Sunday 31 May 2015
Friday 29 May 2015
Back Margin audits - Now it's your turn.
Accountancy watchdog to focus on suppliers after Tesco profits scandal.
According to The Guardian, the Financial Reporting Council (FRC) will make retailers’ relationships with their suppliers a priority due to ‘increasingly complex arrangements’ in their inspections in 2015/16. The FRC will “pay particular attention to the audit of revenue recognition and complex supplier arrangements” at food, drink and consumer goods manufacturers, as well as retailers. They plan to check a significant number of audits - of the 140 checks planned - in these sectors.
More details of scope and process are given in the FRC latest Annual Report published today, and for convenience we have highlighted key sections below, but best point your finance colleagues at the original document, here.
As indicated, this is about Back Margin definitions and how suppliers and retailers account for payments made to retailers.
We believe that we are headed towards further clarity, meaning that payments to retailers will eventually be measured more accurately, paid retrospectively - in arrears - and based upon results achieved vs. agreed KPIs, in order to comply with strict auditing standards and process.
Action for suppliers:
The FRS Annual Report (extracts)
Section 2-4 Page 7 refers to
...Given the focus in recent months in respect of complex supplier arrangements, food, drink and consumer goods manufacturers and retailers have been designated as a priority sector for our 2015/16 inspections and a significant number of audits we plan to inspect will be from those business sectors. These inspections will pay particular attention to the extent to which the audit team has challenged and corroborated the appropriateness of how complex supplier arrangements are accounted for. Corporate Reporting Review (CRR) as part of their programme of reviews of financial statements will also be giving priority to the reporting of these arrangements. We also plan to inspect a number of first year audits to assess the extent to which changes in auditors have an impact on audit quality.
In early 2015 we engaged external consultants to undertake an extensive review of our inspection activities and how these can promote continuous improvements in audit quality. The outcome of this review will be incorporated in the FRC’s Strategy for 2016/19.
Analysis of inspection findings: Section 3-5, page 16 Future Inspections: Section 7-2, page 32: ... planning to inspect around 140 audits.... The priority sectors for 2015/16 are insurance; food, drink and consumer goods manufacturers and retailers... Our inspections will pay particular attention to the audit of revenue recognition and complex supplier arrangements.
Appendix A, page 36 Inspection Process
Our inspections comprise a review of the firms’ policies and procedures supporting audit quality and a review of the quality of selected audits of listed and other major public interest entities that fall within the scope of independent inspection, as determined each year.
Scope in Appendix B
According to The Guardian, the Financial Reporting Council (FRC) will make retailers’ relationships with their suppliers a priority due to ‘increasingly complex arrangements’ in their inspections in 2015/16. The FRC will “pay particular attention to the audit of revenue recognition and complex supplier arrangements” at food, drink and consumer goods manufacturers, as well as retailers. They plan to check a significant number of audits - of the 140 checks planned - in these sectors.
More details of scope and process are given in the FRC latest Annual Report published today, and for convenience we have highlighted key sections below, but best point your finance colleagues at the original document, here.
As indicated, this is about Back Margin definitions and how suppliers and retailers account for payments made to retailers.
We believe that we are headed towards further clarity, meaning that payments to retailers will eventually be measured more accurately, paid retrospectively - in arrears - and based upon results achieved vs. agreed KPIs, in order to comply with strict auditing standards and process.
Action for suppliers:
- Identify and clarify all of the ways in which you remunerate the customer
- Reassess the 'buckets', clarify the definitions, measurement process and ensure the customer agrees...
- Focus on Tesco's three permitted buckets (scale discounts, rewards for display and payments re product re-calls) that will probably become 'standards' eventually, as SFO, FRC and GCA investigations begin to report findings
- Think through internal processes re proposal, objectives, agreement (you and the customer), timing and payment (if in any doubt about the eventual accounting rigour involved, check with your production colleagues re their capital requisition process...)
- Whilst your company will hopefully escape an FRC inspection in 2015/16, auditors will obviously be increasingly conscious of the risks involved and will be more than likely operating to the above standards anyway...
The FRS Annual Report (extracts)
Section 2-4 Page 7 refers to
...Given the focus in recent months in respect of complex supplier arrangements, food, drink and consumer goods manufacturers and retailers have been designated as a priority sector for our 2015/16 inspections and a significant number of audits we plan to inspect will be from those business sectors. These inspections will pay particular attention to the extent to which the audit team has challenged and corroborated the appropriateness of how complex supplier arrangements are accounted for. Corporate Reporting Review (CRR) as part of their programme of reviews of financial statements will also be giving priority to the reporting of these arrangements. We also plan to inspect a number of first year audits to assess the extent to which changes in auditors have an impact on audit quality.
In early 2015 we engaged external consultants to undertake an extensive review of our inspection activities and how these can promote continuous improvements in audit quality. The outcome of this review will be incorporated in the FRC’s Strategy for 2016/19.
Analysis of inspection findings: Section 3-5, page 16 Future Inspections: Section 7-2, page 32: ... planning to inspect around 140 audits.... The priority sectors for 2015/16 are insurance; food, drink and consumer goods manufacturers and retailers... Our inspections will pay particular attention to the audit of revenue recognition and complex supplier arrangements.
Appendix A, page 36 Inspection Process
Our inspections comprise a review of the firms’ policies and procedures supporting audit quality and a review of the quality of selected audits of listed and other major public interest entities that fall within the scope of independent inspection, as determined each year.
Scope in Appendix B
Thursday 28 May 2015
Fifa emerges from under the covers - a sponsorship crisis for anyone that cares about branding...?
Deep down, global football may be too big to fail, in that this could be just another crisis...
However, given that a sponsor's nightmare has to be the possibility of the star succumbing to drugs, booze or worse, Fifa, by exception, can be no exception.
In sponsorship, nothing beats the speed with which a sponsor slides from under a problem package. The obligatory public responses of some of the biggest brands in terms of expressing concern, disappointment, have to be code for 'lets work out the best way of getting out of here, fast...' And as demand usually determines prices of advertising in sports sponsorship, those that decide to weather it out, will find some consolation in reduced rate-cards...
Players, themselves conscious of personal shelf-life limitations, will also focus on how they can distance themselves from the fall-out...
Leaving the consumer, that docile recipient of unprecedented brand-based revelations over the past few years, to vote in the only way possible, with their feet...
Meanwhile, as the US authorities have already said, this is only the beginning...and no amount of blethering will make a difference...
Monday 25 May 2015
Friday 22 May 2015
The Londis, Budgens, Premier Combo - a new kid on the block?
Representing approximately £830m in incremental sales, taking them to 9.4% of the UK convenience sector, and building on their supply chain efficiencies, Booker’s acquisition of Londis and Budgens has to represent a quantum leap for the Group.
The strategic link with Musgraves also offers two-way synergies, whilst the increased buying power ‘can’t hurt’ on Booker's side of negotiation table.
The issue for suppliers has to be the speed with which they can review their trading strategies, terms and conditions (prices & terms disparities) and negotiate some compromises in the small window afforded by the inevitable competition issues resolution…
In terms of re-negotiation, suppliers need to re-assess their relative competitive appeal to Booker, given the new combo above.
From a shopper perspective, it might also be worth re-mapping the relative competitive appeal of Londis, Budgens and Premier from the perspective of the consumer-shopper. To accelerate the process, see our Buying Mix Analysis tool
That then leaves preparation of a settlement point that reflects your perceived pulling power with the 'new Booker', and goes some way towards closing any prices/terms gap, before Booker does it on your behalf...
For a free HIM infographic re shopper insights see here
The strategic link with Musgraves also offers two-way synergies, whilst the increased buying power ‘can’t hurt’ on Booker's side of negotiation table.
The issue for suppliers has to be the speed with which they can review their trading strategies, terms and conditions (prices & terms disparities) and negotiate some compromises in the small window afforded by the inevitable competition issues resolution…
In terms of re-negotiation, suppliers need to re-assess their relative competitive appeal to Booker, given the new combo above.
From a shopper perspective, it might also be worth re-mapping the relative competitive appeal of Londis, Budgens and Premier from the perspective of the consumer-shopper. To accelerate the process, see our Buying Mix Analysis tool
That then leaves preparation of a settlement point that reflects your perceived pulling power with the 'new Booker', and goes some way towards closing any prices/terms gap, before Booker does it on your behalf...
For a free HIM infographic re shopper insights see here
Thursday 21 May 2015
Wednesday 20 May 2015
Asda's 3.9% fall in like-for-likes - why Walmart won't go over the top...
News of Asda’s Q1 results might cause suppliers - and rival retailers – to expect a ‘decisive’ price-cut response financed by Walmart, in these times of unprecedented moves by the mults.
However, joining a couple of extra dots could indicate otherwise.
For instance, comparing relative financials of Walmart and Asda could provide some clarity:
Walmart (2015) Results
Net Sales $482bn +1.9% YOY
Net Income $24bn
Net margin 5.1%
ROCE 17.9%
Asda (2013, latest results available at Companies House)
Net Margin 3.9%
ROCE 12.1%
Neither of these companies want to increase Walmart-Asda profit differentials...
Also, Walmart – and Asda – don’t do knee-jerk, so the response to the Q1 shortfall will be a price drop sufficient to 'restore order', but sustainable in the long term, and probably financed by the UK operation, meaning it will not be an over-the-top initiative.
That being the case, coupled with yesterday’s economic news of -0.1% ‘negative inflation’, could mean that we are in for a calm period of sustained flat-line demand…
…where growth will come at the expense of less-alert competition..
However, joining a couple of extra dots could indicate otherwise.
For instance, comparing relative financials of Walmart and Asda could provide some clarity:
Walmart (2015) Results
Net Sales $482bn +1.9% YOY
Net Income $24bn
Net margin 5.1%
ROCE 17.9%
Asda (2013, latest results available at Companies House)
Net Margin 3.9%
ROCE 12.1%
Neither of these companies want to increase Walmart-Asda profit differentials...
Also, Walmart – and Asda – don’t do knee-jerk, so the response to the Q1 shortfall will be a price drop sufficient to 'restore order', but sustainable in the long term, and probably financed by the UK operation, meaning it will not be an over-the-top initiative.
That being the case, coupled with yesterday’s economic news of -0.1% ‘negative inflation’, could mean that we are in for a calm period of sustained flat-line demand…
…where growth will come at the expense of less-alert competition..
Monday 18 May 2015
'Docking' the long tail, a product-cull too far?
Given that the UK’s largest retailers appear to differ re the need to cull 30% of Tesco’s range (Sainsbury: “…customers tell us they can buy things in our shops that they can’t buy elsewhere.” vs. Tesco: “…20% of SKU's in an Extra store are only selling 1 pack per store per week”.), and as Dave Lewis is the one currently wielding the docking-knife, it is perhaps more important for NAMs to anticipate a 30% reduction in SKUs and plan accordingly…
(BTW, NAMs that have enjoyed a less sheltered childhood will be aware that docking a working dog’s tail was a fairly common practice in the old days, the actual method being the only ‘bone of contention’, whilst adding a whole new meaning to ‘cross-docking’….)
- The issue for suppliers is where the end of the long tail starts…
- Combining this idea with the 80/20 rule, suppose 18,000 of Tesco’s 90,000 SKUs account for 80% of their in-store turnover, then 30,000 SKU de-lists may not be sufficient...
- …and given that the cost of retail space online is irrelevant, the remaining SKU’s could be added to the online portfolio, or de-listed…Perhaps a final compromise for de-listed NAMs?
(BTW, NAMs that have enjoyed a less sheltered childhood will be aware that docking a working dog’s tail was a fairly common practice in the old days, the actual method being the only ‘bone of contention’, whilst adding a whole new meaning to ‘cross-docking’….)
Saturday 16 May 2015
The NAM-Suitsy - A pyjama onesie when 24/7 is not enough...
Monday 11 May 2015
Joining the commercial income dots: moving to full disclosure?
Given the latest news of Asda slashing prices to maintain/increase its position of 5% less than the other mults, knowing that any growth in flatline has to come at the expense of direct competition, coupled with Tesco’s ending of their 32 year relationship with auditors PwC, itself a reminder that the SFO are at work investigating how Tesco’s £263m profit overstatement was caused in part by how retailers book trade investment, all adds up to a need for retailers to disclose the contribution made by commercial income to their final results.
Indeed the recent criticism of Sainsbury’s for not following Tesco and Morrisons lead in making these disclosures, with little sympathy for protestations of ‘commercial sensitivity’, means that the SFO will probably conclude that disclosure will be mandatory...
However, better if all retailers anticipate legal developments and make these disclosures on a voluntary basis.
This leaves Asda, which, being US-owned, and ultimately subject to a changing tax regime where issues of global taxation will drive more open reporting at local level, will inevitably conform re disclosure of commercial income in the UK.
The rest of the trade will probably fall in line to avoid possible raising of their profile at the SFO…
Auditing will become more precise, in terms of accounting for, and booking of, such revenues.
This means that stakeholders will need to anticipate that all CI ‘buckets’ will be defined more precisely, have clearer objectives, appropriate KPIs and will be measured with more precision. In other words, we are headed towards payment in arrears, based on actual boxes sold…
Time for suppliers and retailers to anticipate the obvious and start accounting now…
Indeed the recent criticism of Sainsbury’s for not following Tesco and Morrisons lead in making these disclosures, with little sympathy for protestations of ‘commercial sensitivity’, means that the SFO will probably conclude that disclosure will be mandatory...
However, better if all retailers anticipate legal developments and make these disclosures on a voluntary basis.
This leaves Asda, which, being US-owned, and ultimately subject to a changing tax regime where issues of global taxation will drive more open reporting at local level, will inevitably conform re disclosure of commercial income in the UK.
The rest of the trade will probably fall in line to avoid possible raising of their profile at the SFO…
Auditing will become more precise, in terms of accounting for, and booking of, such revenues.
This means that stakeholders will need to anticipate that all CI ‘buckets’ will be defined more precisely, have clearer objectives, appropriate KPIs and will be measured with more precision. In other words, we are headed towards payment in arrears, based on actual boxes sold…
Time for suppliers and retailers to anticipate the obvious and start accounting now…
Friday 8 May 2015
Thursday 7 May 2015
Tesco Soft Drinks Supply Aggregation - another type of Cull?
Refresco Gerber’s recent deal with Tesco to produce all of its own label Soft Drinks could be an effective way to rationalise Tesco’s part of the carbonated and non-carbonated Soft Drinks category.
It could also be a new approach to Tesco's management of some categories...
With little or no axe to grind, this move to a single producer will simplify the elimination of product overlap and products with peripheral advantages, in one stroke….
All products could be produced in harmony, reflect scale economies and allow new product introductions that will fit with a co-ordinated optimisation of the ENTIRE category, an ideal blend of brand and private label, tailored to the needs of Tesco shoppers - the ultimate in category management?
In which case, could it be time for suppliers in other categories to consider the extent to which all/most of the Tesco own label products in their category could be similarly aggregated under one branded/own label supplier?
If so, might it not be an opportunity for a brand-only supplier to dilute their principles and actually pitch for the Tesco own label business in their category?
...and if you don’t, who will?
It could also be a new approach to Tesco's management of some categories...
With little or no axe to grind, this move to a single producer will simplify the elimination of product overlap and products with peripheral advantages, in one stroke….
All products could be produced in harmony, reflect scale economies and allow new product introductions that will fit with a co-ordinated optimisation of the ENTIRE category, an ideal blend of brand and private label, tailored to the needs of Tesco shoppers - the ultimate in category management?
In which case, could it be time for suppliers in other categories to consider the extent to which all/most of the Tesco own label products in their category could be similarly aggregated under one branded/own label supplier?
If so, might it not be an opportunity for a brand-only supplier to dilute their principles and actually pitch for the Tesco own label business in their category?
...and if you don’t, who will?
Wednesday 6 May 2015
Sainsbury's space productivity, getting into the space behind the headlines
Whilst the headline numbers provide some indication of the unprecedented pressures on Sainsbury’s and the other mults, in “...a marketplace changing faster than at any time in the past 30 years…”, working NAMs can derive usable insight by digging deeper into the detailed results issued this morning. (Sainsbury’s Results: 52 wks end March 2015)
Having written its space down by £900m i.e. 7.5% of a £12bn portfolio, Sainsbury’s have focused City attention on sales productivity i.e. Sales and Profit per sq. ft. per annum
See page 15, JS Results:
2015 Sales/sq. ft./annum = £1,027
Op Profit/sq. ft./per annum = £32.6
In other words, for the coming year Sainsbury’s have to be very receptive to supplier initiatives that drive Sales and Profit productivity.
For NAMs, this means calculating the ex VAT consumer sales generated in Sainsbury's by your brand footprint per annum – think number of facings x on-shelf backup stock x number of stores x SKU footprint - will give you a figure at least twice Sainsbury’s £1k/pa.
OK, they still have to carry all of the in-store waste area – non sales space like aisles etc.) - but it will still be possible to demonstrate that your brand is a high net contributor to Sainsbury’s major KPI for 2015/16…
However, your real contribution is via your brand's ability to improve on Sainsbury’s operating profit/sq. ft./annum.
(Sales per sq. ft. will keep you listed, Profit per sq. ft. will keep you in the inner circle…)
As you can calculate from their latest figures (page 15), Sainsbury’s are currently generating operating profits of £32.6/sq. ft./annum, i.e. 9p/day!
Your brand’s footprint, with its retail margin of 25%, trade investment of 20%, and 30 days credit has to be generating a lot more than 9p/sq. ft./day for Sainsbury’s…
(Why not grab an envelope and try it out, using your figures? – for precision, take off 15% to cover handling and shrink)
Space productivity is one of the biggest issues for the mults this year, your brand can help…
Application to Tesco?
Incidentally, applying the above to another mult that occasionally makes the headlines, why not dig a bit deeper into Tesco’s recent results?
Page 3 & page 40 Results:
2015 UK Sales/sq. ft./annum = £1,030
UK Trading Profit/sq. ft./per annum = £11.04 i.e. 3p/sq. ft./day!
BTW, given that you are on the Tesco page, why not find some gems for your overseas colleagues in Asia and EU markets?
2015 EU Sales/sq. ft./annum = £254
EU Trading Profit/sq. ft./per annum = £5
2015 Asia Sales/sq. ft./annum = £298
Asia Trading Profit/sq. ft./per annum = £17
Having written its space down by £900m i.e. 7.5% of a £12bn portfolio, Sainsbury’s have focused City attention on sales productivity i.e. Sales and Profit per sq. ft. per annum
See page 15, JS Results:
2015 Sales/sq. ft./annum = £1,027
Op Profit/sq. ft./per annum = £32.6
In other words, for the coming year Sainsbury’s have to be very receptive to supplier initiatives that drive Sales and Profit productivity.
For NAMs, this means calculating the ex VAT consumer sales generated in Sainsbury's by your brand footprint per annum – think number of facings x on-shelf backup stock x number of stores x SKU footprint - will give you a figure at least twice Sainsbury’s £1k/pa.
OK, they still have to carry all of the in-store waste area – non sales space like aisles etc.) - but it will still be possible to demonstrate that your brand is a high net contributor to Sainsbury’s major KPI for 2015/16…
However, your real contribution is via your brand's ability to improve on Sainsbury’s operating profit/sq. ft./annum.
(Sales per sq. ft. will keep you listed, Profit per sq. ft. will keep you in the inner circle…)
As you can calculate from their latest figures (page 15), Sainsbury’s are currently generating operating profits of £32.6/sq. ft./annum, i.e. 9p/day!
Your brand’s footprint, with its retail margin of 25%, trade investment of 20%, and 30 days credit has to be generating a lot more than 9p/sq. ft./day for Sainsbury’s…
(Why not grab an envelope and try it out, using your figures? – for precision, take off 15% to cover handling and shrink)
Space productivity is one of the biggest issues for the mults this year, your brand can help…
Application to Tesco?
Incidentally, applying the above to another mult that occasionally makes the headlines, why not dig a bit deeper into Tesco’s recent results?
Page 3 & page 40 Results:
2015 UK Sales/sq. ft./annum = £1,030
UK Trading Profit/sq. ft./per annum = £11.04 i.e. 3p/sq. ft./day!
BTW, given that you are on the Tesco page, why not find some gems for your overseas colleagues in Asia and EU markets?
2015 EU Sales/sq. ft./annum = £254
EU Trading Profit/sq. ft./per annum = £5
2015 Asia Sales/sq. ft./annum = £298
Asia Trading Profit/sq. ft./per annum = £17
Tuesday 5 May 2015
Tesco's 3-in-1 Opportunity for Suppliers
A brief examination of Tesco’s latest results, the 52 weeks ended 28th Feb. 2015, show interesting differences in their trading margins for the UK, EU, and Asian businesses.
Whilst the Tesco overall trading margin is 2.2% - itself too low for a City that would prefer at least 4% - it can be seen that the results are significantly different for the three geographies. This would suggest that global suppliers will need three different strategies to optimise the profitability of their overall Tesco relationship.
In other words, Tesco’s three retail businesses have to be viewed and managed as separate SBUs to optimise the overall global potential for your brand.
In practice, with trading margins in the UK at 1.1%, the EU at 1.9%, and Asia at 5.7%, Tesco clearly have a need for three different but complementary strategies:
UK: With Tesco’s ex VAT sales of £43.5bn, coupled with Sainsbury’s and Morrisons expected falls in profits this week, maintaining market share at the expense of competitors via deep price-cutting, has to be a priority for the major multiples.
Given these margin pressures, the temptation for Tesco to transfer ‘excess’ back margin to front margin, may be difficult to resist. In addition, suppliers' willingness to invest in the trading partnership via lower trade prices in exchange for long term commitment to Tesco’s customer-centric policy, may become a negotiating point.
Obviously, 100%, zero-defect service levels and availability have to be a given, from now on…
On balance, suppliers need to come to terms with structural – i.e. ‘permanent’ – changes in the market, and make fundamental decisions re the relative importance of the mults vs. discounters, and Tesco in particular, to their UK business. Having made these decisions, calculating and demonstrating the impact of your trade investment and retail margin on Tesco's trading profits has to be a must…
EU: With ex VAT sales of £8.5bn, Tesco needs to both increase its EU geographical footprint, and grow share in key countries.
Essential for suppliers to ensure that EU colleagues conduct harmonised dealings with Tesco in order to avoid compromising trading relationships in either territory. It is also important that prices and terms are defensible vs. other retailers, in the event that Tesco decides to sell off low margin local business.
In addition, given the move from individual teams for Czech Republic, Hungary, Poland and Slovakia to one regional team focused on buying and operational synergies, there will be more emphasis on investing in the customer offer. Suppliers will need to match this CEE re-structuring, if only to ensure their fair-share levels of investment in Tesco’s customer offer….
Asia: With ex VAT sales of £9.9bn, and a trading margin of 5.7%, it is obvious that Tesco will resist selling off their Asian interests to help re-build their global balance sheet. Instead, it is possible that they will try to increase their regional foot-print, possibly at the expense of some trading margin in the medium term.
Given the potential scale advantages of 24/7 retailing, South Korean restrictions on opening hours means suppliers need to focus on increasing store productivity during permitted times. Restricted demand due to economic conditions in Malaysia and Thailand means that a focus on availability, service and targeted price reductions is essential in order to optimise the productivity of available traffic, without compromising the bottom line.
On balance, it is time for Tesco suppliers to step up and be counted, time to decide if your biggest customer is going to make it via their 3-for-1 global policy.
Signs are that despite these unprecedented times, they will lead a comeback in retail, meaning this is a real opportunity for innovative suppliers to think long-term and join Tesco for the return journey…
Whilst the Tesco overall trading margin is 2.2% - itself too low for a City that would prefer at least 4% - it can be seen that the results are significantly different for the three geographies. This would suggest that global suppliers will need three different strategies to optimise the profitability of their overall Tesco relationship.
In other words, Tesco’s three retail businesses have to be viewed and managed as separate SBUs to optimise the overall global potential for your brand.
In practice, with trading margins in the UK at 1.1%, the EU at 1.9%, and Asia at 5.7%, Tesco clearly have a need for three different but complementary strategies:
UK: With Tesco’s ex VAT sales of £43.5bn, coupled with Sainsbury’s and Morrisons expected falls in profits this week, maintaining market share at the expense of competitors via deep price-cutting, has to be a priority for the major multiples.
Given these margin pressures, the temptation for Tesco to transfer ‘excess’ back margin to front margin, may be difficult to resist. In addition, suppliers' willingness to invest in the trading partnership via lower trade prices in exchange for long term commitment to Tesco’s customer-centric policy, may become a negotiating point.
Obviously, 100%, zero-defect service levels and availability have to be a given, from now on…
On balance, suppliers need to come to terms with structural – i.e. ‘permanent’ – changes in the market, and make fundamental decisions re the relative importance of the mults vs. discounters, and Tesco in particular, to their UK business. Having made these decisions, calculating and demonstrating the impact of your trade investment and retail margin on Tesco's trading profits has to be a must…
EU: With ex VAT sales of £8.5bn, Tesco needs to both increase its EU geographical footprint, and grow share in key countries.
Essential for suppliers to ensure that EU colleagues conduct harmonised dealings with Tesco in order to avoid compromising trading relationships in either territory. It is also important that prices and terms are defensible vs. other retailers, in the event that Tesco decides to sell off low margin local business.
In addition, given the move from individual teams for Czech Republic, Hungary, Poland and Slovakia to one regional team focused on buying and operational synergies, there will be more emphasis on investing in the customer offer. Suppliers will need to match this CEE re-structuring, if only to ensure their fair-share levels of investment in Tesco’s customer offer….
Asia: With ex VAT sales of £9.9bn, and a trading margin of 5.7%, it is obvious that Tesco will resist selling off their Asian interests to help re-build their global balance sheet. Instead, it is possible that they will try to increase their regional foot-print, possibly at the expense of some trading margin in the medium term.
Given the potential scale advantages of 24/7 retailing, South Korean restrictions on opening hours means suppliers need to focus on increasing store productivity during permitted times. Restricted demand due to economic conditions in Malaysia and Thailand means that a focus on availability, service and targeted price reductions is essential in order to optimise the productivity of available traffic, without compromising the bottom line.
On balance, it is time for Tesco suppliers to step up and be counted, time to decide if your biggest customer is going to make it via their 3-for-1 global policy.
Signs are that despite these unprecedented times, they will lead a comeback in retail, meaning this is a real opportunity for innovative suppliers to think long-term and join Tesco for the return journey…
Aldi's version of gift-with-purchase?
Over €15m worth of cocaine - the biggest haul ever in Berlin - has turned up in boxes of bananas delivered to Aldi supermarkets in and around the capital, according to police.
This apparent foray upmarket by the discounter was an obvious mistake in a shipment from Colombia to Hamburg, and was in no way intended to stimulate repeat purchase and encourage customer loyalty…
Friday 1 May 2015
Tesco's latest trading profit: What your trade investment is now worth to Tesco UK
Given all the recent big numbers coming from the UK’s No.1 retailer, your £10k trade investment may seem paltry….
If, however, it is being treated like a pittance, it might be worth pointing out that, based on its latest UK trading margin* of 1.1%, £10k is equivalent to ex VAT sales of £909k…
A point to ponder over the long weekend?
*...52 weeks ended 28th Feb. 2015 - UK Sales ex VAT = £43,573m, Trading profit = £467m.
£10k = 1.1% of equivalent sales i.e. £10k/1.1 x 100
If, however, it is being treated like a pittance, it might be worth pointing out that, based on its latest UK trading margin* of 1.1%, £10k is equivalent to ex VAT sales of £909k…
A point to ponder over the long weekend?
*...52 weeks ended 28th Feb. 2015 - UK Sales ex VAT = £43,573m, Trading profit = £467m.
£10k = 1.1% of equivalent sales i.e. £10k/1.1 x 100
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