Thursday, 4 January 2018

Making the Numbers Count at the 2018 Interface…

Given the nine year austerity fall-out from the 2008 global credit-squeeze and the pre-Christmas slowdown in UK retail, 2018 will have to be played very close to the financial edge…  This makes it is 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 (see NamCalc), the confidence and ability to lead a reluctant buyer to ‘obvious’ financial conclusions requires a little more… Working confidently at the financial-edge requires a constant willingness 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 the current climate in terms of how money works within each organisation, using 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, and net margins. In other words, a supplier making a net profit of 9% (remember when?) has to achieve incremental sales of £11,1k for every £1k ‘invested’ with the customer. Realistically, suppliers nowadays are lucky to make half that, so in practice a supplier has to generate £22k for every £1k investment.

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. In other words, suppliers and retailers have more in common in this low margin environment. However, in case you have not looked lately, retail net margins have collapsed in the past nine years…

Taking latest accounts, it can be seen that a £1k investment by supplier is ‘less valuable’ to Sainsbury’s (net profit 1.9%, £1k = incremental sales of £52k) than to Tesco, with its net profit of 0.1% (£1k = incremental sales £1m!). BTW, are you getting a feel for the real pressures on the guys in Cheshunt…?). Seeing business life in terms of incremental sales thereby requires 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 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 share price. 

Apart from helping in day-to-day negotiation, working the 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 on the part of the NAM to factor in different parts of the relative remuneration package over the past nine years, the risk-reward balance has become tilted in favour of the retailer.

In spite of this advantage, the continuing price wars have diluted net margins in retail, as a result of which retailers are now heavily dependent on their excessive terms packages to maintain profitability… As a consequence, for instance, current credit periods in no way reflect improvements in delivery frequency over the past nine years.

This additional insight added to average payment periods of over 20 days, coupled with daily delivery, means that eventually, an indefensible and politically damaging position will emerge, as more suppliers go to the wall…

The resulting ‘exposure’ will probably cause more damage to retailers’ share prices than the cost to the major multiples of voluntarily reducing retail net margins to say 2.5% and payment periods to say 5 days, before being forced to make these ‘obvious’ moves by government and especially public opinion.

Retail prices could also be reduced slightly to satisfy the public, and the margin savings passed back to suppliers on a fair-share basis, thereby increasing their margins without a massive distorting of the market.

Counting the numbers could help in spreading the pain… 

Tuesday, 21 November 2017

Like your Burger well-done, really well-done?


According to, supermarket giant Coles has released the new Coles Finest Charcoal Brioche Burger Buns. Those with sensitive palates may be relieved to learn that the buns were created using activated charcoal from coconut husks...

The result is a soft, rich buttery bun with a unique texture, colour and flavour.

BTW, if you really want to make dieting easier try googling 'charcoal buns' and select 'images'.

Wednesday, 15 November 2017

A Food-To-Go Opportunity for Brands?

 Source: IGD, Gavin Rothwell
The 250 delegates at the IGD's recent food-to-go session had a first-hand opportunity to experience some of the creativity driving CAGRs of up to 8.4% in this sector over the next five years.

Whilst healthy eating was a key theme, it emerged that provided suppliers tailored to consumer need, there is an opportunity for appropriate branded suppliers to move beyond the 'butter portion' approach to food service. Instead, food-to go represents a growth opportunity for brands that can re-package to fit within the creative offerings being made by Coffee Specialists, FTG Specialists and other FTG routes to market.

If any of your colleagues need persuading, why not pass them a copy of the above slide (and check with IGD for additional research), and ask them to compare with the uncertainties of your current routes to market.

The Pound shop opportunity took us by surprise until brands realised that brand-packs could be viable in smaller sizes.

A pity to miss a similar opportunity with food-to-go..... 

Friday, 3 November 2017

Tesco Boss Gives Evidence At Fraud Trial

The trial of the three former Tesco executives accused of being involved in the retailer’s profit overstatement in 2014 continued yesterday, with the group’s current Chief Executive Dave Lewis taking the witness stand. (More)
  • The key issue is that newly appointed Lewis acted comprehensively with appropriate haste to correct the situation…
  • …and as long as this point is accepted by the consumer-shopper, the harm in their eyes will be minimised.
  • With the benefit to suppliers that trade investment has been put into the national spotlight, and is being booked accordingly, by all…

Thursday, 2 November 2017

CMA Delays Revealing Provisional Decision On Tesco’s Proposed Takeover Of Booker

Having originally said it would publish details by the end of October, the CMA yesterday altered its administrative timetable to say the provisional findings would be available ‘early/mid November’. (More)
  • Continued uncertainty means suppliers to Booker revert to short-term mode in terms of dealings with Booker…
  • …and the rest of the wholesale sector.
  • Whilst at the same time anticipating further consolidation in UK wholesale.
  • i.e. reducing the possibility of prices and terms discrepancies…
  • But if the deal goes ahead, be prepared to offer Tesco-Booker terms to all wholesalers.

The unintended consequences of an unprecedented merger:
  • This issue is not about increased Tesco buying power (Booker would add 10% to Tesco purchases)
  • The real issue is that Booker will be able to avail of Tesco buying terms, resulting in unmatchable competition for wholesalers not so privileged…
  • Time for suppliers to conduct what-ifs on supplying all wholesalers on Tesco terms?
  • Or watching Tesco-Booker grow at the expense of other wholesalers - same difference?
  • Or other wholesalers being taken over by other mults? - almost same difference?

Tuesday, 31 October 2017

Ground down by the price of your £2.50 high street cappuccino?

 pic: Brian Moore
Given that the humble £2.50 cappuccino has fallen out of favour, coffee connoisseurs demand more than a standard caffeine fix to help them through the day, at a price!

The Daily Mail lists sources like The Connaught in Mayfair (£7.50 for any cup of coffee) and Claridge’s (up to £20 for a filter coffee for two people), apart from the ultimate deep-pocket source like The Wellesley hotel in Knightsbridge serving Wild Kopi Luwak coffee, at £45 a cup (More).

But the real issue has to be the contrast between High Street coffee at £2.50 a cup compared with home filtered at 9p a cup.

In other words, far from seeing up market varieties as a threat, a DIY approach might be more dangerous…

In fact, with street coffee priced at upwards of £2.50 a cup, I have reverted to grinding and filtering best quality French coffee beans, purchased from Waitrose at £2.60 per 227g bag. Each bag yields 5 x 6 cups, effectively costing me 9p a cup. If I could buy wholesale, the price would be no more than £2/bag...

OK, the ambience is worth something, but 30x 'domestic rates'?

In fact, when you think about it, apart from the bill, most people's memory of a great restaurant meal is coloured by the final course, a cup of coffee. Yet, even at these mark-ups, some restaurants risk diner alienation by skimping on the coffee, thereby triggering the 'tell a friend' mechanism' whereby, if you please a customer, they tell one friend, disappoint them and they tell ten, electronically.

Monday, 30 October 2017

CMA Set To Reveal Provisional Decision On Tesco’s Proposed Takeover Of Booker

The regulator began its in-depth probe into the deal back in July, with it collecting views from across the wholesale and convenience sectors into what impact the tie-up will have on Booker’s competitors and independent shopkeepers. (More)
  • The issue remains that if a deal goes ahead, a key wholesaler will have the advantage of buying on Tesco terms...
  • ...and closing Tesco branches will not affect that competitive edge…
An insight for NAMs from NamNews