on delivering diversity – what’s the return on it. Firms that are in the top quartile for diversity are over 20 percent more likely to enjoy above average profitability than those in the bottom quartile. That is proven. But also, what about diversity of thought? If these guys want to be innovative and do something different and have really sound decision-making practices you would obviously want diversity of thought and as many different perspectives as possible. We are also seeing leaps and bounds in financial services broadly in getting women into these leadership positions. Did you see Stacey Cunningham has just become the first ever female head of the New York Stock Exchange? After 230 years we got there. I think with private equity they don’t want to be the last ones to the party.
JM: I assume that there’s a finite talent pool as well. At some point you have to ask the question of how you define that talent. I think there is still that hangover within the financial services, and particularly in the commercial side, that is about reputation. People like to have “people like us” put in front of them. Just because you’ve got a uterus doesn’t mean you’re innumerate so there is a fairly big talent pool that these firms are not dipping into. I think there is a very clear reason why you should be moving towards diversity.
- Car makers sitting on the fence?
RC: Automotive is a great example of a sector that’s experiencing very rapid change. Be it auto makers struggling to figure out how and if they should adapt to new technologies, deciding whether they keep to their traditional brand identity built on driver experience or whether they engage with all the apparent benefits of autonomous vehicles. How do they find that balance between technological integration and maintaining a semblance of traditional brand heritage?
JM: We are seeing the role of cars and the ecosystem around car ownership, the dealerships and the support network change. Whilst there are technical changes, there are big changes around the financial implications of owning a car as well as the social implications of owning a car.
Brands need to place some kind of meaning and some kind of coherent story around what their position is on these larger issues. There’s clearly a spectrum you can sit on. You can be like a Swiss watch or you can be like a smartwatch. You can take all of the pain, stress and skill out of driving or you can actually add to it. You take TVR drivers for example. They love that when they change gear, it almost breaks your wrist! They don’t want to have that taken away. But it’s the ownership element that is really going to change.
What are you buying into? Your buying into after sale service from the dealership; you’re buying into your accident recovery; are you buying into a financial services package?; are you buying into more of a mobility network now than buying into a car brand? I think these are much bigger questions. Are you buying into the luxury experience or are you buying into the purely functional? If there’s a spectral change, it’s going to be around this.
MKC: You mention the Swiss watch vs. smartwatch conundrum. I was speaking to one of the guys from Aston Martin the other day and he said that 80 percent of all the cars they’ve ever made are still on the road. Most car manufacturers are beginning to collaborate with chip makers, with software makers, with Google, Apple…but if your car is 30 years old it’s a legacy product like a Swiss watch. How does that work with positioning your brand as a tech leader? Can you do both?
JM: Patek Philipe will tell you that having 80 percent (and I’m sure they’ve got more than 80 percent), of their watches ever made still on people’s wrists is that you are just looking after it for the next generation.
I think that what it tends to mean is that you’ve just got to understand what the role of technology is. There’s always going to be a place for craft and for the rarity value and the longevity value. Maybe those cars just become more like pieces of art. It’s not just that those cars are still on the road. It’s that there’s a secondary market for them that’s probably just as vibrant as the primary market.
RC: Millie, as a millennial that perhaps falls outside of some of the traditional customer segments that we associate with car ownership, how do you see it? Do you own a car? What is your experience? Is this something that you feel an emotional gravitas towards?
MB: Sadly I am a real typical millennial in this situation in that I don’t drive or own a car and I’ll probably just use Uber for the rest of my life. I think the main thing is, whatever you want to call them – a heritage brand or a modern adaptive tech brand – keep the customer in mind. Customer centricity, not just product centricity is key. What are the customer needs? The story can be that we’ve always known our customers, what they want, and we still know what they want. We’re innovating around them. Not just innovating for the sake of it.
MC: I think we’re all kind of falling within the same format to be honest. At Siegel+Gale, we’ve produced a piece of research with a number of our Omnicom network colleagues. Called Altermotiv it looks into our emotional preparedness for automation and autonomous vehicles. I would encourage any of our listeners to go and check that out!