Friday, 31 October 2014

Halloween Pepsi-can dressed up as Coke went viral

Last year a Halloween themed Pepsi ad created by Advertising Agency Buzz in a Box, Brussels posted on Ads of the World's Facebook page went viral reaching over 300,000 people on Facebook alone in just a few hours. It also generated lots of retweets on Twitter and Google+ besides Ads of the World itself

A great illustration of how a gentle poke at a competitor can optimise social media.

However, the alleged response by Coca Cola was swift, equally humourous and must have amplified the initial impact, at least via Linkedin.

But the real genius of each advert lies in the ambiguity of the message, each advert causing readers to ponder on their possible meanings, with their combination adding to the 'confusion', thus stimulating the urge to share...

The result being that the category received much more reader attention, and pass-on value than more conventional adverts for such familiar brands might otherwise have achieved.

Incidentally, even if Coca Cola did not produce the response, perhaps they should have...

A heroically scary weekend, from the NamNews team!

Thursday, 30 October 2014

Tesco are not 'serious fraudsters'

Tesco is simply a train that moved too fast, causing some of the wheels to fall off.....

The real issue is the opportunity this high-profile case provides for the SFO to attempt to restore a reputation that has been tarnished by a series of high profile failures in recent years. This relatively clean case of naive manipulation by amateurs, gives the SFO the means of demonstrating its ability to investigate and penalise corporate wrongdoing, secure in the knowledge that Tesco, or its management, are unlikely to retaliate in the case of possible over-enthusiastic application of the letter-of-the-fraud investigation process, unlike a recent SFO investigation....

The disruptive impact on the day-to-day conduct of the Tesco business should not be underestimated, given that the recent Deloitte investigation, albeit a far less comprehensive project, allegedly involved more than six million documents with 18,000 invoices reviewed and 700 scruitinised in detail....

Apart from the inevitable parallel but internal reviews by other multiples, 'just-in-case', many suppliers are already conducting internal reviews to assess any possible impact on the integrity of their trade investment process. However, it has to be said that in the main, these reviews will hopefully be in private, the only issue being relationships with internal audit-control, with NAMs having to explain how sums were authorised and paid in advance, possibly 'on a nod' in terms of promises of a promotion in the following year, all with the benefit of 20/20 hindsight...

Regrettably, whilst the consumer ultimately benefits from lower shelf-prices, the SFO investigation output will also result in a media-fest pointing out the 59 ways in which brand-owners incentivise retailers to persuade the shopper to buy more...

Finally, unfortunately for Tesco, this is not just a UK issue.  Some Tesco shareholders live in the US, a country where people that feel they have been wronged, litigate, and Tesco shareholders will be no exception. Their approach will be in contrast with the UK, where in such cases it has been customary for the authorities to issue a reprimand, draw a line, and move on...

Any output from the SFO investigation will probably be used as a basis for shareholder class action in the US, in a search for compensation. In turn, any such result in the US courts will probably roll onto the UK stage, encouraging UK shareholders to seek similar compensation.

Overall there will be a change in supplier-retailer relationships, as all parties move to numbers-based assessment of cost and value, and the savvy consumer's demand for demonstrable value-for-money rolls back up the supply-chain.

Suppliers are now in a position to make or break Tesco, but it is imperative that any help given should not be unconditional...

In other words, Tesco and the SFO are presenting an unprecedented opportunity for suppliers to elevate the NAM-Customer relationship to a new level based upon fair-share dealings, where numbers count, and KPI achievement becomes the ultimate basis for retrospective performance-based reward...

All else is detail...

Wednesday, 29 October 2014

Aldi Ireland: joining the profit-dots in Aldi's UK latest Accounts

A recent article in The Irish Times indicates a possible approach to estimating the profitability of Aldi Stores in the Irish Republic.

Checking the latest accounts filed by Aldi Stores Ltd. at Companies House, it would appear that they include the UK & Ireland business of Aldi for the year ended 31st December 2013.

On Note 7, page 21 of the Aldi Stores Ltd. accounts, details are given of the tax charge for 2013:
  -   UK Corporation Tax at 23%         £51.7m
  -   Overseas tax                               £10.2m, (say €12.9m at current rates)

We have taken the corporation tax assumption that ‘Overseas Tax‘ refers to the Irish Republic, together with an estimate of Aldi Ireland turnover for 2013 and reached the following conclusions:

- Given Ireland's Corporation Tax rate of 12.5%, this implies a net profit before tax of €103m in 2013 for Aldi Ireland
- Taking €850m as an estimate of Aldi Ireland turnover for 2013, this results in a possible pre-tax net margin = 12.1% i.e. €103m/€850m  x 100

If we have joined the right dots correctly, the above guesstimate obviously raises issues ref general retail profit levels in Ireland, in what is deemed to be a highly competitive market.

Moreover, if the Tesco crisis fall-out spills over into Ireland, and combines with US/EU moves re Inverse Taxation, the resulting spotlights on the profitability of businesses operating in Ireland could eventually challenge supplier profitability.

You obviously know your sales and net profit margins on your business in the Irish Republic, and how they compare with the UK business....

The above analysis suggests that perhaps your forward projections re the Irish market contribution to your UK & Ireland business might benefit from a risk re-assessment?

You always miss 100% of the shots you don't try...

 From an idea by Wayne Gretzky, via Antti Ritvonen and Lars Poulsen

Tuesday, 28 October 2014

Tesco's cash appetite: the opportunity for suppliers

Given Tesco’s combination of £14bn debt and £3.4bn net pension deficit, vs. its latest market capitalisation of £13.6bn, it is obvious that Dave Lewis’ priority has to be a sell-off of assets.  In which case, a mixed shopping basket containing Dunnhumby, Tesco Bank and Tesco South Korea ‘should do nicely, thank you’ in helping the company in getting back to square one…

The off-limits moves
In this situation, moving the credit period from 40+ days to 90 days, a potential cashflow gain of approx. £5bn would help, but would do little for enhancement of supplier relations...  Equally, any attempts to increase supplier trade investment or escalation of deductions would not only attract the attentions of the authorities and media i.e. consumer, but would alienate suppliers, the essential collaborators in any recovery…  Given the current scrutiny by the FCA, it seems obvious that Tesco will be unlikely to rely upon increases in credit, trade investment, or deductions as cash generators.

The key options 
On balance, it could be deduced that the sell-off of assets will be a key priority, against a background of severe tightening of all expenditure and a squeeze on liquidity on an ongoing basis.

All of the above has to increase Tesco’s sensitivity to the cost and value of supplier trade investment, and their appreciation of the direct impact on Tesco’s P&L.

Opportunities for suppliers
In other words, this combination of need for financially articulate NAMs together with Tesco’s vulnerability can provide suppliers with an unprecedented opportunity to elevate their Tesco relationship to a basis for fair-share dealings, an essential requirement for those that are prepared to help their No. 1 customer out of a black hole…

Friday, 24 October 2014

Tesco aftermath: The options for other mults' NAMs?

Given yesterday’s surprises, and bearing in mind the degree of fall-out, despite the fact that precise causes still await the revelations of the FCA investigation, it is important that other mults’ NAMs anticipate the obvious and take action now.

Because of Tesco’s Commercial Income issue, compounded by structural changes in the market and how people shop, we are now embarking on an era of retailing simplicity as per the French formula: fewer complex promotions and big price cuts across the board.

For consumers this means lower prices, clearer promotions, demonstrable value for money, with the same transparency for auditors and the authorities, stripping out all non-essentials to reduce complexity and costs...

Back to the future of Commercial Income
This is a situation that 'just growed and growed', where the introduction of a 5% 'discretionary' trade fund gradually morphed into a trade investment budget in excess of 20% of a supplier's sales...yet retains many elements of a 'nodding through' process unsuited to the new post-Tesco climate of 'accountability'...

This all changed as of yesterday

This long-overdue investigation of Commercial Income practices will not stop at Tesco…

From an auditing point-of-view, from now on, think post-audit recovery, on steroids...
In other words, auditors and management of all major retailers will have to move to more focused assessment of all trade investment, examining actual transactions rather than accounting process, in order to satisfy any retrospective re-auditing and possibly legal assessment arising from the FCA examination.

For NAMs, acting now will help optimise new opportunities arising in the market

  • Tighten up Commercial Income practices in anticipation of more aggressive auditing in anticipation of fall-out from the Tesco issue. In practice this means revisiting your definitions and conditions ref Commercial Income and ensure their alignment with the customer and their accounting practices
  • Avail of the opportunity to establish clearer and more transparent KPIs for all trade investment
  • Push for a move to payment in arrears, based upon results achieved
  • Above all, insist on fair share dealings in negotiated agreements - your customer needs you now, like never before...
Seems opportunistic on the part of suppliers?
Much of Tesco's issues are due to a massive imbalance of supplier-retailer power that has been allowed to build up over the years. The trade now needs and is ready for a seismic shift back to a situation where trading partners understand their roles, relative risk-levels, challenge one another and are ready to accept a reward-split that reflects relative levels of investment in the consumer-brand relationship.

In other words, think savvy consumer buying from savvy retailer, buying from savvy supplier, all based on 'fair is fair'.....

Do you really think that any auditing firm will be able to resist this golden opportunity to increase its fee income in the current climate?
A lot of extra work? 
Then think about the work involved if left unchecked until your customer drifts to the top of the radar screen....

NB. Tips for Tesco NAMs: Here 

Thursday, 23 October 2014

Tesco: What now?

This morning’s announcement more or less met expectations and will be a continual topic for commentators in the coming months…

Meanwhile, NAMs have to pull together a plan of action, get in the car and drive to Cheshunt...

Essentially, from a NAM’s point of view, there are now effectively three Tescos in play:
  • A small business-development task force focused on growing the business, profitably
  • A fire-fighting Tesco tasked with ensuring that the ‘here & now’ is optimised, keeping to the regulatory guidelines, ensuring that nothing compromises business growth
  • A ‘historical-records’ Tesco whose sole aim is to satisfy all demands for details of past transactions, tidy up record-keeping systems, clarify Commercial Income elements & KPIs, and demand appropriate records from suppliers…
Suppliers might be well advised to replicate this structure in their dealings with ‘The Three Tescos’ in order to make the best of what will otherwise be an ultra-conservative and risk-averse approach to managing what is still the UK’s biggest and most profitable grocer…

Tuesday, 21 October 2014

The French KISS approach to beating the discounters

According to a report in Reuters, France is the only country in Europe where discounters have seen a significant drop in market share, slipping to 11.9% in the second quarter of 2014 from a 2009 peak of 14.9%, according to Kantar Worldpanel data.

In fact, the success of French retailers in stopping the advance of discounters in the last five years shows a way out of the crisis embroiling Britain's "big four" grocers.

Their simple formula: fewer complex promotions and big price cuts across the board.
(After all, rocket-science is so pre-2007...)

The French grocers expanded their budget product lines, cut a proliferation of promotions, simplified own brand ranges and worked with suppliers to slash prices of branded goods.

In practice, this approach in the UK would require high levels of collaboration between suppliers and retailers, given the inevitable margin hits’ impact on share prices…

However, for branded goods suppliers, since any growth of the discounters comes at the expense of brands, then helping the multiples, helps the brands.

Moreover, in negotiation terms, the price for such assistance has to be a demand for fair-share dealings, between equal partners…

Truly, we are all in this together… 

Monday, 20 October 2014

Flatline demand or wot?

A report in The Observer this weekend said everything in a graph...

As the chart shows, it is very rare for real wages in the UK to fall continually over a seven-year period. They have done so only three times in the past 150 years: after a deep recession in the late 19th century; in the 1930s, following the Great Depression; and again in the past seven years, the steepest fall in 150 years....

Given that in these circumstances, governments, banks and individuals have been paying down debt, it should be no surprise that very little spending money has trickled onto the market...

And given the extent of the fall in real wages, politicians' promises of an immediate upturn need treating with caution..

In other words, best to forecast product/brand growth at the expense of the competition, if you can...

While others await a return to 'normal'....

Friday, 17 October 2014

NAM-flu isn't a myth after all !!

According to The Telegraph, men get sick because they don't have the hormones that boost women's immune system.

The study by Stanford University School of Medicine, examined the reactions of men and women to vaccination against flu. The team hopes that, in the future, this knowledge could be used to enhance resistance to common and serious lung infections and prevent flu developing into more serious pneumonia.

However, according to an earlier study, only one in five British women believe that the debilitating "NAM-flu" disease which temporarily leaves male sufferers prostrate on the sofa watching televised sports is real, meaning that NAMs can now work on the remaining 80% with this extra evidence.

The survey, which questioned 2,000 British adults about health and wellbeing, showed that misconceptions and old wives' tales, including the myth that eating carrots improves night vision, prevail among the population when it comes to beliefs about common illnesses.

More than a third of people said that sugar makes children hyper, and 37% said they believed we lose most of our body heat through our heads -- the most popular misconception of the survey, despite millions spent on consumer health and education.

However, the survey is weakened somewhat by its endeavours to show that when illness strikes, almost half of people agreed that men exaggerate their symptoms to get attention, with 38% also believing that men take longer to recover from illness than women.

NB. This additional indepth research on man-flu diagnosis and treatment can obviously now be added to a NAM's repertoire of fact-based rationale for persuading those unsympathetic stakeholders that need convincing of the obvious, in these unprecedented times

Have a gentle, comfy weekend, from the NamNews Team!

Monday, 13 October 2014

Commercial Income fall-out: the open domain perspective?

The investigation of Tesco’s £250m overstatement issue by independent auditors and Tesco’s legal advisers has obviously impacted the share price and created considerable media coverage for a topic that is technically not in the open domain. The results of the review will need to be available to all, in order to attempt to reassure shareholders that the share price fall has ‘bottomed out’, corrective measures are in place and growth will be restored, under new management.

Any holding back in the interest of ‘commercial sensitivity’ will seem like a cover-up, resulting in shareholders acting with their feet…

In other words, all output is headed for the open domain.

Meanwhile shareholders, regulators, HMRC, retail competitors, media, suppliers and shoppers, await an explanation…

The issue is, what type of explanation will satisfy this diverse audience’s need for simplicity and clarity?

Any retrospective review of accounting procedure, with a combination of legal help and the benefit of hindsight, is bound to result in a call for unambiguous clarification of each element of Commercial Income.

‘Supply and Demand’ rewards could provide a useful basis for clarification.  In other words, classifying elements of commercial income as either facilitating supply economies, or optimising consumer demand, might help, but still leaves complexity....

Supply rewards could include:
- Central assortment & listing
- Timely and committed forecasts
- Central credit, settlement terms, and payment
- Returns/write-offs
- Deductions

Demand rewards could include:
- Listings
- 'Appropriate' range/assortment
- Category compliance: shelf space & level, fair-share facings
- Promotional compliance, price support, POS compliance, additional placements/displays
- Post-audit recovery
- Sales achievement

It can be seen that, over the years, what was once a fairly simple buying and reselling process, with a retail margin to cover the effort, and sufficient free credit to bridge the gap between receipt of goods and payment by the shopper, has evolved into the complex package we now call Commercial Income.

All stakeholders will now insist upon clarification of each element, including the precise contribution that commercial income makes to a retailer's profits.

This will inevitably result in new auditing procedures aimed at transparency, defensibility and like-with-like 'comparability' in dealing with Commercial Income in retail accounts.

Moreover, as it is unlikely that all retailers will have evolved a uniform definition and treatment of commercial income, so any output from the Tesco exercise will soon result in the need for parallel reviews of other retailers’ accounts, in order to satisfy all stakeholders…

Meanwhile, suppliers could usefully prepare for the inevitable by reassessing each element of their offering in terms of purpose, cost, value and result, before the open domain demands an explanation…

Saturday, 11 October 2014

Normal? Moi?

                                                                                             Hat-tip to Adam Mehegan via Colin Doree

Thursday, 9 October 2014

‘One to show & one to go’ - minimalist stock control in retail

Mark Taylor built on Mike Anthony's link to the high cost of parked inventory by illustrating how retailers can re-allocate the cost of financing display-stock.

If we accept that the purpose of a facing-pack is to advertise the pack behind it, then it becomes logical to a retailer that the cost of the facing display-pack should be carried by the supplier. Moreover, since a consumer in general buys one pack at a time, it also follows that any back-of-facing stock, other than one-for-purchase, should also be carried by the supplier…

In other words, the only stock that should be financed by the retailer is one sales-pack per facing…!
It follows that all other stock, including pipeline from store-receipt to back-of-facing (minus one sales-pack) is the financing responsibility of the supplier.

This obviously challenges the fundamental purpose of Bricks & Mortar shops – are they really the ultimate ‘showrooms’ where consumers are reminded of the existence of the brand/pack, and then outsource the actual purchase and fulfilment to Amazon…? This leaves a sales pack available on shelf for those shoppers who insist on completing the purchase in the store.

In these fast-moving-consumer-goods times, it seems to me that strong retailers are in a position to insist upon the fair-share re-allocation of stocking-costs outlined above.

Time for suppliers to evolve a convincing counter-argument, or take another hit to their customer P&Ls?

Hat-tip to Mike and Mark

Optimising retail assets via after hours niche promotions

                                                                                                                                         pic: The Argus

According to The Argus, 8,500 students yesterday flooded Brighton’s Churchill Square shopping centre to take advantage of 20% discounts.

The Student Lock-in event, one of 40 events in 20 cities, is organised by the marketing company Total Students, takes place after normal hours starting at 6.30pm and ending at 10.30pm.

Students are granted exclusive access to one-night-only discounts, giveaways and competitions across on-site stores and promotional stands. A range of entertainment is provided, including meet and greets with famous faces; activities include climbing walls and surf simulators; on-site club features like bars, live music and DJ performances

Worth locking in some students for something really incremental in your category?

Wednesday, 8 October 2014

Commercial Income - the driver for large space retailing?

                                                                                      Shopper-density map Herb Sorensen

The current controversy ref retailers’ advance booking of commercial income and its impact on profit forecasts will be the subject of increasing press coverage in the coming months, especially as other major retailers feel the need to reassess and explain how their procedures differ…

In the meantime, Shopper-scientist Herb Sorensen, in his work The Problem: "Parked" Capital, and his use of shopper-density maps of retail stores, questions retailers’ use of large space.

The above extract is an accurate map of the time shoppers spend in the store. All those blue, and especially the dark blue areas, represent what he calls ‘parked capital’, defined as money tied up in real estate and inventory.

The data and map above are relevant to both inefficient use of floor space capital, but are also directly related to the massive unmoving inventory on most stores' shelves.

Sorensen goes on to suggest that the building of larger and larger stores has been driven more by the desire to offer more inventory - requiring more space - on behalf of the brand suppliers, who are paying for the space and other marketing services, than consumer need.

In other words, large space is NOT needed to accommodate the demands of the crowds of shoppers.

If this is the case, then following the UK's ‘re-audit’ of Commercial Income, redundant space may not be the only casualty…

Hat-tip to Mike Anthony for the pointer