'Prompt' Payment - are we all missing something?

News that food giant 2 Sisters has been seeking more than four months to pay its bills, is but the latest in a growing line of companies that apparently see supplier credit as a free source of Working Capital…

Given that the interest-free credit period given by suppliers was originally intended to help a customer to bridge the gap between receipt of the goods and payment by its customers, then payment should be related to this time-frame.

How about replacing the 'Prompt' Payment Code with a Fair Payment Code?

In the fast-moving UK grocery & food industries, with daily deliveries and average supplier credit-periods of 30-45 days, and H&B/Non-foods reaching 90 days, 'prompt' is hardly an accurate description of current payment periods in the industry.

Moreover, government belief that the Prompt Payment Code (i.e. compliance with negotiated terms) fixes the problem, is a misconception.

A supplier in financial difficulties neither has the muscle to negotiate earlier payments, nor can afford to offer sufficient settlement terms to encourage a reduction in days' credit. Besides, in most circumstances, a supplier will still be reluctant to risk reporting a major customer for breaches of the code.

If the government really wants to bring about change, it needs to appreciate that credit period given by suppliers was originally intended to help a customer bridge the gap between receipt of the goods and payment by the shopper or customer. In the current UK market, with stockturns averaging 25 times per annum, but in some categories turning daily, or at least twice per week, surely payment period should be related to delivery frequency?

In practice this means that fresh produce delivered daily to retailers, should be paid for within 5 days, allowing for 'efficiencies' of the current Banking system? Non-foods, delivered weekly, should perhaps be paid for within 10 days of receipt.

Relating credit period to delivery frequency would reward efficiencies on each side, and would shift the emphasis away from free credit as a source of working capital. It would also remove much of the political sensitivity attached to potential charges of abuse of power by the major multiples...

However, simply imposing a category-based credit period, and legislating to reduce to those levels is not the answer.

Current credit periods have developed over time and represent an agreed balance between supply and payment between two business partners. A one-sided reduction of the credit period would be unfair to the retailer.

What has to happen is for each party to agree the financial advantage represented by the current credit-period and calculate the loss to the retailer represented by paying faster. This loss could then be restored via other parts of the supplier-retailer package, thus maintaining a fair-share trading relationship.

A real Christmas present for suppliers everywhere?

Abolishing Trade Investment by suppliers - the impact on brands

News that Tesco is allegedly planning to dismantle the system of using Commercial Income, or Trade Investment, as a source of cash from suppliers raises a number of issues for NAMs and competing retailers.

What does it mean financially?

Conclusions:

• Supplier cannot afford additional investment (in fact the calculation shows why so many suppliers are struggling profit-wise)
• Retailers are not going to surrender Trade Investment & Deductions as sources of income
• Retailers may try to negotiate Trade Investment into Margin, thus removing the issue of how it is booked in the business
• Trade Investment may be absorbed into retail running costs and price-cutting, with less available for in-store customer incentives
• Eventually, additionally funding may be requested in order to 'create a bit of excitement' in-store....

Still ok with your trade agreements for 2015?
(Why not substitute your brand's % in the above calculation and see what it is costing you to be onshelf...?)

Walgreens-Boots: Pessina to acting CEO, Wasson to retire

News just in confirms that following completion of the merger in Q1, 2015, Greg Wasson will retire and Stefano Pessina will become acting CEO.

Although Boots will represent 33% vs Walgreens 66%, the combination of Pessina’s personal shareholding of 16% and the acting CEO role has to give Boots the opportunity to punch way above its weight in 2015…

A happy New Year to NAMs everywhere!!

UK accounting watchdog warns retailers after Tesco scandal

Britain's Financial Reporting Council (FRC), which polices accountants and is examining how Tesco's error came about, said on Monday that the boards of all retailers and suppliers should provide investors with sufficient information on their accounting policies, especially Commercial Income (i.e. Trade investment).

This is particularly important for NAMs as the watchdog said it would focus on this area when it comes to reviewing audits for 2014 that will be published in 2015.

The FRC said there was no single accounting standard for such disclosures and there is an "absence of well-known industry norms", meaning that auditors have to resort to judgement in most cases.

Given the 20+ ‘buckets’ that suppliers use for trade funding, it might be useful if NAMs simplified and segregated their funding.

‘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
- EDI
- 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
- Minimalising post-audit recoveries
- Sales achievement

It is likely that the SFO-Tesco outcome will result in new auditing procedures aimed at transparency, defensibility and like-with-like 'comparability' in dealing with Commercial Income in retail accounts.

Meanwhile, suppliers can anticipate the changes and possibly avoid major retrospective overhauling of their trade funding process, by taking action to clarify their trade funding process now, while others await the inevitable… 

Tesco's Christmas' Surprise - a Final Shocker for the Market?

Today’s profit warning, indicating that February’s year-end profits will come in at £1.4bn, 25% lower than analysts’ expectations, had better be the final shock from Tesco…

Whilst the City will be relieved that no further scandals were revealed, this below-expectation profit guidance has to mean that analysts are still not reading Dave Lewis well enough, and will hopefully result in an over-reaction in terms of the share price…

In other words, the stock market will probably mark the shares down more than is warranted, just-in-case…

There is hopefully an element of ‘kitchen-sinking’ in the 2014-15 results in that we have to assume that all write-offs have been factored in, which, coupled with investments in price, availability and other improvements in its customer offer, lead us to expect that all future announcements will be defensible, transparent but above all, conservative….

We are obviously seeing only the surface impact of the changes being undergone in Tesco, as Dave Lewis’ new team revisits plans and strategies, implementing a new commercial approach that will underpin stronger long-term relationships with its suppliers to ensure that revenue recognition is transparent and appropriate, all in the shadow of an SFO investigation….

What it means for NAMs
• All commercial income will be redefined, quantified and where possible, retrospective
• All forecasts will be conservative, and ideally tied to clear KPI measures
• …However, in order to avoid missing out on unexpected demand, Tesco will expect a rapid response to sales surges...

The future conversation will be about demonstrable cost & value, as a base requirement.

In return, suppliers should insist on 100% compliance, and fair-share dealings, shock-proofed…

More on 'Tesco- the end of the beginning for a great retailer' here

When the target misses the point...

Most of us remember the Dudley Moore free-range chicken TV campaigns....??

It was intended as a way of having Dud discover different continental foods available at Tesco, such as farmers' cheese, wine etc, with free range chickens as a back-drop...

Unfortunately, the demand for free range chickens soared, resulting in numbers that far exceeded what was available in France...

Apparently, this meant that Tesco had to source overseas, discovering that chickens in different continents were bred/evolved to different profiles (big breasts here, big thighs there, you know how it is...) resulting in some confusion at UK tables.

The campaign eventually ran out of steam also...

Hat-tip to Mike Anthony for the reminder of a truely memorable campaign

Premier Foods 'Invest or else' request from suppliers

According to the BBC, Premier Foods have allegedly been asking their suppliers for payments to continue doing business with the firm.

NAMs, long accustomed to fielding such ‘requests’ from major customers, might be forgiven for thinking that Premier Foods had diversified into retailing…

Essentially, when a company enters a supply arrangement with a customer, they obviously negotiate a working arrangement that should be summarised in a supply agreement – a legal completion of the agreement process where UK suppliers still lag behind their continental cousins.

However, commercially speaking, a contract is an instrument that ‘can’ rather than should be used, because in practice, resorting to the law is an end-of-relationship process rather than a  basis for a mutually productive partnership…

The agreement to supply needs to include the total package – all terms and conditions, binding both parties. This up-front agreement can contain some ‘gun-to-head’ elements in that the customer, exploiting their size, can make it a condition that they will pay in 90 days for a product delivered daily.

Strictly speaking, this condition can be in compliance with current ‘pay-on-time’ legislation, but ignores the fact that the 90 days can be unreasonable where the customer experiences the value of the product within days of receipt on a rapid rotation line, and credit period was always meant to simply cover the gap between delivery and resale of a product.

In other words, the customer observes the letter of the law, as worded, and ignores the real issue, the need for payment within an appropriate-for-purpose time frame – the law patently needs modifying to make this more explicit.

The same holds for a retro-demand for additional cash, for whatever purpose. However, if the request applies to future dealing, then that becomes a basis for negotiation, however unfair the balance of power…

When a customer steps outside an agreement and imposes a new condition retrospectively, the supplier has a genuine grievance, and a basis for action, if a comprehensive written contract exists. It may still be unrealistic to expect a small supplier to take on a big customer. In fact the little guy may even  'knuckle under', with wise customers keeping in mind the possibility of the ‘don’t get mad, get even’ condition being invoked….

The real issue is the damage being done to the customer’s reputation for fair dealing, both with other suppliers, the legislature and current employees, and especially with the general public - the ultimate consumers - in times where abuse by big business is becoming an increasingly sensitive topic….

Additional details in The Telegraph here
Update in The Independent here

The pop-up store that will allow you to pay with 'social currency' instead of cash

                                                                                                                                           pic: Velcro

According to The Daily Mail, the Velcro Brand Holiday Hackshop has declared Monday, December 15, its 'Social Currency Day,' when customers can pay for select items with 'retweets, posts and more' in which the brand is mentioned. The company is hoping to get more followers on social media sites by running a holiday pop-up shop in lower Manhattan where customers are encouraged to post about their experience.

Velcro missing a trick?
In the excitement of combining pop-up shopping with social media optimisation and despite illustrating 19 different uses of Velcro in POS, the company might have capitalised on the creative potential and reach of their new audience by building in incentives to think up additional ways of using the product and crowd-sourcing ideas via the network…

Other NAMs missing a trick?
Think beyond adhesion to the process operating here and its potential as a way of stretching scarce promotional monies for your brand.

Go even further and think amplification of message, in the way that some major retailers optimised their dismantling of Sunday trading legislation, all those years ago.

As a reminder of the method, say a branch in Neasden decided to open on a single Sunday in breach of the legislation, and were promptly brought to court and fined £10k. The resulting media coverage was invariably worth in excess of £250k, advertising their role as ‘champions of the people’…

The authorities eventually saw the wisdom of acknowledging real-world consumer need by allowing 24/7 trading… 

Landlines giving a final boost to mobile usage?

According to the BBC, the major landline providers are raising their line rental charges to approximately £17 per month, three times the rate of inflation.

Ofcom figures confirm that while the number of residential lines has risen, this has been more than offset by a fall in the number of business lines.  However, call usage on landlines has fallen by 12.7% in the year to June 2014….

Given the increase in mobile usage, the ultimate move to user convenience, this makes the idea of having to be anchored to the home ‘to receive and make calls’ seem Neanderthal…

It seems obvious that any increase in landline installations is surely arising from a need to bring wifi to the household, a position increasingly under threat from mobile operators willing to develop a pricing model that ‘wifies’ a home at something less than £17 per month.

In other words, in the way that the Post Office price-increases & and postal strikes boosted the growth of fax machines, so too are price increases drawing attention to the increasing redundancy of that old fashioned telecommunications technology on the hall table… 

What if a supplier was running Tesco UK - as Dave Lewis takes charge of helping the consumer to buy...

As NAMs we have all stayed in hotels, supped in restaurants and bars and concluded that a NAM in charge would make a real difference.

Ditto with retailing

Given that much of our effort in front of the buyer is devoted to fighting the consumer’s corner, then perhaps with Dave Lewis’ decision to work ‘hands-on’, a NAM dream has been realised and we are entering a new era with Tesco?

Think about it:

As a brand marketer, Lewis’ starting point has to be consumption, in the home. This means that Tesco will at last acknowledge that the process starts with ensuring that the consumer’s needs as a consumer are met, in that the contents of the box are fit for purpose and exceed expectation.

The next step is to ensure that the product is made available wherever, whenever and however the consumer-shopper chooses to buy -  a multi-channel approach, writ large…

When it comes to bricks & mortar, 100% on-shelf availability is a given, with no excuses.
It follows that category-based in-store presence via aisle-based shopper-marketing will be made conducive to optimising repeat purchase, with theater to match…

This means 100% zero-defect delivery, all based upon sales-based demand and fulfilment.

That only works if the brands are purchased within a realistic competitive-set, with private label having its fair share, instead of being an over-faced passenger  ...and never forgetting that the guy in charge knows more about supply than Tesco could only dream about….

And patently, given the stock-market impact of the Tesco crisis, the financials have to stack up…

In other words, the next three months are going to make or break Dave Lewis, so I don’t mind betting he will give it his best shot, in the only way he knows…

NAMs and other retailers might well profit by taking a leaf from his new book, and attempting to turn around their entire approach to helping consumer-shoppers to buy, again and again and again and again…

Tesco's poetic response to a rhyming complaint

According to an article in Metro, Isabelle Bousquette, 20, and Tomi Baikie, 18, students at St Andrews university, wrote to Tesco after discovering their Tesco store in Fife no longer stocked salted Popcorn Sensations. They used the 'only language' they knew - a Shakespearean sonnet.

They were astonished to receive a Shakespearean sonnet in reply.

                                                                                                           pic: Facebook

Key learnings for NAMs:

• If Tesco still have a sense of humour after this Annus Horribilis, they are on the way back...
• They may be expecting NAMs to rise to new heights of creative endeavour in their 2015 trade strategies
• For our part, as an aide memoire for NAMs, we are looking into adding some rhyming couplets to our treatment of trade finance...
• (Don't hold your breath, writing poetry ain't for sissies....)  

Christmas & Thanksgiving: a contrarian view...

                                                                 ...from a key stakeholder

Hat-tip to Mike Greene for pointer to pic

Multi-Channel Retailing - a business consulting role for NAMs?

John Nevens’ article in yesterday’s NamNews revealed an unanticipated consequence of the development of Multi-Channel Retailing: the resulting need for NAMs to be experts in all routes to consumer. 

This requirement, coupled with the need to place all initiatives within a continuous ‘time-framed’ strategy, can place an impossible burden on busy NAMs with barely manageable workloads.

But it can and should be done – the real issue is how?

Essentially, NAMs should see themselves as business consultants to the customer, providing a unique insight that answers the fundamental question in a buyer’s mind: How am I doing compared with the other guys? (They are looking for context)

A retailer/buyer is an in-depth but narrow expert in their own business, and a ‘permanent’ fire-fighting mode coupled with excessive buyer-churn can prevent them from taking a strategic view.

A NAM can provide solutions for these deficiencies in the buyer role, and transform relationships in the process.

As a business consultant that happens to carry a supplier’s bag, the NAM needs to be an expert in how the consumer can be helped to buy the category, however, whenever, and wherever they choose – a truly multi-channel approach to retailing…

However, it is not necessary to know as much as a dedicated expert in a particular channel.  The NAM is meant to be a broad but, of necessity, a relatively shallow expert in how their category functions and can be optimised in each of the different routes to consumer.

In other words, a NAM needs to know enough about a channel to be able to place their brand and its category in that channel in a way that meets consumer need and does not compromise other routes to consumer, especially that of the buyer in question. The NAM also needs to think short, medium and long-term in order to be able anticipate and respond to opportunities down the line..

It is for other people in the NAM’s business to take an overall view of the different roles of all channels for the brand, and label the channels invest, maintain or divest, as appropriate. It would obviously be unwise of a company not to involve the NAMs in these deliberations….

(I personally believe that being able to translate everything into cost and value, within an ROCE and commercial context, can then help place the trade initiatives within a strategic context and makes the NAM job manageable)

So, applying the NAM role in terms of broad, but shallow multi-channel category expertise, and combining this insight with the narrow, but in-depth expertise of the buyer can help the NAM to meet the increasing demands to create and sustain strategic rather than purely transactional relationships with retailers.

A small step on the way to fulfilling the new requirements of the NAM role identified by John…. 

Making a 'shelfie' pay, on your next OOS shopping trip

If we accept that a complaining customer is someone trying to give us a second chance, then why not help them over the final mile by using aisle-engagement to simplify shopper reporting of Out-Of-Stocks?

...and instead of an insincere apology, acknowledge their help via reward points, and better on-shelf availability...

US based Datacrowd* have launched an app that allows consumers to take a ‘shelfie’ of an empty facing and shelf price-tag, and email it to Datacrowd with the GPS location.

This entitles them to reward points that can be redeemed in-store, whilst Datacrowd passes the information to the supermarket, hopefully resulting in remedial action. 

Datacrowd have obviously taken the logical step of going directly to the retailer, but NAMs will appreciate that passing the information to appropriate suppliers would add considerable leverage to the process.

In other words, given that brand owners have both an interest in maintaining high levels of on-shelf availability, and ensuring that agreements with the buyer result in on-shelf execution, a shelfie becomes a very powerful enforcer of in-store compliance…. 

*Currently available in the US, but patently a no-brainer for the UK..

What if Aldi UK keeps going?

Given its UK 2013 sales of £5,275m and growing at 25%, Aldi could reach £16bn by 2018.
In a flat-line market, this would make it twice the size the Co-op Foods business and say 50% of a major multiple, given zero to very low growth of its competitors in the meantime.

Apart from a ‘handful’ of brands, this means that most of its business would be in surrogate brands, at the expense of national brands, effectively taking demand from the branded market.

This suggests that brand-suppliers have to find a way of dealing with Aldi, either via 1-off discontinuous promoting, or through supply of surrogate labels…

And with Lidl showing similar signs, they should be added to a new trade strategy

Perhaps yesterday’s news of changes at the top of Aldi UK - our biggest story of the day - provides NAMs with an excuse to help your company revisit corporate policy re the discounters?