IAN Moir, CEO of Woolworths, admits the company made a hash of the Frankie's soft-drink saga last year, but insists that from an ethical point of view it did nothing wrong.
CHRIS BARRON | BDLIVE
Frankie's Olde Soft Drink Company, a small KwaZuluNatal-based business, had the idea of reproducing favourite soft-drink flavours from the past. It invited Woolworths to stock its product but was told it was not in line with the upmarket retailer's character and was turned away.
Next thing Woolworths had an almost identical product on its shelves. Frankie's accused the retailer of theft and got a huge sympathy vote on social media. The Advertising Standards Authority ruled that it had "deliberately and intentionally copied" the Frankie's product and ordered it to change its labelling.
Late in the day, when it was clear the furore was not going away, Moir issued a tepid statement that because "it is clear public sentiment is against us" the range would be withdrawn. There was no acknowledgement of unethical behaviour.
"With the benefit of hindsight we did a number of things wrong," he said this week. "If we'd had another chance we'd have acted quicker."
Surprisingly, Woolworths completely misjudged the effect of social media.
"We learned a lot in terms of our understanding of social media and mainstream media and how they work together and how one has to manage both," said Moir.
Was not the real lesson not to steal somebody else's idea?
"We didn't steal anybody's idea. If I had picked up the phone to the owner of Frankie's sooner I think we could have resolved the matter quicker."
He said the speed of social media - "how quick it is" - was a surprsie.
"This was a problem within an hour and it became very difficult to manage and control. I learned a lot about the role of a CEO in acting quickly and dealing with it personally."
He also learned that, whether it is right or wrong, perception is reality.
"Most people are left with that view [that Woolworths stole an idea]. We have to accept that. Perception is reality on this one."
From a public relations point of view, if nothing else, "it wasn't our finest moment".
Despite that, Woolworths came top in a subsequent, independent, corporate reputation survey.
"It was lovely to get that so soon after the Frankie's incident," said Moir. "What it said is that the consumer by and large is forgiving of a business it believes in and trusts and knows. Every business can get some things wrong sometimes, but by and large Woollies gets it right."
Scottish-born Moir, 53, was appointed two years ago after 11 years in Australia, seven of them as CEO of Woolworths's subsidiary Country Road. It was in dire straits when he took over and it was his success in turning it around that won him the top job at Woolworths.
He said he finds it "more challenging in some ways" to run a retailer in South Africa.
"The issues around labour are more difficult, more complex," he said, although in terms of the broad regulatory environment Australia is "far more regulated. It is one of the most regulated countries in the world". And the regulations are tightly enforced.
"Woe betide you if you don't adhere to the regulations because your neighbour will phone the local government and inform on you. People are real sticklers for adhering to that regulation."
More demands are made on business in South Africa in terms of investing in social upliftment and development programmes. But rather than being a negative, this "gives a sense of making a difference that you don't get in Australia. That's one of the enjoyable, positive things about working and operating in South Africa. It's not so much about the regulation, it's about feeling as a business and an individual you can make a difference.
"The country is at a different stage and has different requirements, and every business must have a social conscience as well as strive to make a profit."
Woolworths's purchasing policy is aimed at developing small suppliers. It spells out to bigger suppliers the role it expects them to play in this.
"We don't believe that economic development and the welfare of South Africa is all about handing over money. That doesn't work. It's about building skills, giving land that can be farmed sustainably and profitably for a long time into the future.
"In almost every area of our food business we are seeking to bring on new elements of supply."
Between 5% and 10% of its fresh produce is sourced from small, previously disadvantaged suppliers.
"A lot of them are small groups that come under the umbrella of our big suppliers that give them training, education, land and skills.
"Every time we visit a supplier these are the conversations we're having."
Woolworths sources 55% of its clothing from overseas. He would like to source more locally but it is up to local manufacturers to up their game.
"If we could have quality supply at the right price locally, with fast response times, that would be our preference."
After taking over as CEO Moir decided, somewhat controversially, to buy back Woolworths franchises from the independent entrepreneurs running them.
Is this the move of a company committed to developing small businesses?
"It is and it isn't," he said. "The franchise model didn't work for us. We were finding it more and more difficult to control our brand; it was less and less profitable for us. For a host of reasons it didn't make sense for us."
Woolworths found that brand management was "easier said than done when you're dealing with a bunch of entrepreneurs that have their own point of view about things".
Moir sounds cautiously optimistic about the future of Woolworths in South Africa. Its target market, the LSM group 8-10, is forecast to grow at 5% a year.
"Our base is becoming more African, and as Africans become better off they're embracing the Woolworths brand. We're well placed to take advantage of what we believe is a natural shift. There may be social issues and potential for political unrest but in my short time here I've seen an ability to get to the edge of the precipice, look over and then come back from it.
"I've seen a country with a great survival instinct."