Prize position to view digital disruption

Online competition is challenging another traditional business model, with Lotterywest implementing major changes.

During the hectic weekends when a young Paul Andrew was working in his parents’ Cottesloe newsagency it is unlikely he imagined that, 30 years later, he would be running the agency responsible for nearly a third of that retail segment’s total revenue.

After a year at the helm of the state government’s lotteries manager, Lotterywest, Mr Andrew has a rare perspective on the challenges newsagents face.

Last financial year, retailers earned $64 million in commission on lottery sales. That figure is budgeted to rise to $70 million this year – a growth rate that stands out after relatively flat returns since 2012.

It’s likely to be a bright spot in a sector that faces rapidly diminishing income from its eponymous product line – consumer-focused newspapers and magazines.

In many ways, Mr Andrew’s Lotterywest shares the pain of newsagents. In both cases the alternatives in the market are digital and increasingly weaning the younger demographic away from consuming their traditional products.

“The 18-35 age group are not playing the lottery as much as we would like them too,” the Lotterywest CEO said.

Mr Andrew said technology and online platforms such as social media offered new ways to connect with customers, especially the younger cohort. Lotterywest was developing its capability and strategy to connect with its audience this way, he said.

“That gives us the opportunity to understand our customers, which is not just our players – news retailers and grant recipients are included,” Mr Andrew told Business News.

Mr Andrew was still working his way through his business studies in 1992 when his predecessor, Jan Stewart, started her 22-year reign at the head of the lotteries agency.

They are big shoes to fill and, since arriving from Surf Life Saving Western Australia, he has been cautious in putting his stamp on the organisation. He said he spent months absorbing information and then a further period in a more formal process of meeting staff to better understand the business.

Late last year, Mr Andrew restructured the management team, reducing the number of direct reports to the CEO and bringing in some new blood.

Despite the challenges for Lotterywest in the difficult economy, both at the sales end and a rise in need from the charitable sector, the downturn also has had benefits, at least in terms of available talent.

Lotterywest will also be moving headquarters from Herdsman to Subiaco, no doubt taking advantage of high vacancy rates.

Given the more austere times, Mr Andrew said Lotterywest had been giving more assistance to charitable organisations seeking to restructure; but it was not his organisation’s role to push mergers.

“Whenever circumstances change like that, businesses have to adjust and change accordingly,” Mr Andrew said.

“We have assisted with grants to a lot of groups to come together and undertake that back-end work as to what their organisations might look like and how it might happen.

“It is an area that we are getting into more and more.

“But at the same time, there needs to be an appetite from those organisations.”

After failing to meet its forecast in 2014-15, he said Lotterywest was on track to meets its $880 million sales target – 6.5 per cent above the previous full year. Mr Andrew insists that sales growth is achievable, including through retail networks.

He points out that growth in store numbers had not matched the state’s expansion. In 2005, the then Lotteries Commission had 560 outlets, including 482 that offered a full suite of products. By June 30 2015 there were 533 outlets, 500 of which were full service.

Mr Andrew said there were 27 expressions of interest out at the moment.

While the Lotterywest boss shies away from any suggestion that poor-performing outlets would lose licences, he said the agency would be working more closely with retailers to improve sales and stay in touch with consumer needs.

“We are putting a lot more science behind it and having those discussions more and more with our retailers to have that relevance,” Mr Andrew said.

He said it was not in Lotterywest’s best interest to cannibalise existing businesses when adding new retailers.

While newsagents understand the growth predicament of Lotterywest, they are wary.

Australian Newsagents Federation WA chairman Dean Scott said he believed that new outlets, including the possibility of convenience stores, were unlikely to face the same stringent tests regarding the impact on existing retailers that he did when he started his Subiaco Square store 16 years ago.

“If the same hoops were there to be jumped through, then there would be no new outlets,” he said.

Mr Scott said Lotto was an integral part of most newsagents’ business, and while sympathetic to the need to capture younger customers, his preference would be for more money to be put into promoting newsagents.

On the positive side, he noted how responsive Lotterywest officials were to newsagents’ initial concerns regarding the retail transformation program, a $20 million introduction of new hardware, software and refreshed in-store look being introduced this year.

“They were certainly told there were things that could be tweaked,” Mr Scott said diplomatically.

“They acted on that.”

One thing on which Mr Scott and Mr Andrew are in furious agreement is that newsagents are working hard to reinvent themselves.

“When I was a kid in school holidays, one of my jobs was to do (school) book lists,” Mr Andrew said.

“That fell away with the advent of Officeworks and the like. The good retailers have been working hard and got back into that market.

“There is a bit of cycle coming back around.”