Monday, 9 October 2017

Tesco-Booker and the rest...

The unintended consequence 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?

Monday, 24 July 2017

Amazon will pay full price to marketplace retailers to boost its inventory

Despite its reputed 300m item assortment, Amazon has some item gaps, either in category or geography. In which case, as a service to its US clients, according to Arstechnica, Amazon contacted thousands of third-party retailers re a new program in which Amazon would buy their inventory at full price. Amazon would then be able to sell those products on its website, allowing it to quickly fulfil more orders around the world.

The service is part of Fulfilment by Amazon (FBA) in which third-party merchants piggyback on their shipping efficiencies by paying an inventory and storage fee to Amazon.
  • This represents a significant step forward, in that Amazon are prepared to sacrifice profits to satisfy consumer need
  • And once the happy customer comes back…
  • Another hurdle for competing online retailers to add to 1-Click ordering, 24hr (or less) delivery, and returns as easy as ordering…
Time to anticipate the inevitable UK introduction?

Monday, 17 July 2017

When the price is even half right...

Pics: Brian Moore, Tesco Hove

Anyone can clear shelves, and even create excitement in store, at a price, but how about making some space for a case of Revenue Management?

Whilst Revenue Management evolved in the late Seventies as a way of maximising revenue from airline seat sales, for a number of FMCG organisations, Revenue Management really began its surge forward in 2009, a year after the global financial crisis changed everything.

The impact of unprecedented market confusion and uncertainty on suppliers’ and retailers’ P&Ls is now evident. Whilst this has caused many to resort to short term fire-fighting, such circumstances represent real opportunities for those that can adapt to business change, while others await a return to ‘normal’…

For those wishing to optimise their investment in Revenue Management, it is perhaps useful to place key changes in the market within a Revenue Management context in order that suppliers better understand the pressures on retailers and thereby pitch supplier Revenue Management initiatives in ways that enhance their appeal to retailers by emphasising positive impacts on their latest P&L.

In terms of where major retailers are now, it is evident from latest annual reports that UK net margins have fallen to 2% from highs of 5%+. This means that there is currently little, if any profit surplus available to pay down debt, a major priority for the multiples. In addition, several years of flat-line growth combined with low net margins means that UK retailers can only grow at the expense of competitors, who are also under serious financial pressure. For instance, if sales go down by £1, it means that the retailer loses two pence of profit each time.

In addition, with average gross margins of say 24%, it means that a lost sale of £1 loses the retailer 24p in gross profit i.e. a 12x multiplier of the 2p net profit. These are seriously distracting issues for retailers accustomed historically high levels of retail profitability.

Moreover, in the ‘good old days’ when big was best, it seemed logical to build 100,000 sq. ft. ‘palaces’, designed to last forever. In fact, an annual depreciation charge of 2% means a 50-year write-down, in practice a 50-year lock-in to the space.

Given that multiples were able to generate sales of £1,000 per sq. ft. per annum, the relatively recent discovery that 80% of sales are generated by 20% of a retailer’s SKUs meant that product culls were necessary in the short term. However, the longer-term impact of the 20% space redundancy caused potential dilution of the retail standard KPI of £1,000. This means that any alternative use (i.e. instore theatre) of the redundant space has to generate £1k/sq. ft./annum. This space KPI also means that the obvious option of surplus stores sell-off is compromised in that no other retail model can achieve UK multiples’ ‘norms’, apart from the fact that placing too many shops on the market at one time could seriously dilute property values, and thereby devalue retailers’ Balance Sheets.

Add to this the threat of online with Amazon offering a range comprising over 300m SKUs, and high entry level standards of 1-click ordering, returns as easy as ordering and fast zero-defect delivery of 4 hours to 1 hour within the M25.

Finally, add the discounters, Aldi and Lidl, who grew sales at 19.2% year-on-year and achieved a combined record market share of 12% in the 12 weeks ending 21 May 2017 (Kantar Worldpanel). The research group found that 62% of the UK population shopped in an Aldi or Lidl store during the 12-week period, compared to just 58% last year – meaning an additional 1.1 million households visited either of the two chains.

Meanwhile, many suppliers have embraced the operational applications of Revenue Management as a way forward. They have developed the ability to drive better visibility, control, decision-making and collaboration across their organisations, the entire cross-functional teams, through the use of tools like Exceedra*.

It is against the above retail reality back-drop that Revenue Management-ready suppliers need to attract the attention of seriously distracted retailers, by positioning Revenue Management not only as a way of directly contributing to a retailer’s sales, but also a means of improving their net margins. In doing so, a supplier’s Revenue Management team could provide a new and complementary way of relating supply and retail, adding a collaborative richness to their joint aims.

In terms of on-shelf execution, shelf-edge e-pricing will be an essential enabler. This final link in the chain will need to be positioned carefully, in order to minimise the media-driven ‘surge-pricing’ negatives already causing issues with the consumer. Instead, suppliers will need to begin the massive education job of convincing the consumer that demand-driven pricing is beneficial.

Reality-based Retail Revenue Management will make that possible….

* For a free White Paper: How can Consumer Goods organizations develop a best in class Revenue Management capability

Thursday, 13 July 2017

'You couldn't make it up' - Case of man accused of stealing €3 Creme Eggs from Lidl struck out

The theft was alleged to have happened at Lidl on Moore Street, Dublin on March 9.

A Garda prosecution witness having failed to show up, Judge Halpin read the charge sheet before him and said: “Three state witnesses, him, a judge and a solicitor, for a Cadbury’s Creme Egg? You couldn’t make this stuff up.” and dismissed the case.

Whilst a €3 crime seems petty, it is only fair to see this from a retailer's perspective i.e. for a retailer making a net profit of 2%, a theft of €3 is equivalent to a sale of €150...a little more worthwhile in terms of prosecution....?

Saturday, 8 July 2017

Queueless shopping, the real threat of online...?

This Saturday* morning as I waited 10 minutes to buy my FT at the sole operational checkout in my local WHSmith, while the operator keyed in multiple Lotto-vouchers, allowing a queue to form and grow increasingly restless, I began to think about the nature of the online threat to Bricks & Mortar retailing.

I had to that point accepted that effective fulfilment of an infinite online assortment (300m items available on Amazon) posed the real online threat to traditional retailing. In other words, with 80% of sales coming from 20% of the 50,000 SKUs in a Tesco branch and the remaining 40,000 SKU-tail slowly soaking up profits, all adds up to a no-contest fight for our biggest retailer...

As I continued to wait 'inline' in WHS, I suddenly realised that online retailing provides queueless shopping, making us increasingly intolerant of even the 3-man queue in Tesco that triggers the opening of another checkout... And there is no way that a traditional mult can reduce that trigger-quantity without jeopardising profitability...

Anyway, following that breakthrough insight, I gave up on WHS, replaced my FT on the rack, walked over to the Tesco superstore, picked up a new FT, checked out and was on my way home in two minutes on a Saturday, mid-morning (!), that time when Tesco used to be too crowded and busy to even contemplate a shopping trip...

* Saturday being the new Sunday in newspaper reading terms...(here)

Tuesday, 4 July 2017

As Independent and Specialist Retailers become more important in the mix, Suppliers need to re-think the Role of the Shop…

In the drive to optimise sales, suppliers need to work more closely with independent and specialist retailers, treating them as marketing outlets as well as sales outlets.

In the case of smaller rtailers, if suppliers simply regard the shop as a sales outlet, its profitability (for the supplier) will determine the degree of attention it receives from the supplier. This can make the minimum order requirement excessive for the retailer.

However, extending the definition of the shop to marketing-outlet reduces the pressure on the bottom line. In other words, some of the cost of servicing can be written against the marketing budget.

In order for both parties to want to optimise the potential joint-opportunities that a fundamental change of this magnitude represents, it is crucial that they each understand and integrate the consumer marketing and retailer marketing programmes of their trading partners.

A Fundamental Conflict of Interest
Despite improved collaboration between suppliers and the mults, it is important to acknowledge potential conflicts of interest between suppliers and smaller retailers.

The retailer wants the consumer to shop in his store, and is less interested in what product is purchased, whilst the supplier wants to sell his product, irrespective of where it is purchased. 

Whilst the major multiples are sufficiently powerful to insist that their agendas drive joint business planning, it is especially important in the case of independent and specialist retailing that these potential conflicts of interest are resolved by a joint-understanding of the consumption-shopping process.

Essentially, this means recognising that consumers have two need-sets or appetites, consumption needs and shopping needs, that have to be satisfied in-store.

Consumption Needs
As consumers they are looking for Product performance (delivers to, or even exceeds expectation), Quality/reliability related to cost (such as premium vs. budget brands), Brand name (popular, well-known, respected product, consistent delivery), Value for money (perceived gain vs. price paid in other retailers, channels, or online), Status (peer-group respect), Pride (in owning latest version), Imitation (either doing what others do, or leading others), Possession (something for nothing, i.e. gift with purchase, BOGOF), Sense of duty (buying on behalf of other person as gift), Security (avoiding fear, such as counterfeit brands, or wasting money).

For suppliers this means understanding how their target consumers behave as shoppers in different channels and retail formats. They then need to use this insight to develop shopper-based strategies that will grow categories to the benefit of products, consumers, retailers and shoppers.

It can thus be seen that suppliers face a very complex challenge in influencing and managing consumers’ consumption needs, all wasted unless shopping needs are effectively addressed.

Shopping Needs
As shoppers, consumers are looking for Choice, Availability, Price, Convenience, Opening hours, Atmosphere, Display, and opportunities for Impulse purchase, all wasted unless the product performs to expectations. Moreover, it is vital that, following purchase, the contents exceed the expectation created by the on-tin description…

This need to satisfy shopper and consumer appetites simultaneously means that suppliers and retailers have a high degree of mutual dependency, particularly in independent retail.

Traditionally, suppliers focused upon satisfying the consumer’s consumption needs, leaving the retailer to meet the consumer’s shopping needs. However, in the current economic climate, state-of-art suppliers and retailers can achieve more by understanding and influencing consumption and shopping needs.

The Need for Collaboration
In practice this means independent and specialist retailers can excel by understanding more about the consumption process. This means that suppliers should prioritise and actively partner with those retailers that have a high proportion of the target consumer in their store traffic. They should collaborate with partner-retailers in order to produce an in-store environment that is conducive to maximising the basket-size of every store-visit by the consumer, via effective satisfaction of their shopping needs. In the case of independent and specialist retail, in-store theatre can play a uniquely intimate and effective role in a way that the supermarkets can never match, given their scale.

Major retailers will have their own marketing agendas, making it more difficult for suppliers to influence the retailer’s in-store management of their target consumer. This may possibly result in some compromising of the consumption marketing programme, in-store.

On the other hand, it is obvious that the supplier can exert more influence within the independent and specialist retail environment. Here the retailer can need help in evolving a consistent marketing mix, and because of their scale purchasing of in-store promotional materials, suppliers can afford to provide and manage point-of-sale display materials that precisely match the needs of the product and can elevate the quality of in-store theatre at outlet level, in return for total compliance by the retailer.

This degree of consistent execution of a supplier’s product marketing message, tailored to outlet needs, across most of the independent and specialist retail sector cannot but benefit both parties in terms of profitable satisfaction of consumer need.

All else is detail....

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