News of yesterday’s
plunge in Tesco’s share-price to a 10-year low of 243.8p represents an opportunity for those suppliers prepared to re-interpret their Tesco strategies in terms of having a direct impact on share-price improvement, surely a top-of-agenda item for both the share-optioned Tesco team and the incoming Dave Lewis.
If share price is driven by ROCE, in turn driven by net margin and rate of capital turnover, then a supplier-template for helping an increasingly receptive Tesco emerges…
Essentially, Tesco’s ROCE has dropped over the years to 8.2% and its Net Margin to 3.6%, whilst Walmart’s performance has remained at a steady ROCE 18.2% and Net Margin 5.2%, despite the global financial crisis and its aftermath.
Therefore, to restore its historic share-price, Tesco needs to raise its financial performance to Walmart levels
Suppliers can help in two areas: improving Tesco’s Net Margin and improving its capital rotation as follows:
Net Margin improvement:
Reducing Operational Costs
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Better delivery arrangements
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Easier, more economic process
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Less damaged or defective stock
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Easier handling
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More economic use of labour
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More economic use of space
Reducing Administration Costs
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EDI
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Less time spent on administration
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Fewer administration tasks
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Better payment terms
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Simpler stock and order systems
Capital rotation improvement:
Sales Volume or Value Increase
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Driving traffic and basket size
- Increasing Tesco yield i.e. sales/sq ft
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Improving quality of yield i.e. trading up
Asset Reduction
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Less capital tied up in stocks
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Less space required to stock
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Faster throughput
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Better use of spare cash
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Better use of fitments and space
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Fewer staff required
In fact, everything you are already doing, but expressed as a direct contribution to Tesco's ROCE and thereby share-price enhancement...
This direct focus on issues for a customer currently pre-occupied with share-price performance has to represent a new opportunity to demonstrate the value of your trade initiatives and support in a way that connects directly with the buyer’s needs and wants, like never before…
...and why not throw in the fact that every £10k you invest in Tesco is worth £277k in incremental sales, based on their 3.6% margin!