Some examples of changing business models (restaurants, wealth management and a newspaper, ie AFR)

1. Restaurants

Until recently the formula for a successful restaurant was to cook well and look after your customers. While this is still the case, there is now more competition and margins are falling. Thus, a more creative business model is required.

Options abound:home delivery platforms, opening a casual spin-off, running special offers like BYO, happy hours, guest chefs, a bar facility, celebrity approach like writing a cookbook or being on TV, linking with a frequent diner program, sustainability features like zero waste, brand partnerships (like coffee and kitchen appliances), partnering with cruise ships, increasing the number of sittings per night, different ways of taking bookings like a ticketed meal system, charging diners in advance, etc.

More recently data mining, via social media, including linking with home delivery online platforms, has become popular owing to convenient, ie just click away. This pre-ordering etc helps keep labour costs under control.

Recent innovations include the opening of "dark kitchens", ie kitchens not attached to a restaurant with sit down diners but linked with online platforms, eg Uber Eats. The high commission, eg up to 35%, of these platform is is regarded as excessive by the industry.

Other measures include

- streamlining payments by using online payment systems like crypto-currencies rather than the cumbersome Eftpos machines. This also allows a lot of data to be collected on customers' likes and dislikes, etc.

- use of social media instruments, like Instagram, are important ways of promoting your business

NB

"...technology may be the medium, but the message is that in order to survive...... restaurants today need to create an experience, not just somewhere for people to eat and drink......customers have such high expectations..."

Necia Wilden 2018

The industry needs more training and development so that staff are professional.

Some suggest that to survive in the industry you need to get very big, to get economies of scale, or very small. The latter is to exploits a niche: specialising in one thing and doing it really well, eg seafood eateries, a wine bar, etc, rather than providing a full-service, fine-dining restaurant. Another recent trend is the return of the "ma-and-pa" restaurant model, ie places run by highly committed, sometimes high profile, couples.

2. Wealth management (Australian superannuation and finance businesses)

At the turn of the century, when the Australian banks, like CBA, ANZ, NAB, etc bought into wealth management, they thought they were acquiring outlets with strong brands which would guarantee them good returns and help them achieve their dream of becoming financial supermarkets. Then the following happened

- the banks experienced fierce competition from the not-for-profit industry super funds (the Australian Productivity Commission found from between 2005 and 2016, the banks' wealth funds delivered an annual net return of around 5%, well below the around 7% return from industry funds (Karen Maley 2018).

- GFC (starting in 2007, resulted in clients questioning the value of the advice, fees charged, etc)

- regulatory changes, ie

    a) MySuper legislation (forced to offer simple, low-fee accounts to new superannuation customers)

    b) Freedom of Information Advice (banned commissions on financial products, apart from insurance, and forced procedures on banks that ensured they were acting in the best interest of their clients. Also,

"...compliance costs continued to rise, and profitability across the board was under pressure, especially in the insurance businesses, which were experiencing a huge increase in the number of claims..."

Karen Maley 2018

NB the implementation of the findings from the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Banking Royal Commission) on the question of vertical integration, ie

"...where big financial institutions manufacture investment products and then distribute them through their financial planning networks..."

Karen Maley 2018

This is expected to put more pressure on the banks in wealth management.

- succession of scandals which were highlighted in the Australian "Banking Royal Commission" (involving some actions of financial planners tarnished the banks' reputations and an increasing number of financial planners quit the bank-owned planning networks and set up independent businesses)

- introduction of web-based, specialist financial planning platforms (offering a considerably wider choice than the traditional providers, ie

"...without reliance on legacy systems, small, specialised platform providers are more agile and have succeeded in increasing their market share of the retail wealth market...... these players invested substantially in their systems, resulting in an increase of market share of net funds flow from 2.6% to 35.9% over the course of the last four years..."

Victor German as quoted by Karen Maley 2018

With the banks divesting, many financial planners who remained in the institutional groups now faced huge uncertainty. Most banks have stopped investing in upgrading their technological platforms, so this this helped the specialist platform providers who have the advantage of superior technology. To catch up with the latest technology, the banks would need to invest large amounts of money (estimates of up to $1 b. to develop new platforms and integrate these platforms into their existing systems)

3. Newspaper (Australian Financial Review - AFR)

AFR was part of the Fairfax media group. It is an example of not handling the business model change from printing press to digital. The below diagram shows the impact of digitalisation on an Australian newspaper (Australian Financial Review), ie how its readership has increased from under 1.5 m (2012) to 2.0+ m (2018); with print readership marginally falling while digital shows a significant increase from under 0.5 m to around 1.4 m readers (AFR 2018).

1audience

In the 1980s and 90s this media group made a lot of money. As a result, in the mid-1990s around $A 600 m. was spent in Chullora and Tullamarine on state-of-the-art printing presses to produce newspapers (including the Sydney Morning Herald and the Age which were full of advertising around jobs, cars and homes). Two decades later the printing presses were running at 25% of capacity and have been shut down.

"...the 'rivers of gold' have been sucked up by digital players like SEEK and car sales at the rate of $A 100 million per year and the company had failed to respond, either through investing in its own digital rivals or meaningful cost-cutting..."

Max Mason 2018

In addition, Fairfax

"...announcement to cut 1900 jobs over three years across the entire company, strip out costs, focus on digital-first editorial, shrink the broadsheet Herald and Age down to tabloid size and introduced digital subscriptions at the pair of mastheads on top of outsourcing sub editing...... sell accommodation website Stayz for $200 million and sell down NZ online auction house trade-me for $769 million......not long after the announcement in 2012, Fairfax market capitalisation slumped to $847 million. Factoring in the 40% of Domain it gave to shareholders, it is worth a little over $2 billion today..."

Max Mason 2018

In November 2018, shareholders approved the merger with free-to-air broadcaster Nine Entertainment. This technically ends the name of Fairfax after around 180 years.

In recent times technology has allowed accurate measurement of what readers want, ie more investigative reporting and editorial.

The merging of the Fairfax group with Channel 9 has diversified both businesses so that they are better able to handle any downturns, ie the weaknesses in the free to air advertising and property markets has been more than offset by Channel 9's growth in streaming and publishing (see diagram below comparing financial years 2018 and 2019). The merger has made Channel 9 much less reliant on revenue from its television network, ie broadcasting.

 

broadergrowth.jpg

source: Max Mason 2019

 

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