Many startups are currently focused on short-term aspirations, driven out of necessity to generate short-term results for survival. But the news last week regarding the acquisition of Asda by the remarkable entrepreneurial brothers Zuber and Mohsin Issa reminds us of that we should always be alert, looking for growth opportunities.
These are uncertain times. We are struggling to find the right balance between caution and optimism, yet the more volatile the environment, the more balance you need, keeping your options open. Today, I would argue that taking less risk is actually more dangerous than ‘do nothing’. Shrewd investment to execute your strategic momentum is key at the present time.
A strong sense of the possible is essential to driving growth in the current economic climate. Whilst the image of the all risk-taking, buccaneering entrepreneur is somewhat of a caricature, exuberant thinking makes a refreshing change from the stream of maudlin news at present. We are running a severe optimism deficit, and seeking growth maybe counter intuitive, but it’s what is needed at present.
So. let’s take a look at the Issa brothers, who acquired a majority stake in Asda last week. The numbers may be a few more digits to the left of the decimal point than for startups – it’s a £6.8Bn deal – but the strategy and timing should inspire entrepreneurs currently doubting themselves.
Initially called Euro Garages, the Issa brothers founded EG in 2001. Zuber and Mohsin Issa started their business with a single petrol forecourt in Bury, Greater Manchester, in 2001. Now their business owns more than 6,000 petrol stations, mainly in Europe and the US, and employ 33,000 people.
In the UK, EG has 341 sites, making it the second-biggest independent petrol retailer. The market in the UK totals about 8,350 forecourts. Some 1,500 are operated by supermarkets, with another 1,500 owned by large oil firms such as Shell and BP. The remainder are owned by independents.
The rapid expansion of EG came as the major oil companies sold off or closed their retail petrol outlets to concentrate on production and refining. The supermarkets – including Asda – saw an opportunity to sell fuel to their existing customers by adding petrol stations to their store sites.
When the rest of the petrol retailing market was quaking in their boots, the brothers said: OK, if people want cheap petrol and can afford the time to find a supermarket, good for them, we will focus on high quality for motorists on the move.
The Issas saw an opportunity to add more retailing to their petrol stations. While motorists had been able to pick up a fizzy drink or a pack of gum with their fuel for decades, they were now offered fast food, takeaway coffee and groceries.
In 2019, EG Group reported sales of £18bn, up from £12bn a year before. While fuel accounted for 80% of sales, the business is geared towards adding other sales, from brands including Subway, Burger King, Greggs, Starbucks and French supermarket Carrefour.
Of course, while Asda can be improved by an enterprising eye, there is no windfall in the short term from buying a big supermarket, we all know how competitive food retail is. This sector continues to see intense competitive action, with Lidl, Aldi, B&M and Home Bargains all taking custom from the major chains.
But EG has a proven track record of innovation and expertise around convenience and brand partnerships. The speed of growth of their petrol station business marks out the success of taking a contrarian strategy, with a focus on meeting changing customer demands and delivering convenience at the heart of their business model.
The acquisition of Asda makes sense – Asda already has a relationship with the Issa brothers through their petrol forecourt business, with the supermarket recently announcing its expansion into convenience stores and will initially trial Asda On the Move at three of EG’s fuel station forecourts in the Midlands.
The blueprint is shown on one of their newest sites, near their hometown of Blackburn, a four-acre service station which features a drive-through KFC, Starbucks and Greggs, as well as a Spar convenience store, a BP-branded petrol station and electric charging space.
The later point is also key, with EG looking at growth in the current market with their innovative offering, but also the future market: although more people are buying electric cars, petrol and diesel still dominate the market, but the company is focused on the demand for new fuels with the company’s large forecourt estates providing good space for fast electric charging.
So, what a shot in the arm for startup entrepreneurs this news was last week in the current climate. We need to embrace this audacious thinking for our own ventures, with a crafted strategy and keen eye for opportunity, and an execution mindset, and be optimists at a time when glass-half-full is becoming the default mindset.
So, let’s look at the Issa’s innovation strategy, and the lessons we can take into our own startup enterprises.
1. Innovation in channel: How you deliver your offerings to customers? Channel innovations encompass all the ways you connect with your customers. While e-commerce has emerged as a dominant force, traditional channels such as physical stores are still important in creating immersive experiences.
Omni-channel retailing has become the standard for success in the retail environment. It provides a seamless, continuous customer experience across any device or location a customer wishes to shop, with a personalised brand experience.
Apple’s Genius Bar is a great channel innovation. After Dell had educated the PC buying market to buy online and direct, Apple reinvented the in-store experience and took it to another level, reinforcing the brand values and consumer experience.
EG’s business model obviously doesn’t need a digital strategy, but like all skilled innovators it has found multiple, complementary ways to bring their products and services to customers. Their goal is to ensure that users can buy what they want, when and how they want it, with minimal friction and maximum delight.
Takeaway: EG have fused the fuel and food retail experiences into a single touchpoint, unifying channels to provide convenience to customers and a high point of differentiation to competitors. How can you take these attributes into your channel strategy?
2. Innovation in networks: How do you connect to create value in the demand chain? Collaborative networks creating the connected economy enable startups to leverage other brands, processes, offerings and channels through strategic partnering. This network innovation means firms can capitalise on their own strengths and share risk, while harnessing the capabilities and assets of others, develop new offers and ventures.
Amazon is the best example of network innovation, which ensures its growth is driven by customer insight and intelligence gathered by network effects. But it’s not supply chain integration as the key feature of Amazon, rather they curate their customer’s demand chain – the same strategy as EG.
Takeaway: EG lives in their customer’s demand chain, and partners with premium brands across its product and service offerings. On the fuel side, with prominent fuel brands Esso, BP, Shell and Texaco, in convenience retail, globally recognized brands such as Starbucks, KFC, Greggs, Burger King and Subway. What can you do to emulate this strategy?
3. Innovation in customer engagement: How do you foster compelling interaction? Customer engagement innovations are all about understanding the needs of customers and using those insights to develop the most intimate and effective connections with your business.
Great customer engagement innovations provide opportunities to build customer retention. In its simplest form, EG help people find ways to make parts of their lives more convenient. Airbnb also executes this brilliantly, leveraging personalisation, automation, simplicity and intimacy.
Takeaway: Showing great market awareness with active responsiveness to convenience consumer trends and demands, EG has made a significant commitment to delivering a modern consumer retail offer which exceeds expectations and creates a true ‘one stop’ retail destination to satisfy multiple consumer missions. How can you stand out from the crowd in your market sector?
4. Innovating in activities: How do you move from efficient to intelligent? Here the focus is to spend less time on optimising processes and instead build flexibility and embedded intelligence directly into them, to help improve the customer experience, to create learning systems that work harder and smarter.
For example, Booking.com. a web-based hotel-booking platform. They have reframed the focus of the hotel business model from ‘availability’ and direct venue contact, to user choice, self-selection and upselling ‘packages’, opening new revenue opportunities.
Today’s consumer wants convenience, simplicity and speed, and focus on content – the tone for the Booking.com’s web site text, photographs, additional information about the area, testimonials from happy customers etc. All seek to raise the click-through rate.
Takeaway: EG have moved from efficient to intelligent in their customer facing activities. Their vision is to deliver a contemporary, compelling retail experience that meets multiple consumer needs in one convenient destination, through a branded fuel, extensive convenience retail and a premium food-to-go offer. Can you create such a value-creating bundle for your customers?
5. Innovation in process: How do you use processes to connect with customers differently? Process innovations involve the operations that produce a startup’s core offerings. This requires a fresh think around ‘business as usual’ that enables the company to provide a different customer engagement and cost model.
Process innovations often form the core competency of an enterprise, are sustainable and scale, and become the ‘special sauce’ that competitors simply can’t replicate. Amazon Prime shows the power of process innovation.
Takeaway: EG operates some of the largest sites in its sector, allowing space for the inclusion of alternative fuel charging stations and for the co-existence of charging stations and hydrocarbon fuel pumps. In doing this, EG are taking their ‘special sauce processes’ and reimagining them for their future customers’ demand. Have you got one eye on your new, emerging market?
The startups that will survive and prosper in the long term will be those that replicate some of the smart strategic thinking of EG:
- Compete on a basis of selling the differences and build business propositions that are clearly differentiated
- Unlock their creative capital, by bringing ideas that are innovative, imaginative and inspire customers
- Create a new customer experience and product category that delivers customer ‘lock in’
EG has gained competitive advantage through embedding innovative and creative ideas into disrupting an existing route to market, create a differentiated value proposition, connecting previously unconnected activities. There are other great examples of how company fortunes have been transformed through this process:
- Lucozade – previously a medicinal drink, transformed into an isotonic sports drink – one synonymous with high performance athletics, a strategy that involved teaming up with Olympic gold medallist Daley Thompson to repositioning the brand.
- Lipton’s Canned Iced Tea – a reinvention strategy involving the tea maker and canning technology business – PepsiCo – to bring a reworked traditional product to a new set of customers.
- Innocent Drinks – a company that fused ethical thinking and values to a new range of drinks – fruit smoothies – taking an existing product and introducing a ‘wow’ factor to differentiate the offering.
- Garden centres – reinvented their futures by introducing food and restaurant facilities, also often partnering with well-known brands to offer clothing, to be become ‘leisure retail’ outlets alongside the traditional core horticultural offerings
EG created a new offering that we are now all familiar with, then built it at scale, showing inspiring value innovation thinking. With new startups popping up practically every day, yours needs to replicate this strategy. You need to see what everybody has seen and think what nobody has thought, and don’t live your life in the rear-view mirror – it tells you where you’ve been, not where you can go. Taking on board some of the innovation learnings from the Issa brothers will help you get there.