Grocery-banking, success-in-waiting?

News that Tesco plan to open banks in 30 branches by the end of 2009 should not be news.
In fact the germ of the idea could have been seen in UK research where consumers, when asked who they would trust most with their money, most indicated that they would trust the local supermarket manager in preference to the manager of the local bank….
And that was 15 years before the current banking crisis destroyed consumer confidence for generations…
In fact, three years ago, Swiss retailer Migros launched Migros bank The bank did not pay its top bankers bonuses. Nor did it engage in risky international investments. Instead it focused on collecting deposits and then turning those into low-risk loans, for consumers who tended to use the group for their grocery shopping. That has turned Migros into one of the fastest- growing private sector banks in Switzerland, if not Europe..
Good retailers are trusted more than banks, carry no 'banking baggage', are good negotiators, focus upon cost-cutting reflected in low prices, pay their top people by results, and focus upon delighting their customers to encourage repeat visits…
Most importantly, they understand cash, whilst banks may understand 'quantitative easing', the same banks appear to have lost touch with the meaning of cash…

Even before the banking crisis, this was a no-brainer…!!
And if you think they were pretty focused on cash, financial measures and profit drivers before, watch 'em from now on…

Wal-Mart Increases Buying Muscle in Prescription Medicines…

( A small step for W-M, a monumental move in cost-reduction of healthcare provision, everywhere…)
In the US, Wal-Mart' new partnership with Caterpillar Inc means the retailer will negotiate with manufacturers and supply ethical pharmaceuticals to Caterpillar's 70,000 employees, a service that will probably be extended to other major companies wishing to reduce employee healthcare costs.
In doing so, Wal-mart will bypass the Pharmacy Benefit Manager system*, which accounts for over 70% of ethical pharmaceutical medicines dispensed in the US.
Questions:
- How well will prescription medicine contract-negotiators handle Wal-Mart buyers?
- When will W-M try to aggregate their purchases of OTC and Ethicals from individual manufacturers?
- How long before Tesco, Carrefour, Alliance Boots explore their options?
- Given the global financial crisis, how long before governments everywhere see this as a way of further reducing healthcare costs?
- A new momentum for parapharmacy?

NB Even if this is a million miles from your immediate day-job, why not point your healthcare colleagues/network-partners at this blog-item, by way of early warning of the type of negotiating customary in your category…?

(*A Pharmacy Benefit Manager (PBM) is a third party administrator of prescription drug programmes. They are primarily responsible for processing and paying prescription drug claims. They also are responsible for developing and maintaining the formulary, contracting with pharmacies, and negotiating discounts and rebates with drug manufacturers. Responsible for approx 70% of US prescription medicine purchases)

Recession-Buying and the Big Picture

With Retail Buyers theoretically operating on two KPIs - Increases in Sales and Gross Margin, a key issue for suppliers has to be the extent to which buyers are driven by the Big Issues of Recessionary impact upon overall company profitability (ROCE)
Given that ROCE performance drives the share price, and many buyers are being incentivised via share options, then perhaps it is reasonable to assume that they can be encouraged to take a more holistic view in the day-job and add more productive financial measures. The fact that they resort to (crude) demands for lower prices to increase sales and gross margins is just what they do…almost as bad as KAMs being driven by boxes achievement.

The Recession provides a need and an opportunity to do better…

Jessops rental payments impact

Yesterday's 50% surge in Jessops' share price following their announcement that they can meet their next rent payments gives some indication of how close to the edge some retailers have been driven by the recession.
Obviously, whilst their share price is now 3p, with a long way to go, and most UK retailers are obliged to pay rent quarterly in advance, 3 months rent represents a significant slice from cashflow in anyone's business.
Hence the reason many suppliers have become extra-sensitive to 'Quarter Days' impact upon their customers.

Given that yesterday (25th March) was Quarter Day, perhaps it might be worth taking a look at our short video A Customer ‘Going Bust’ …spotting the signs, passing on the link, and conducting a few 'what-ifs', fast?

Thrifty US shoppers trade grocery aisles for grocery auctions

The growing popularity of grocery auctions — which sell leftover or damaged goods from supermarkets, distribution centers and food service suppliers — comes at a time when people are stretching their grocery budgets by using more coupons, buying inferior cuts of meat, and choosing store brands over national brands.
The increased interest has fueled growth in the auctions, which can be found in at least nine states from Oklahoma to New York.
Apart from the moral issues re making food more available to those in need, 'past-sellby date' grocery auctions indicate a need for branded suppliers to somehow 're-enter' the distribution process, possibly via a shortening brand code-life.
If not, suppliers run the risk of damage to brand equity caused by the growing disparities between advertising-induced expectation of the brand and the consumer's experience upon opening the box…

Retail - All change?

Given the differing levels and types of impact of the credit crunch upon different consumer segments (mortages, pensions, savings, stocks, employment) causing a radical re-balancing of consumer spending-profiles in the past six months, is it not reasonable to anticipate fundamental changes in the financial circumstances of your major customers?
With their different financial profiles in terms of market capitalisation, ROCE, share-price, levels of overdraft and stockholding, credit period, margins, terms and ownership vs leasing of premises, it follows that each customer has been affected in radically different ways by the shortage of money in the economy.

This means that their relative risks and value within your customer portfolio have changed, fundamentally.
Time for a reclassification of each in terms of invest, maintain or divest, followed by a re-audit of your pulling power relative to your competition in the eyes of each customer?
Or perhaps run the risk of waiting until it all settles down?

Tesco docking* the 'Long Tail'**?

Rumours that Tesco may be offering smaller suppliers the option of being delisted or re-routing via a third party sales agency, raises several questions:
- How will Tesco determine the cut-off point for 'small supplier'?
- How will this affect instore choice, especially in store-level assortment?
- Who will pay the agency fee?
- How many suppliers will decide to call it a 'Tesco-day' and divert their affections elsewhere i.e Leeds, where Asda is reported to be planning to request price & terms reductions from most suppliers on behalf of the shopper?

Most importantly, presuming Tesco have run the numbers, as the length of a long tail is determined by costs-of-servicing, cutting off the long tail for instore supply may make economic sense.
However, if the same supplier-list is applied to Tesco Online, with its far lower servicing costs, then Tesco could miss a significant online basket-size opportunity as smaller suppliers choose not to avail of the agency option…..

* 'Docking' refers to cutting off a puppy's tail, for reasons I know not...

** The long tail refers to Chris Anderson's discovery that the future does not lie in hits - the high-volume end of a traditional demand curve- but in what used to be regarded as the misses- the curve's endlessly long tail

The Numbers always Count...

15 - 17 = 3 + 6
= 1 : 61
...but its all, in the game...

Credit insurance fury reaches boiling point

News that the financial crisis is causing retailers to demand government intervention to curb the powers (or even replace) credit insurers, is perhaps missing the point. And besides, at the current rate of bail-outs and taking controlling shares in business, we shall all be (un)civil servants by the year end…
As you know, trade credit insurance is purchased by businesses to insure their accounts receivable from loss due to the insolvency of the debtors. Incidentally, most retailers are insolvent, in that their Quick Assets represent about 10% of their Current Liabilities instead of 1:1 like 'normal' businesses. The monthly premium is calculated as a percentage of sales of that month or as a percentage of all outstanding receivables. In other words, credit insurers are calculating and spreading risk, and charging for the service (being what they do…)
There may be some issue with the scale of their charges (so Government should perhaps act to increase the number of providers, three major players, at last count (!), and drive down rates) but as businesses, they are entitled to make a call on when to withdraw insurance when they feel the premium to cover a given retailer-risk would be 'unsellable' to suppliers…
As usual, when it comes to the Crunch, NAMs & KAMs are on their own….
Why not work out the cost of credit for your dubious customers, and then do a risk analysis, (impact on your business & chance of them going bust) to decide your next move…before it is decided for you…?
Or perhaps watch our 'going bust' video while you wait !
Have a Good Weekend, regardless!

Creditworthiness may be linked to looks?

In this New Age of Uncertainty, KAMs should perhaps forget historical behaviour and resort to prolonged (unblinking ) staring at the buyer to anticipate possible payment issues. According to the research, shy KAMs could request a photo and achieve equivalent results by studying the buyer's portrait in the privacy of their home, partner permitting…

Recession-beating retailers: preppy, edgy or just cheap

Superdry is a fast-growing (+31%) British retailer (More) in recession with booming sales, no debt and a store opening programme in the UK and abroad. It has never advertised, never held a sale and has celebrities like David Beckham modelling its clothes not because they are getting paid to do so, but because they seem to like them.
Superdry is just one of the relatively upmarket retail brands (like Jack Wills, Reiss, All saints and Joules) aimed at teenagers and twentysomethings who are unhampered by the financial challenges currently facing their parents.
In other words, revisiting your consumer need-set, and your ability to meet it better than the competition, has to be a way to join the recession-busters..
And cut out anything surplus to consumer need, before the market does it on your behalf...

Maintaining shrink-quotas?

Yesterday, walking thru local Hammersmith M&S branch, I saw one of a three adult team strolling out the back door, and helping herself to a bar of red-label chocolate from a doorway-pallet, without missing a beat...
Being the son of a Mom 'n Pop grocer and paranoid about shop-theft, I was tempted to intervene, but began to think...
- Pallet-display could seem like a sampling-offer/reward for shoppers
- Positioning near door reduces risk of misinterpretation, for the occasional shrink-shopper
- Leaving a half-empty bag of sweets on the fixture says the same thing...
- Think constant police warnings about not apprehending criminals...
- Shop-staff have to have a witness to the crime, and apprehend the thief outside the shop, and possibly appear in court on private time..why bother?
- Think male security-guard wrestling female-teen to the pavement, in pursuit of unpaid lipstick, good tabloid-copy? ( NB Namnews is now 1/2 tabloid, and all-electronic...)
- Think instore-grazing-shrink, where the shopper pushing a £70 trolley feels they deserve a 'rebate' from store management..
- Think recession-based need, and a bar of chocolate vs. 'billions/trillions' side-lined by bankers, City and the government, to understand why a new consumer-morality model may be developing...

Thus a surprise that shrinkage is as low as 2%...hopefully it remains that low

Recession, what recession?

One of the most confusing aspects of the current recession is why everyone in the shops still looks the same, appears to be buying as before.
(Reminds me of when, as a new brand manager, I drove very slowly to work on the morning my first 1/4 page advert broke in Woman's Own to try to guage the reactions of my target consumer in the street....)
Sure, some high street shops have closed (15% national average, but 40+% in Liverpool, mabey not looking in the right places?)
Customers are still living off pre-christmas stocks (we hope) and the cheque-in-the -post is taking longer to arrive...and customer agreement decisions are floating to higher levels in the hierarchy, and being rejected more often...
Realists know that the recession is here, but it needs time to establish a working pattern..recognisable to all.
However, like bankruptcy, recession starts very slowly and suddenly becomes unstoppable...
This means that NAMs & KAMs have to try to gain the innovator's advantage by anticipating the obvious and taking action now.
Doing a 'what if' on various levels of doomsday scenario is not a case of succumbing to a doom 'n gloom view.
In fact, leading-edge creative thinking recommends that the best ideas can be generated by imagining oneself at the solution stage, and then looking back to try to clarify the pathway... the essence of a what-if.
Success in a recession, as in fast growing categories, is about realism used as a basis for action, faster than the other guy, but slowly enough to work out and implement the options...playing to your competitive differences
All else is detail

Cutting thru the jargon?

News that the government are issuing jargon-guidance to local government offices seems like a breakthrough for common sense. A list of 200 banned words will go countrywide today (more), but is unlikely to include words used at the highest level...i.e.
"Quantitative easing" (no, not a new political-laxative), as we all now know, means the process of producing more money (but not actually printing it) by unconditional crediting of chosen bank accounts, at no apparent cost, except perhaps to government credibility. (No surprise that this drove one reader to write to the Times saying: " I now understand 'quantitative easing', but now realise that I no longer understand what 'money' means")
Why does this all seem like something people were put in prison for, in less sophisticated times?

Eliminating jargon takes enormous moral courage, and explaining ideas as if to a 5yr old runs the risk that understanding may result in probing of speaker's rationale and a demand for change.
The real emphasis should be on explaining why this recession is going to be the worst on record, and last for three years, at least.
It is crucial for NAMs & KAMs to see through the 'doom & gloom' and find ways of maintaining the business, in the meantime, while others 'wait and see'.
This 'new business model' means getting down to the basics of consumer need, using this to rationalise product portfolios, and in turn focus on customer-partners in terms of invest, maintain and divest, all with the aim of achieving an adequate Reward for Risk, i.e Return on Capital Employed.
Not rocket science, but in spite of this, have a look around at all the suppliers still trying to do old things better. Got to be an advantage in being different...

Alliance-Boots global ambitions?

Any residual doubts about the Alliance-Boots global gameplan, following rumours that AB are circling Phoenix?
This puts A.S. Watson under pressure (they should have taken Phoenix, now they need to go for Celesio to catch up. etc. etc.).
My latest bespoke webinar focuses on the potential moves and their UK/EU/Global implications for you, at all levels.
Because of the scale of the initial purchase, with KKR involvement, all at the beginning of the credit crunch, it is important that AB achieve global critical mass, profitablyin order to provide an exit route for private equity in 4-5 years...