Commerce Opportunities Down Under, with Teresa Sperti, Founder & Director at Arktic Fox

Transcript

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Peter Crosby (00:00):

Welcome to unpacking the Digital Shelf where we explore brand manufacturing in the digital age. Hey everyone. Peter Crosby here from the Digital Shelf Institute, or perhaps I should have said good, G’Day, Mates! That's right, listeners, today we are going down under to dive deep into the intricacies and opportunities for brands in the Australian market. Our expert on the ground is Teresa Speri, founder and director of Digital Commerce Advisory and education consultancy, Arktic Fox. And even if you're not considering Australia as a market, you want to listen for her super sharp commerce insights and amazing accent and be introduced to a little AI Sprite called Olive. Teresa, welcome to the podcast and zooming in from Australia to do it. We are so grateful.

Teresa Sperti (00:59):

Thank you so much Peter and Lauren for having me on the show. I'm really excited to be here. You know that I am an avid listener, so it's great to be happy to join you and chat about the Australian market.

Peter Crosby (01:12):

I know, I know. It's so exciting. This is a time when brands are looking around for growth and sometimes they look around the world to try and discover that growth, but as we all know, you can't just sort of go, oh, I'll apply my strategy that I'm using over here and I'll just go in and do, it'll be simple. So we thought it'd be fun to speak with you about the Australian market and what to keep in mind and what you're seeing in order to have a presence there. So tell us a bit about the state of the market in Australia as a way to start.

Teresa Sperti (01:44):

Sure, let's dive right in. So let me start with a little bit around understanding e-commerce penetration. So I think that's probably a really useful starting point. So in 2023, nearly 17% of all retail sales in the Australian market occurred online. Now from the data that I see through various reports, it suggests that that is higher than currently markets like the us but despite this many brands and retailers really do still lag global players in many ways in terms of e-commerce maturity. And that is in part due to a historical lack of competition within our local market, although that is changing rapidly and as we speak. So there's so many other things I'll touch on. To give you a sense of the state of the market, we do and have partnered with an array of different brands at Arktic Fox across an array of different categories from grocery to building supplies, toys and more as well as retailers.

(02:50):

And what we see is a really big gap between the haves and the have nots when it comes to e-commerce and digital shelf maturity. So on the brand side, those who are multinational in non-food categories who have been disrupted earlier, think categories like health and beauty, pet and others do tend to be a little bit more mature in the market and those within kind of food grocery space, particularly those within perishables lag. So there's some important things to understand. In addition, the dynamics of our market are also very different in terms of players versus other markets. And in particular, I want to zero in here on marketplaces. So marketplaces within our local market do not wield as much power as they do in some of the other global developed markets and don't have the market penetration that you see in those overseas markets, although that is changing rapidly with Amazon really starting to build scale locally and Temu having grown demonstrably over the last 18 months.

(03:59):

So to give you a bit of a sense of where Amazon is at locally, in 2024, Amazon became the biggest marketplace in Australia overtaking eBay. Now that might sound surprising, but Amazon only launched in Australia in December, 2017. So has really only been on our shores for seven years and they still classify Australia as an emerging market for them and it's believed in calendar year 2024, Amazon will reach 6.5 billion in gross merchandise value locally. And so this is really starting to push up towards about 10% of total online retail sales, making them the second largest retailer online in the country. Just a few other things about Amazon, which I think gives a sense around where our market is at with respect to marketplaces, but more broadly is that in August of this year, Amazon launched same day delivery for Amazon Prime members in Sydney. Now if you compare the launch of Amazon Prime in markets like the UK Amazon Prime launched in London nine years ago. So you can see that Amazon is still really building scale and capability locally and our market is far less mature from a marketplace perspective even though we've had locally grown players like Catch and Kogan for a long period of time. And the prevalence of these global players combined with the cost of living crisis in Australia is really starting to drive a shift in where people buy down under. So hopefully that starts to give you a bit of a sense of our local market and the state of the market in Australia.

Lauren Livak Gilbert (05:45):

I'm so glad you have Amazon Prime. I don't know what I would do without Amazon Prime. Well still rolling

Peter Crosby (05:52):

Out are the local natively built brands feeling about the creeping up of Amazon and what it might mean for their businesses is what is that causing?

Teresa Sperti (06:12):

I think it's a really interesting one. I think, and we see this a lot in market with a lot of different brands as it pertains to e-commerce or digital, that shift over time is gradual and so they don't necessarily understand the true impact to their business. And I would say there are a number of retailers that probably don't understand the size and scale that is being built and the true investment that's being made and the material impact that that's going to have to their revenues both in the short term and long term. And then I would say there are other retailers and I would say the more progressive retailers that really understand the true threat that is here and upon them and they're in an arm's race to really build the capability and drive that stickiness with their customers in order to protect the core really of their customer base and secure sustainable revenue over time. So I think I would say from what I see and where I sit, there are probably two camps, those that might still have their heads buried in the sand a little bit, and those that really understand the true impact and are in an arm's race to ensure that they can protect what they've built as retailers.

Lauren Livak Gilbert (07:38):

Let's keep going on that thread about the maturity of brands in the local market. I know you do a lot of studies around what that looks like. Can you dive into that a little bit more?

Teresa Sperti (07:46):

Yeah, sure. So I might do this by talking about brand side rather than retailer side, although our study looks at both retail and brand side. So as mentioned, we undertake a yearly report, which is known as the digital marketing and e-commerce in focus study. It's a bit of a mouthful, but that's been running for four years so far. And what the 2024 study revealed is that when it comes to e-commerce or digital shelf maturity as it's known, 71% of brands feel their maturity in e-commerce is satisfactory at best or low or very low when comparing themselves to global players. So nearly three quarters now. I think it's also important to highlight that often brands locally aren't necessarily exposed to those who are really leading the pack and what good really looks like. So in reality we feel like those results are probably underestimated and it's probably a higher portion who are actually underperforming from a maturity point of view.

(08:53):

So why is this the case in our local market? I think there's a couple of things that has driven that outcome in a smaller market like Australia, brands that lag aren't necessarily equipped with the resources to effectively manage their digital shelf presence in the way that they need to and they don't often have the right capabilities in tech and data either to be able to automate and streamline the way that they work. So they're kind of battling on both fronts. And this issue is now really becoming far more problematic as the number of channels under management is growing. So what our report has found in 2024 is that brands on average are managing nearly 2.5 e-commerce channels. Now that doesn't sound like a lot, but the devil is really in the detail because we class marketplaces as a channel, we class quick commerce as a channel.

(09:49):

So as you would know, each distribution channel may consist of several players and platforms within the marketplace space. It could be that they're managing their presence across catch Kogan, Amazon and eBay. It's not uncommon to see brands locally already grappling with managing upward of eight to 10 platforms as part of their digital shelf strategy in order to maintain and maximize their share and discoverability in the places and spaces where consumers shop. And so this is really hard to do obviously if you are managing that presence with one or two resources. And that is the reality for a number of brands today. They have one or two resources in total focused on e-commerce and managing the digital shelf, which is simply not enough.

Peter Crosby (10:39):

Is that mostly a spreadsheet driven endeavor across all of those in

Teresa Sperti (10:44):

Terms of managing product info?

Peter Crosby (10:46):

Yeah, yeah,

Teresa Sperti (10:47):

Yeah. Look, sometimes it can be, and it depends on how you load the data to the retailer and how mature that retailer is. We are currently working with a brand at the moment who that data is absolutely shared manually through spreadsheet and they are supplying that to a very sizable, one of the largest retailers in Australia. So yes, it can be very manual, but in certain instances it is more automated but probably not automated to the degree and sophistication that you see in potentially other markets because some of the global tools aren't necessarily configured to effectively manage things locally with local retailers that exist within the market,

Peter Crosby (11:41):

The market. So if I am hearing you correctly, the market is growing and penetration is strong. So what do brands need to consider to determine where is the value, where's the opportunity, what makes it viable for that brand to enter a market? What would that analysis be?

Teresa Sperti (12:03):

Yeah, so if brands are looking to assess the viability of playing in a market like Australia, I think there's a couple of things that they need to consider and the first is really obvious, but it can't be overlooked with which is effectively sizing the prize on offer in the Australian market as that's going to ultimately impact your entry approach. So Australia is a much smaller market comparably to other developed markets given the size of our population and I don't know the exact number of our population, but it's somewhere around 26, 20 7 million. So it is a much smaller market in terms of population size. The cost to do business in Australia is also really high in part due to we have quite a high minimum wage and the cost to distribute and fulfill products is also quite high within Australia because we don't have as densely populated cities as you see in places like London and New York.

(13:06):

So that cost of operating is higher. And so it's important to weigh up the share opportunity if you like, and the investment required to really build enough scale and volume to be profitable in a market like ours. I think that's the first really big consideration. Again, yes obvious, but it's important to understand some of those market dynamics that are at play within the local market and what that means for profitability and sizing the opportunity. The second component is really to consider that as we've been talking about, many of our retailers locally are homegrown. So you think about in the grocery sector, Kohl's is one of the major grocery retailers that is an Australian owned company in the hardware space, Bunnings dominates that is owned by West Farmers that owns a portfolio of retail businesses that is also a locally homegrown retailer. And then in the health and wellness space you've got Chemist Warehouse who dominates again a locally homegrown retailer.

(14:17):

So this means that direct entry into the market really does require boots on the ground to build relationships and partnerships with those retailers and build knowledge of their retail media offerings and how they operate in order to be effective or alternatively partner with those who can do that on your behalf. But that all needs to be considered as part of your investment approach. What is it going to take to be effective to be able to engage with those retailers at a local level and build the scale that you're looking to build? Amazon is obviously also growing and so may be a viable entry point to test and learn for certain players within certain categories and verticals, but again, understanding how Amazon operates in Australia versus globally is really important to consider when sizing up the viability of the market and the potential value that you can derive from the market.

(15:15):

So in the local market, Amazon does not have a fresh offering. For instance in Australia, we don't have one yet. Is it coming? We don't know. It's always a big question mark for many brands in the food space, will it come and when will it come? And we don't know the answer to that, which means for certain brands it's not necessarily an appropriate channel to enter the market, particularly if you're in a perishable space for instance. In addition, equally within certain categories, the shift to Amazon and buying through Amazon hasn't necessarily happened yet. And I think vitamins is a really good example of that. Yes, increasingly consumers are starting to shop an array of different products from Amazon and will in part buy some vitamins from the platform, but the penetration in markets like ours is nothing like that you see within the us. And so again, you need to understand the category behaviors on the platform and not make assumptions around the demand and the audience around certain categories and whether or not the sales are really big enough for that channel to be a viable entry point into the Australian market. So hopefully that gives you a few kind of things to think about when weighing up the opportunity and whether it's viable as organizations or brands thinking about if Australia is the right market for you

Lauren Livak Gilbert (16:48):

From a consumer perspective. To your point about not every consumer goes to an Amazon because in the US for example, that's a big search engine. They'll go to Amazon search for something and then maybe purchase it there, maybe not. Where do you find that most consumers are going? Are they just going to Google and searching? Are they going to YouTube? Are they using social commerce? Where is the consumer mindset?

Teresa Sperti (17:09):

So that's a really good question and that's something that we've been monitoring quite closely. The shift in behavior for product-based search that you see in the US is not the same in Australia yet in terms of Amazon being one of the first places that people go to undertake product-based search. Yes, that is starting to increasingly happen, but Google is still one of the core places that consumers go to search for products. Equally, social media is a key channel particularly for certain categories like health and beauty, health and wellness, et cetera, where consumers will actively seek out and engage with brands from a product perspective. But yeah, from a keyword search perspective around product, Amazon is definitely not the first destination that most Australians go to. It's still very much Google, although we anticipate we've seen in the US to see that shift gradually occur over time as the adoption of the platform continues. And even from an Amazon point of view, the penetration into Amazon Prime is already fairly strong here. There's about, depending on the stats that you see between four and 5 million Australians that have an Amazon Prime membership. So that adoption is growing, but we definitely haven't seen the tipping point yet where it becomes the first destination to undertake product search.

Peter Crosby (18:42):

Well, that's why I was wondering about because so much of Amazon's advantage in the broader markets are price, convenience. It's not just same day shipping, it's now same day bicycle delivery in five hours in condensed dense urban markets. But certainly as I said, price and it sounds like in your market that might be a tougher promise to deliver. And so their natural advantages are a little bit more challenged to create that sort of shift. I just want to know if that was true or not.

Teresa Sperti (19:30):

Yeah, look, it's interesting. They have recently announced that they have ambitions to roll out same day delivery across every major city in Australia by 2026. So I think the piece around convenience and driving frequency I think will impart be driven by that rollout of same day delivery because then it's far more competitive than a lot of other retailers can offer in our local market. So I think that will naturally drive that shift to Amazon becoming potentially increasingly that first place to search for a product. I think the two are very much tied, but again today based on their footprint and where they're at in terms of building that capability, they're not there yet.

Peter Crosby (20:25):

Well, because I was reading an article yesterday that was saying that customers that use same day shipping or hours drop off are our spend more with Amazon across the board. And I wish I had the number in front of me, but I don't. But it was a dramatic amount that made it enough Amazon to say that's where we're going to put our energy, not just because the customer is happier, because they will actually spend a significant amount more, even if the thing isn't, the broader things they're buying aren't necessarily same day, same hour things, but it just creates a habit and a loyalty. Yeah,

Teresa Sperti (21:07):

That's right,

Peter Crosby (21:07):

Exactly.

Teresa Sperti (21:08):

That's right. And I think that stickiness, once you embed that stickiness from a behavioral point of view, I think that shift in my research approach will all shift with it. But again, I think that proposition isn't strong enough yet to drive that stickiness and for it to be top of mind at the point that every time I'm looking for a product that is the first destination I go. But I think it will slowly evolve and we will see that increasingly occur within our local market.

Peter Crosby (21:43):

So I would love it if you would walk us through maybe a couple of the most advanced retailers that you have there and just talk about where they're at maybe and where they're headed. And obviously retail media has become a big deal here. It's driving the balance sheets of a certain swath of retailers, and then there are other retailers that wanted to drive their balance sheet. And so that's there. And then we're seeing of course a huge investment in AI here to drive the discovery and shopping journey. The ai Amazon has rufuss their AI agent, that's starting to have an impact and what we're seeing in Google search and then also driving better conversion on sites. And I'd love to know where you think your major retailers are. Yeah, yeah.

Teresa Sperti (22:39):

So I think just on retail media before I dive into some of the leading retailers, I think the retail media space, again locally I would say is behind the maturity curve of say the us. So yes, it is a focus, yes, we've seen a number of retailers dive into that space in the last three, four years, but a number of retailers have just launched their offerings within the last 12 months. So a number of retailers are still very much in the infancy stage or building initial scale within those retail media networks, which is an interesting scenario when you've got Amazon increasing their dominance within the market and an already very established ad network that they're rolling out with their marketplace offering. So I think that's an important one to mention. When I think about who is more advanced and where are at, there's probably obviously a few different ways to look at it. Some are really leading in omnichannel and e-commerce experience delivery and others are more advanced in terms of retail media. And then you've got some that are more advanced across both. And so with that as a bit of a backdrop in mind when it comes to bricks and clicks retailers, I would say personally that Woolworths, which is Australia's largest grocery or supermarket chain, is definitely by far the most advanced within the Australian market across

Peter Crosby (24:17):

Nickname Woolies.

Teresa Sperti (24:19):

That's right. Woolies. And you hear me call them, you'll hear me call them Woolies because I'll forget as I'm talking about them because that is how we know them. We know them as Woolies, we don't often

Peter Crosby (24:30):

Call, I picture koalas for some reason. Yes.

Teresa Sperti (24:33):

Oh my gosh, me too. Yeah, that's because it's cold over there at the moment. You're thinking about your Woolies. Yes, exactly,

Peter Crosby (24:40):

Exactly. Yes, thank you.

Teresa Sperti (24:43):

But to contextualize where they're at within their journey. So in 2017 they announced to the market that they would launch what is called Woolies X, and that was set up as a new business and innovation arm that combined digital e-commerce data and their customer divisions into one division for the organization to really help them to accelerate their ambitions to lead in the digital era. And Woolly's X has really enabled them to build internal capabilities to deliver really great customer experience, which they then went on to leverage to launch Cartology, which is their retail media arm. And really they've become a leader in their retail media space locally. And so they are a really great example of a retailer doing really, really great things. And I often point to a very simple example of great experience delivery through Woolies, which is their AI driven chatbot, which is affectionately known as Olive.

(25:51):

But Olive is a really great example of identifying customer pain points at the point of delivery and making the whole returns and refunds process really, really seamless and simple. Once she knows that you are unsatisfied with the delivery, she pops up your existing orders, it's very easy within a couple of clicks to get a refund, no questions asked. Olive equally also understands when your delivery is due. And so if you happen to pull up Olive just before your delivery is due, she will assume that you're looking for information about your delivery and she'll proactively serve it to you. And so it's one example of many things that they've nailed from an omnichannel experience point of view, and it's the execution that is on point that makes it stand out from, I would say many other chatbot experiences which are substandard, but it really, I think characterizes the work that they've done and the thinking they've done around how to remove friction and just make things really seamless and convenient for the customer.

Peter Crosby (27:03):

If Olive wants to move to the United States, I'll try and get her a visa because that sounds amazing.

Teresa Sperti (27:10):

She's fantastic. But again, I think sometimes the best experiences are the ones where again, it starts from a really clear customer insight and it really hones in on doing two or three things really well

Peter Crosby (27:25):

Rather than those areas of friction are so important. That's right. Walmart came out with a report on the state of adaptive retail, and it's their first report, they did it with morning consult and they talked about this sort of what they're calling adaptive retail, which is the need to just, it's the old consumer is in charge, but thinking about what that looks like in the new world. And one of the things that they talk about the global CTO said was faster decision making, the agility required, the adjusting to context, all of that is so important to kind of drive the growth and the increase in market share for a retailer that's going to be necessary in this next era that we're looking at and stuff like that. It's just so exciting to hear because I mean, as consumers, we want those experiences and as somebody in the industry, it's exciting to see people lean into that and discover those moments of delight and necessity.

Teresa Sperti (28:37):

Absolutely. And I think it ties back to they've got their operating model, right? Ultimately how do you orient yourself around customer problems and come together collaboratively to solve and execute brilliantly? Some of that comes from strong investment and consideration around what does that operating model need to look like and how do we need to adapt and evolve in order to deliver on those expectations of customers as they continuously evolve and change.

Lauren Livak Gilbert (29:12):

And I have to say, it just pulled up Olive and she's a cute little olive graphic and cheese a Christmas hat

Teresa Sperti (29:18):

On, and that's what I think end to end. It's not just about the services she fulfills, but the way they've created a character around her that can expect to what it is that they do in the food space. I think everything about it is fantastic. So I consistently share that example as we teams and talk to teams about great omnichannel experiences and who's doing it really well because I think it's a nice simple but brilliantly executed example. So that's one. The other retailer I'll talk about that I would say is doing a really great job in e-commerce and experience delivery is Officeworks. So Officeworks is the equivalent of Staples in the us. In fact, we have Staples here as a brand, but it's nowhere near the size and scale of Officeworks locally. Again, another locally grown retailer that is owned by West Farmers. So Officeworks has a heavy skew towards B2B customers of course, because it is office supplies and its e-commerce and omnichannel offering has been strong for a decade or more.

(30:33):

So they were one of the first retailers to introduce click and collect locally with a two hour guarantee. And that happened, it would've been nearly a decade ago, and I worked for that organization around the time that that happened and why they have nailed omnichannel and e-commerce experience delivery I think really stems from their ethos and that ethos is it doesn't matter where the customer shops so long as they shop with us. And that ethos was instilled throughout the organization when I was there. I dunno if it's still instilled within the organization, but that really enabled them to build that omnichannel experience and really think customer first. So they're another really great example of experience delivery. However, I would say they're probably not as strong in terms of their retail media offering. So that hopefully gives you a couple of examples of great retailers in Australia

Peter Crosby (31:34):

From a, yeah, I'm sorry to interrupt. I bet that's alright. When you saw that ethos come together, you saw a lot of departmental silo busting, I'm imagining happen.

Teresa Sperti (31:49):

Well, it was already, that ethos was already in grade when I joined the organization,

Peter Crosby (31:53):

But

Teresa Sperti (31:53):

You're absolutely right. So typically less mature retailers, and I dunno if you see this in the us, but some will run separate p and ls for their e-com business versus their bricks and mortar business and the incentive structures and KPIs are such that they don't really incentivize the customer to leave the channel in a way and complete the purchase via another channel. And all of that didn't really exist that organization because again, I mean yes, there was a p and l of sorts, but there was a greater understanding that online influencers in store and in store influencers online. And so investment decisions were made to deliver that better omnichannel experience to deliver the overall revenue outcome as opposed to just investing in silos and thinking about the customer as a different customer.

Peter Crosby (32:59):

Wow. There's a lot of retailers here still learning that lesson. Sorry.

Lauren Livak Gilbert (33:03):

Yes, hundred percent they could learn from that ethos for sure. So when you're thinking about brands that have global capabilities, so maybe a brand in the US and they have smaller regions and are looking to expand or they're starting in Australia, how do you see that they can really leverage their size to activate in a local market like Australia?

Teresa Sperti (33:26):

It's a really interesting question and I'm probably going to answer it in a different way. So we currently do have clients that have global operations and have worked with clients as well in the past from a strategy point of view that have global operations with a local presence. And what we typically see is that the local offices are usually pretty hamstrung by their global counterparts. So that's going to sound a bit controversial, but that's happening for a few reasons. One is that core systems and platforms to support markets like the US and Europe are not necessarily always right for smaller regions. So again, I've touched on earlier that resourcing levels locally are pretty lean and the resources that offices global businesses might have in the US and Europe are very different to the resourcing levels that they might have in a smaller market like Australia, which means they may not have subject matter experts in place to leverage core technology in the way that their global counterparts might.

(34:39):

So that's the first challenge. It's also the case that shared services around things like digital and tech are really almost always more focused on the bigger markets. And that makes sense, right? They are the core drivers of revenue and profitability for those global organizations. But what it means is usually little smaller regional offices like Australia may not get the focus and attention that they need from their global counterparts. And then the third one is that it's also not uncommon to see an Asia-Pac group together as a region, but the behaviors and dynamics to service the Asian markets are of course very, very different to the Australian market. So that isn't always the best approach either. So my recommendation for those looking to truly activate and scale in markets like Australia is to adopt a mindset of same where mandatory and different where necessary. And that should really allow teams to have the agility to move with the market and deliver the outcomes that the global business seeks from their entry into the local market.

(35:51):

The other thing I would say is that Australia can be a really great test bed for innovation. It's a smaller market, right? So you don't want to stuff it up in your major market. It can be a really good test bed for innovation. And so we would encourage brands to really think about how to use Australia as a bit of a trial market for bigger global initiatives. So hopefully that's helpful. Again, it probably is counter to what you were asking me as a question, but I think that insight into some of the realities of what a local office in Australia might be facing is important context to work out how do you enable them effectively to grow and scale in their local market.

Lauren Livak Gilbert (36:37):

And it's great because it's real and that's the reality of what you have to deal with. So thank you for explaining that in an easy to understand way.

Peter Crosby (36:45):

I know. Thank you. And if Teresa has planted any seeds with our listeners and you want to know more, we have Teresa's study that she spoke of in the partner section of the DSI website. So go there. Arktic` Fox, I just want to make sure everyone knows, is spelled A-R-K-T-I-C and then Fox is spelled like American. Spell it FOX

Teresa Sperti (37:11):

With the IO at the end.

Peter Crosby (37:12):

Io, io, io. Yes. Thank you. Perfect. No worries at all. And also Teresa to be this blazingly smart and clear and amazing at starting a podcast 11:00 PM your time. I'm not this smart in the middle of my morning, so thank you so much for taking the time and the time of night to join us and share this knowledge with our audience. We're super grateful. Thank you so much.

Teresa Sperti (37:42):

It's absolutely my pleasure. And thank you guys for having me on the podcast.

Peter Crosby (37:47):

Thanks so much for Teresa for staying up and sharing her market insights with us. As I mentioned, her study is available on the partners page of our website, and you might as well become a member while you're there. Digitalshelfinstitute.org. Thanks for being part of our community.