Friday, 23 June 2017

Poundland Launches Rival To Toblerone Bar

At 180g, Poundland said its Twin Peaks is 20% heavier than its branded equivalent, and offers “a double mountain in every packet”.

 It officially goes on sale in the first week of July at the chain’s famous £1 price point.

NAM Implications:
  • Twin peaks, and more of them…
  • A self-inflicted no-brainer…?

Tuesday, 20 June 2017

Amazon 'patents' a new definition of a shop...

Amazon's latest patent, aimed at preventing alien showrooming in store (!) could be another nail in the coffin of a traditional shop.

In fact Bezos' patent, combined with his Whole Foods snack, raises some fundamental questions:

What is a shop? (Sales outlet?, showroom?, sales aid?)
  • Maximum assortment (needs to offer everything, even long-tailed SKUs, selling less than a SKU/month...)
  • Online can offer ‘infinite’ selection (‘Amazon 300m items…’)
  • Tesco cull 90,000 SKUs to 60,000 SKUs (Cull 1), enough is not enough?
  • Tesco discovery of 80/20: 80% sales via 20% SKUs, what really counts instore?
  • Sales/sq. ft. (Standard £1,000/sq. ft.) but should we include all sales of the SKU by the retailer, including their ‘show-roomed’ sales, providing they capture these sales on their online facility (but every little blocking of 'alien' sites helps...)
  • Redundant space: ‘large space redundancy’ (can franchisees produce adequate returns even with a mix of rental and share of sales?). If not, instore theatre has to generate £1k/annum/sq. ft. or the store performance goes down to say £750/sq. ft./annum, thereby diluting value of the real estate…
  • UK mults own a high proportion of their stores, and are locked into the space (because 2% depreciation per annum means 50 years of the same (in this retail climate?)
This just shows how the fundamentals are being challenged…(by Amazon)

Who in the supplier or retail company is doing this degree of fundamemntal and open-ended thinking?

Not being an experienced retailer, Bezos does not know what does not work, and goes on to make it work…while expert retailers continue to search for the tram-tracks…

Saturday, 17 June 2017

Amazon-Whole Foods, a small step with a big pay-off…

Yesterday's agreement to buy Whole Foods for $13.7bn marks a drop-in-the ocean step-change in grocery retailing everywhere…

More details here, but the immediate knock-ons include:
  • A synergistic foot in Bricks & Mortar food retail for Amazon…
  • With lots to offer Whole Foods but even more to gain
  • More of a challenge in terms of online execution…short term (no sweat for fast-learners)…
  • …but meanwhile, every little helps

Friday, 16 June 2017

Why 'shrink-flation' hurts the loyal consumer, and the brand

A brand owner that reduces the amount of product in the package, without an equivalent reduction in the price (‘shrink-flation’) is not only 'short-changing' the consumer (the supplier meets the letter-of-law requirement via the on-pack weight declaration, but misses entirely the spirit-of-law impact on the consumer, especially those that know the  brand), but is in fact altering the accepted combination of the 4Ps, thereby reducing the competitive appeal of that brand compared with competing brands that have not made similar changes....

A pity to undo in a stroke, the work of years in brand-building... 

Wednesday, 14 June 2017

Making the Numbers Count at the Supplier-retailer Interface…

Operating at the financial edge needs real-number usage by finance-savvy NAMs.

Given the continuing global credit-squeeze and the resulting slowdown in UK retail, account management will have to be played very close to the financial edge for the remainder of 2017…  This makes it crucial that suppliers quantify and demonstrate key aspects of the risk-reward relationship at the supplier-retailer interface.

Creative use of numbers can help.

However, whilst robust calculating methods can often reveal usable insights, the confidence and ability to lead a reluctant buyer to ‘obvious’ conclusions requires a little more… Working confidently at the financial-edge requires a constant willingness by NAMs to reduce issues and situations to numbers, to the point that the resulting moves seem instinctive. This means building up a repertoire of calculating-tools that can be adapted to most aspects of a trading relationship, and by continuous application, internally and with the customer, a level of confidence and credibility is built up over time.  

Essentially, optimising the supplier-retailer relationship is about working towards and maintaining a fair balance of relative risk and reward between trade partners. It is crucial to understand both supplier and retailer business models in terms of how money works within each organisation, using latest open-domain accounts as a basis for comparison.

This means isolating every type of financial transaction with the customer, calculating its cost to the supplier, and then its value to the customer based on respective business models.

In other words, a supplier making a net profit of 9% (!) has to achieve incremental sales of £11.1k for every £1k ‘trade -invested’ with the customer. Meanwhile, a retailer making a net profit of 3.5% has to generate incremental sales of £28.6k to generate that same £1k received from the supplier. Thus it can be seen that a £1k investment by supplier is ‘twice as valuable’ to Sainsbury’s (net profit 1.9%, incremental sales of £52k) than to Asda, with its net profit of 4.4%, incremental sales of £22k, thereby requiring differing levels of emphasis and support in negotiation.

In this way, it is possible to use incremental sales as a measure of the value of trade funds investment to the retailer, thereby impacting two important buyer KPIs, margin and sales growth. In practice, the buyer is measured on gross margin, but is increasingly affected by the resulting net margin as a driver of ROCE and ultimately the share price.  

Apart from helping in day-to-day negotiation, working the latest numbers at the supplier-retailer interface is really about identifying relative risk in the total pipeline, and allocating rewards appropriately to all members of the demand-supply chain. Because of a reluctance or inability to factor in different parts of the relative remuneration package over the years, the risk-reward balance has become tilted in favour of the retailer. This means that gross margins, and credit periods currently enjoyed by retailers do not reflect improvements in delivery frequency over the years.

This additional insight added to average payment periods of over 40 days, coupled with daily delivery, means that eventually, an indefensible and politically damaging position will emerge. In other words, whilst the recent moves to pay smaller suppliers in 14 days are encouraging, it would be beneficial to extend this to all suppliers as part of a move to more of a fair share, reward-for-risk model.

Counting the latest numbers can help in achieving this balance… 

Monday, 12 June 2017

What Value Colour Supplements?

Pic: Brian Moore, Waitrose Hove, Sunday 11-6-17, 1300
Sunday-papers ritual under further threat as fire prevents full distribution?

A weekend fire near a SmithsNews warehouse prevented distribution of colour supplements in the South East yesterday.

Even heavy post-election analysis content was apparently not sufficient to encourage sales of The Mail, Sunday Times and Observer, resulting in on-shelf rejection…

Given that supplements carry most of the advertising, a double whammy for publishers...

Apart from a trend towards Saturday consumption of weekend press, paying full price for supplement-less newspapers perhaps drew attention to the cover-price, and thereby value-for-money…

...besides possibly making online alternatives more attractive?

Wednesday, 17 May 2017

How to compete alongside the competition…When growth in flat-line can only come at the expense of competitors

With product, company and customer all going through different stages of different lifecycles, and the competitive profile changing in respect of all three, simultaneously, in a flat-line demand environment, it is little wonder that companies are tempted to evolve a policy of ‘ignoring’ the competition and marketing to a customer as if it were the only route to the consumer, with each customer receiving this ‘exclusive’ treatment in the name of a ‘tailor-made’ approach.

Moreover, given the consumer’s current degree of media and data saturation, it has become increasingly difficult to help the consumer to appreciate the subtle differences in a brand’s ability to meet individual need better than the competition.

These difficulties can be compounded by a fixation upon the competitor, amounting in some cases to face-to-face confrontation, with the only result being a dilution of energies and reduced focus upon the satisfaction of consumer need.

The competitor is not, and should not, be treated as the enemy. Each is competing for the mind of the consumer, and a focus upon consumer perception of the available alternatives will be more productive in terms of the optimisation of supplier resources.

Thus competing alongside, within a realistic acknowledgement of the competitor’s relative appeal, will be more productive. The supplier is thus merely using the competitor’s offer as a reference-point, focusing upon usable differences and then demonstrating to customer and consumer how the brand offer can more effectively meet the target consumer’s need, cost effectively.  The emphasis should be upon how one can capitalise upon the short period which a market allows before a better, cheaper, more effective alternative offer is thrown up in opposition…

Incidentally, if a competitor fails to emerge as a threatening alternative, a more fundamental question has to be asked regarding the assumed ‘unique advantage’ over the competitive offering in attempting to meet real need in the marketplace…

In expressing the offer to the customer it is only realistic to bear in mind that the buyer is merely interested in maintaining a competitive advantage over other categories and departments, and perhaps with other retailers in a macro sense. The buyer wants to maintain a fair-share balance within the category that is generally ‘right’ and allows the category to compete as a whole with other categories and with other retailers’ version of the category as part of the total shopping experience.  The buyer should not be expected to operate at SKU level. It is therefore a pity when availability shortfalls provide a negative trigger that detracts from appreciation of the overall proposition.

Within this set of priorities, expressions of ‘petty’ differences between brand propositions become a waste of effort and are ineffective in terms of providing a basis for securing instore compliance.
Equally, it is important to keep the buyer focused upon the category within a total aisle experience versus that of competing retailers. Again the emphasis should not be upon merely copying or attempting to neutralise the competing retailer’s approach, but instead, the competitor’s offer should be used as a reference point from which to establish a ‘unique’ shopping experience, instore.

Focusing upon getting the Marketing Mix basics right will then allow the supplier to take advantage of inevitable out-of-stocks, changes in brand-switching rate by consumers and any performance shortfalls of even the most daunting of competition, within an agreed ‘fair share’ balance of brands and own-label in the retailer’s version of the category.

On balance, competing successfully is less about seeking and exploiting ‘secret’ information or matching a competitor’s moves blow by blow, and more about identifying real points of difference between perceived alternatives available to the consumer wanting to satisfy a need.

Success is then about meeting that need faster and in a more effective manner than the competition, operating alongside comnpetitors, SKU by SKU, in the aisle….

Wednesday, 10 May 2017

Unilateral Collaboration with Major Customers…

Despite constant references to equal trade partnership, real world customer management has to play to a more pragmatic hymn-sheet…

Essentially, when a seller’s need to sell is far greater than a buyer’s need to buy, a genuine 50/50 relationship is not possible. Increases in trade concentration merely add to the problem.

Given the need to actively participate in the game, it is perhaps wise to optimise available resources by working to a vision of true mutual dependency and then scaling back activities and expectations to a level that acknowledges the actual power balance that exists between the two parties.

Strictly speaking, even a very one-sided relationship can be productive… No matter how large a customer, and despite having product research budgets that dwarf those of many suppliers, a retailer operates a business model that ‘knows a little about a lot’ and as a result can form a very productive, if on-sided, relationship with a supplier who essentially operates a business model that relies upon ‘knowing a lot about a little’.

In other words, a supplier with three categories and a focus upon consumption, can be a very valuable asset for a retailer who to manages 400 categories and by inclination concentrates upon shopping behaviour.  In a willing partnership, their combination of consumption insight and shopping insight can be highly synergistic. As long as key precautions are taken to minimise risk, it matters little that the relationship is relatively lop-sided.

Whilst strong branding can help to tip the balance, it has to be said that one way of increasing mutual dependency is through the provision of own label on the back of an established brand. Philosophical issues apart, an own label relationship not only gives access to those parts of the category which might have gone to other suppliers, but also makes the overall supplier-retailer relationship richer and more complex.

Realistically, a brand-based relationship boils down to a one-to-one relationship between buyer and seller, and is vulnerable in that a buyer can de-list a brand with a keystroke, whereas uncoupling a complex own label relationship needs justifying up and down the corridor…

However, the influence of strong branding can be enhanced when a high degree of congruence exists between a brand’s consumer profile, and the store’s shopper profile. This match in consumer and shopper profile means that supplier and store marketing share a common goal, albeit with different behaviours required of the target audience in terms of consuming and shopping.

One can still go a long way on a one-sided relationship, but this can be tested to the limits, especially where a high maintenance customer may even resent attentions going elsewhere and demand exclusivity.

However, if a retail customer abuses the relationship, in terms of interpersonal behaviour (‘bullying’ is the description in the small print) or becomes ‘over demanding’ and unreasonable despite GSCOP, the extent of their power may prevent suppliers retaliating via ‘head on’ confrontation.  Instead of open confrontation, the supplier may simply insidiously divert discretionary funding to other customers, reduce service level and seek affection elsewhere.

Incidentally, in a world of increasing service levels, merely maintaining the service level to a problem customer, whilst upping the service to a favoured competitor-customer can be an insidious way of undermining a problem customer’s profitability.

Collaboration is about sharing risk. It is also about sharing reward, but not necessarily on a 50/50 basis. This is really about calculating relative exposure to risk, and attempting to divide available profit in the same proportion…

This exposure can include credit given, it being key to ensure that at least this is no more that the average credit given by all trade suppliers (see KamCity for method of calculating trade credit periods).

Another exposure is the level of ‘dedicated’ stock held in order to maintain agreed service levels, a direct relationship with mutual profit split.

Incidentally, those who are frustrated by the demands of a one-sided relationship should stop wasting energy attempting to ‘improve’ the partner, switch to building up mutual dependency, before seeking solace elsewhere.

However, if all else fails, buy a shop…

Tuesday, 9 May 2017

Audit-proofing Trade Funding…

With the continuing development of Post-Audit-Recovery (PAR), coupled with the growth in trade funding to over 20% (!) of sales to the customer, GSCOP preventing easy fixes, and the continuing need for major UK retailers to repair greatly diminished bottom lines, it is important that suppliers anticipate the probability that every record of every promotional initiative will be subjected to analysis in terms of ‘plan vs. actual’, up to six years in arrears…

Also, given that suppliers themselves have suffered bottom line erosion via price war pressures, it is vital that companies are not hit in the current year with allowance-demands arising from previous years.

If a supplier’s system can handle such examination without cost, then perhaps no further action may be required. However, for the remaining 98% of suppliers, it may be worth examining some positive aspects of the process.

Essentially, PAR is a post-payment review to identify overpayments to suppliers (and under-collections!). It is not an audit in the traditional sense. Rather it is a control activity designed to assure the integrity of the payment/collection process, and as such, it is clearly a management function and responsibility.

For those in any doubt as to the appeal of the process to retailers, bear in mind that although the customer obviously pays for a PAR analysis, usually on a percentage of recovered funds, all monies so recovered go straight to the bottom line... In other words, PAR is here to stay, especially for increasingly narrow margin retail businesses…

It follows that in the absence of documentary records, even a relatively weak customer has to be given the benefit of any doubt arising from a PAR audit. Whilst this may represent a major threat to the unprepared supplier, it is important to view PAR as a long-overdue and positive development in helping to regulate trading arrangements between supplier and retailer and provide an effective base for ensuring compliance, especially in trade funding.

Approached positively, it can also help to build a stronger relationship with trade partners. Incidentally, it is worth bearing in mind that the same post-audit-recovery process can be applied by suppliers to manage the financial elements of their purchases of materials and services from further up the supply chain.

By taking the initiative in terms of setting and documenting common standards, attempting to clarify process and ensuring accuracy in implementation of initiatives, the supplier can ensure that the resulting system will be easier to manage and audit, apart from contributing to a better return on investment. .

It follows that the NAM/KAM, being closest to negotiated trade funding deals, is in a key  position to help define system parameters and has a direct interest in ensuring compliance at all levels in supplier and retailer organisations.

Such a system, built upon an appropriate level of transparency and trust, will help to avoid disputes in the future, and can result in a seamless integration of trading strategies and an increase in joint profit, fully defensible at any point.

In addition, for both partners, PAR can help to identify opportunities to remove inefficiencies and redundant tasks from a number of cash management processes that cover internal functions and external trading partners.

A further benefit can result from the fact that the introduction of a PAR process can lead to a merging of accounts payable and buying departments, which means that any progress in setting and maintaining PAR standards, can benefit the supplier in terms of on-time payment.

Trade funding budgets now represent too high a proportion of sales to be left exclusively in the hands of the sales department. However, audit-proofing funds expenditure to meet PAR standards can help in retaining a high degree of influence by NAMs/KAMs…

Wednesday, 3 May 2017

Short-changing your best consumers - under cover of the letter rather than the spirit of the law...

Again the weekend papers give everyday examples of how established brands are insulting the intelligence of their best customers (regular users that know every aspect of the brand) Sunday Times April 30, 2017, thereby raising the following issues:
  • ‘Shrinkflation’ raises an issue called brand credibility…
  • Remember that hard-won property based on realistic assessment of savvy consumer needs, and then poured down the drain on the assumption that the same consumer is too dumb to notice a reduction in contents of their favourite i.e. repeat-purchase brand…?
  • Then adding insult to injury by urging consumers to ignore the evidence of their own experience (remember experiential marketing?) by pointing to the 'letter-of-law' weight declaration on the pack...
  • …with one non-shrinking member of a category being sufficient to demonstrate that a change in relative competitive appeal has occurred…
  • Thereby making themselves ready to scoop up dissatisfied demand…