What was it like to be responsible for the coffee business at Procter & Gamble (Folger’s) or General Foods (Maxwell House) as Starbucks started gaining a strong following? Did they start to wonder whether their place as one of the leading providers of morning beverages was at risk when Starbucks opened their 500th unit? Their 5,000th? Did they start to get nervous when Starbucks decided to open shops within grocery stores? Or maybe it was when Starbucks started actually selling packaged coffee in the same aisle as they did?
The only thing we can say for sure is that when P&G gave up on Folger’s in 2008, selling it to Smucker’s (uh, okay) for $3 billion, Starbucks’ market capitalization was roughly ten times that amount.
What’s it like to watch for years as a competitor creates the bulk of value in your category?
I’ve experienced this first hand. During my tenure at Sears I participated in no less than 3 separate studies across 12 years (!!!) to figure out how we should respond to the growth of home improvement warehouses. In all three cases, it was painfully obvious that Home Depot and Lowe’s unfettered growth would, over time, severely impact Sears’ market position in tools, power equipment and home appliances–businesses that represented more than half the value of the company.
Each time we were willing to undertake minor tactical improvements–and in a couple of cases launch new, somewhat related concepts such as “The Great Indoors” and “Sears Grand.” But in the moment of truth management, desperate to protect the existing mall formal, was unwilling to take action on the fundamental issue.
Just as Blockbuster watched Netflix and Redbox.
Just as Saks and Neiman Marcus have watched GiltGroupe and RueLaLa create a $1 billion plus category in just over two years.
The list of industry leaders that failed to understand and act on the fundamental shifts in their industries goes on and on.
It IS a cliche to ask the question what business are you in? But if you don’t understand what your most valuable customers and prospects consider a reasonable or superior substitute to your business model, you risk watching the profits in your business drain to the competition and you may be walking hand in with your lawyer to the bankruptcy court.
What are you watching when you should be doing?
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