Only existing market leaders are benefiting from coronavirus lockdowns
New, agile startups usually get all the attention, but as The Drum columnist Samuel Scott writes, one unintended consequence of the coronavirus lockdown is that the big business Goliaths are actually pummeling the small Davids to death because of how distribution has changed.
The best pizza place in Boston is Santarpio’s in the Italian neighborhood of East Boston. The 110-year-old, family-owned establishment is so revered that people who are caught taking delivery from chains get dirty looks for being too lazy to support the local pizzeria. When I lived there for a year in the mid-2000s, the place had only dine-in and takeaway.
With no delivery, Santarpio’s was a destination restaurant for non-Eastie people for special occasions. It was the only pizza place I knew that advertised group functions – for adults. Still, East Boston sits next to the airport and is separated from the city by a Boston Harbor inlet. To go there, people have to drive or take the subway through a tunnel under the ocean. The distance that people needed to travel added to Santarpio’s mystique.
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Now, fast forward 15 years to the current coronavirus pandemic. I recently heard that Santarpio’s is now delivering (through DoorDash) for the first time in its century-plus history. Every other pizza joint within its greater delivery area should be very, very afraid.
The coronavirus lockdowns have increased opportunities for market leaders, heightened the competition among all other market followers and increased the need for quality marketing. When the ‘P’ for Place in the marketing mix greatly changes, companies need to do better research, positioning, differentiation and promotion in response.
Supermarket chains benefit, corner stores suffer
Whether the economic effects of the coronavirus pandemic will be temporary or permanent, companies that want to succeed during lockdowns need to remember one thing. To varying degrees, both the potential growth and the potential competition are now almost infinite.
Here in Tel Aviv, I can buy groceries at the small convenience store on the corner or at large supermarket chains such as Shufersal. Usually, I would pop over to the convenience store because of the, well, convenience. In addition, the line is much shorter, and I see friendly faces from the neighborhood. However, the trade-off is that everything costs more.
Shufersal, on the other hand, can take advantage of economies of scale, buying in bulk from wholesalers, and focusing on lower margins at higher volumes to have lower prices. However, the lines are very long, and I do not see anyone who I recognize. Both types of stores have competitive advantages and disadvantages.
Today, however, the coronavirus pandemic and resulting lockdown have destroyed the convenience store’s main advantage and eliminated Shufersal’s main disadvantage. The economic and public health crises are helping market-leading big businesses and hurting the little guys.
As I write this, Israel is in the middle of a second national lockdown for the foreseeable future because coronavirus cases skyrocketed again after people stopped wearing masks and keeping social distance. The government also did a poor job of contact tracing partly because many patients lied about where they had been.
Currently, restaurants can do only delivery, and most stores and workplaces are closed – at least to the public, if not completely. Tel Aviv feels like the 1981 song Ghost Town by The Specials.
Shufersal offers fairly quick delivery for a low fee and with lower prices. The corner store offers slower delivery for a high fee and with higher prices. Now, Shufersal has both quick convenience and better pricing. The corner store has neither. Guess where I shop now?
The coronavirus lockdowns only help the market leaders
After the coronavirus pandemic began, the marketing world started to proclaim the need for digital transformation – something that should have started 20 years ago – and that everything in the industry will change forever. (Spoiler: it will not.)
According to the theory, small, agile companies will use digital transformation to disrupt entire industries today and kill off slower, larger behemoths similar to the English defeat of the Spanish Armada in 1588. (But people forget that luck in the form of a freak storm had a lot to do with it.)
Still, there is just one problem. A competitive advantage is not a competitive advantage if everyone has it. The need to use online and digital technologies more often in promotion and distribution today is obvious to all companies. The idea barely qualifies as an observation, let alone as an insight.
Further, all of the corner stores in Tel Aviv are not working together against Shufersal like the English fleet against the Spanish. (That would be collusion.) Each store is alone and fighting for itself. Small companies can indeed change strategies and directions more quickly than large ones. But big enterprises have a lot more resources and firepower to use against anyone who gets in their way.
If the sixteenth-century battle had been between one small English ship and one large Spanish ship, then England would be Roman Catholic today. In another example, Facebook simply copies whatever Snapchat does – and the company does it better. And Shufersal implemented digital transformation much better than the corner store.
In the US, Walmart Plus debuted a few weeks ago. For $98 a year, members can have the company ship groceries, household goods and retail items. Obviously, the company is declaring war against Amazon Prime and – true to its positioning of “everyday low price” – charging less than the competitor.
“Right now… customers want groceries and things that you would get from a Walmart Supercenter – light bulbs and batteries and toilet paper and sanitizer and everything else,” Janey Whiteside, Walmart's chief customer officer, told CNET last week. “And right now, getting those delivered to your door so you don't have to go out – or stand potentially in the line or mask up – is incredibly important.”
It is another example of Shufersal and my corner store. For decades, Walmart has been accused of destroying local retail businesses whenever they open a megastore in the area. Now, the damage will be even greater. The pandemic lockdowns are essentially government subsidies to third-party delivery companies and those that have their own efficient delivery logistics.
If consumers can get the same product delivered on the same day from a range of different retailers, they will always go with whoever will do it for the cheapest price. And that only benefits the market leaders who compete on volume and low margins. Online ordering and new distribution models are only accentuating and reinforcing existing trends. They do not lower the barriers to entry for additional competition.
Amazon Prime and Walmart Plus may become a retail duopoly just as Google and Facebook have created an online advertising duopoly.
It is occurring not only in the restaurant and retail industries but also among media and entertainment companies today (though the coronavirus lockdowns are not a direct cause). Everything is also becoming centralized among a small number of distributors.
Apple One, which debuted a few weeks ago, offers music, television shows, news publications, fitness programs and video games. Netflix is Netflix. Disney+ is becoming the exclusive home for Disney, Pixar, Marvel, Star Wars and National Geographic productions. Spotify is increasingly gaining the rights to an ever-increasing number of celebrity podcasts. I could go on.
If anyone, anywhere can now easily purchase from the market leader that is perceived as having the highest quality or the best price, why would anyone buy from a market challenger?
Monopolies are only increasing
The economic shutdowns helping market leaders are occurring within a greater, similar trend. Despite the market plunge in February and March as the pandemic started to spread, the US S&P 500 is slightly up year-to-date at the time of writing.
However, Scott Galloway found in June that the index would have been negative without “The Four” of Amazon, Apple, Facebook and Google.
In short, the US stock market is dependent on the performance of four companies that could be considered monopolies or are approaching that level of market domination. A Time magazine report back in July argued that many companies will not survive the pandemic but that Amazon will become stronger then ever.
Monopolies are never good for consumers. Consider some micro-examples. If all the corner stores in Tel Aviv go out of business, then Shufersal can charge whatever it wants and also cut the quality to save on costs. If there are no more pizza places in a large part of Boston, then Santarpio’s can charge whatever it wants.
And what would happen if Spotify becomes the only place to get 90% of podcasts? Or if Facebook+Instagram becomes the only way to keep in online contact with friends and family? Or if Netflix or Disney+ are the only ways to watch 90% of streaming TV shows and movies? What if Amazon or Walmart Plus are the only ways to get retail products?
In Silicon Valley, there is a strong but rarely discussed undercurrent of what I will call techno-libertarianism. The worldview is very liberal on social issues but very conservative on economic ones. That translates into the belief that tech companies should be able to do whatever they want without government interference because they are – cue the gag reflex – “making the world a better place.”
But such ideas encourage monopolies, which violate the basic principle of capitalism – and I am sure that nearly all marketers are capitalists to one degree or another. Yes, companies can and should try to be as successful as possible. But they should never grow so large, powerful or well-funded by venture capitalists that they can impede competition or even engage in predatory pricing.
An often-stated idea today is that the western world is experiencing a “K-shaped recovery” – meaning that people who can work from home on computers are doing reasonably well under lockdown while everyone else is hurting terribly. But another unintended consequence of the coronavirus pandemic is that the situation is helping a few at the expense of everyone else. Inequality is increasing on many fronts.
What companies can do
The Drum’s readers, especially in this time, want information that is immediately useful. So, in this regular column, I will now offer concrete suggestions as relevant.
While I do order most groceries and household goods online from Shufersal, there is one exception: kitty litter. I still order from my regular pet store for two reasons: they sell larger boxes for the same price, and the owner throws in a few free toys inside each delivery.
No market leader is perfect, so competitors should strategize and think about the holes in the market and what they can offer that is better. (Remember Avis' famous ad: “We’re number two, so we try harder.”) In this small example, I receive cheaper cat litter. But the real reason is that my two cats appreciate the thoughtfulness that comes from the toys. Shufersal likely has a standardized assembly line process and would never do that.
One lesson that people should learn today: despite the emphasis on digital distribution and online marcom at the moment, the point of physical delivery is the best time to communicate to customers today. I open the box, and I am happy to see the gifts. Then, I toss them to my two cats and get to watch them go nuts for a few hours.
Whatever you sell, think about the delivery itself. The answer might lie in the packaging, what the courier does, or something else. You might be surprised at what you find. Remember one of my rules: the best marcom usually happens in the real world and not on a computer screen. Deliveries are points of human contact, and human contact is what everyone needs right now.
Still, there is more that companies can do during these times. Think about SEO in general and getting online recommendations and doing local SEO specifically. For my work as a global keynote marketing speaker, I now do virtual speeches and workshops from my studio in my apartment.
Recently, I was trying to find a remote control to operate my Macbook from a distance while speaking. I wandered around the ghost town of Tel Aviv in a mask for two hours in a heat wave, going to every computer and electronics store that I know because every place’s operating status and contact information on their websites were out of date.
Everything was closed. After I returned home and drank a lot of water to combat the dehydration, I searched Google for something “near me” with the item. I found a random store in a small town outside of Tel Aviv that delivered the remote control two days later. I would never have known about them otherwise.
And from a marcom standpoint, it is important to remember that market leaders and market followers need different strategies. Market leaders should grow the size of the total market because they will gain more than everyone else. Everyone else should take share away from the leader.
As I once heard Dave Trott put it when I also spoke at the ZeeMelt conference in India last year, Coca-Cola wants people to buy more soft drinks in general. Pepsi wants more people to choose them over Coca-Cola. Companies who are fighting against entrenched market leaders in these times should remember that.
The lockdowns are increasing competition in some areas
But there are some industries in which the coronavirus pandemic is leveling the playing field and increasing competition instead. To get more insight if you are in one of those markets, I recommend taking a look at these Twitter threads I started on positioning and pricing in which various industry veterans offer some thoughts. The need for better marketing – not just communications – increases as the competition increases.
As an example of the level playing field, let’s go back to restaurants.
Today, people can order from any restaurant and have the food dropped off at their doors quickly. What does that mean? Every restaurant in a city is now competing with every other restaurant in that city. And every sushi place in the city is now competing with every other sushi place even more.
Basically, the geographic advantages of neighborhood restaurants no longer exist because of the lockdowns. Just see a recent Comscore report on how UK and European consumers are using food-delivery mobile apps more and more.
“A consequence of the pandemic is that consumers are getting into the habit of having products and services delivered at home,” the report states. “Competition, therefore, is just one click away. And while seasonality plays a role in food delivery usage, its importance, relative to buying groceries online, is going up.”
Now, I just have to figure out how to get Santarpio’s to deliver 5,500 miles from Boston to Tel Aviv.
The Promotion Fix is an exclusive column for The Drum contributed by global keynote and virtual corporate speaker Samuel Scott, a former journalist, newspaper editor and director of marketing in the high-tech industry. Follow him on Twitter. Scott is based out of Tel Aviv, Israel