Easter 2015: Is nothing sacred?

                                                          Brighton Easter 2015    pic Brian Moore

...or, in flat-line markets, simply high-level headhunting, at the expense of the competition..?

There will always be someone who says they can do it cheaper...

    Thanks to Guillaume Quilliot via Jonathan Hughes

Tesco's Margin Objectives: Going from Back to Front to go Back to Basics

Given that Tesco plans to reduce the negotiating elements of Back Margin from 24 to just three, it may be useful for NAMs to work this through in terms of the financial impact on their Tesco relationship.

Essentially, it is probable that the total Tesco take from your brand will remain the same i.e. they are unlikely to surrender any income currently coming from Back Margin; a proportion of this will simply move into Front Margin.

In other words, say the current 20% of trade price represented by trade investment will translate into 15% of ex VAT shelf price, assuming a 25% retail margin.

Only issues are 
-   What will happen to shelf price if Tesco want to drive sales really hard via a 15% price cut?
-   Will scale discounts be large enough to satisfy Tesco (i.e. their January price-cut test appeared to be profit-neutral)?    

However, on balance, Tesco’s move on Back to Front Margin represents a quantum leap for suppliers in that their front margin will be a direct result of sales made and will be paid in arrears

BTW, it might be wise to hold a bit back in case a change of management at some stage concludes that your category’s in-store presence needs a little ‘livening-up’ via an additional injection of trade investment…  

Passing the Tesco Cull-test: Hints from the Dave Lewis Grocer interview

See the full in-depth interview here, a treasure-trove of insight

The cull-test: Opportunities for all suppliers to get it right, irrespective of size…

Criteria for de-listing:
- SKUs with a small amount of customer appeal i.e. not meeting a real need
- SKUs needing too much Tesco effort i.e. vs consumer benefit derived

What Tesco want:
- Unique Propositions i.e. a demonstrable difference, a major hurdle for realists
- Innovations that customers value i.e. a real step forward that makes a demonstrable difference
- A good economic equation i.e. an appropriate mix of back & front margin

In other words, a mix of product, price, presentation and place that satisfies the felt-need of the savvy consumer…
…..and not forgetting the margin…

Tesco to move to 14 day payment for smaller suppliers – a ‘temporary’ competitive edge?

In a specially extended interview The Grocer’s Adam Leyland talks to Dave Lewis about future moves. The real value of this type of uncut, indepth interview is that it can be a source of missing pieces of their particular Tesco jigsaw, for individual suppliers. In other words, well worth a read by any NAM trying to anticipate what to expect from their largest customer…

The 14-day move
One particular gem is Lewis’ promise to pay smaller suppliers (less than £100k sales) in 14 days, and to make payment days category-specific, presumably reflecting delivery-resale cycles, and related to size of supplier.

Apart from the obvious relief, such NAMs need to calculate the financial benefit (and cost to Tesco) of moving from Tesco’s average 37 days to 14 day payment.

Assumptions:
Annual sales to Tesco                            = £95m
Current payment period                          = 35 days
i.e. Tesco pays 365/37 times/annum       = 9.86 times/annum
:. Amount that Tesco owe, at any time    = £9.635m
Cost of money say 10%
i.e. financing free credit                          = £0.964m

New payment period                               = 14 days
i.e. Tesco pays 365/14 times/annum       = 26.07 times/annum
:. Amount that Tesco owe, at any time    = £3.64m
Cost of money say 10%
i.e. financing free credit                          = £0.364m
:. Saving for supplier                              = £600k
i.e. Percentage of sales 0.6/95.0   x 100  = 0.6%
In other words, a gain of £600k to the bottom line

Impact on other retailers?
However, the real issue is how other retailers will react to this master-stroke in PR by a Tesco going to the heart of the public’s growing concern that ‘abuse’ of small suppliers can lead to less choice on shelf…

In other words, Tesco stand to gain a distinct competitive edge by leading the market in fair-share payment, resulting in loss of share by those who fail to follow suit…          

The Heinz-Kraft 'tip of iceberg' warning for vulnerable companies

The key driver is changing eating habits and consumption behaviour in many countries, resulting in reduced sales and over-capacity, a trigger for more of the same, in all flat-lining categories... These consumption-changes combined with structural changes in how we shop, and austerity driving consumers to 'make do' have brought Warren Buffet and his new lesser-known Heinz-Kraft partner Jorge Lemann to the M&A centre-stage to provide growth and/or add value to ailing companies...

How the targeting-process works (types of targets)

• Identification of categories under threat from changing trends i.e. growing health awareness causing drops in consumption/switching
• Acquisition of competitor for increased revenue or market share
• Complementary coverage in terms of brands, categories, channels and geographies i.e. scale economies, negotiating muscle up and down supply-chain
• Potential synergies where Production, Finance, Marketing and Sales can be combined/replaced
• Short-cut into innovation and diversification

Finding target companies

• Search for categories where shares are 'cheap' i.e. low and falling ROCEs, that 'can be bettered'.....
• Falling sales when other categories are flat-lining
• Identification of companies that have lower net margins resulting from inefficiencies and/or cumbersome structures (from an outsiders point-of-view)

Objectives
The acquirer needs to correct 'faults' that defined the target, fast, to minimise dilution of the combined organisations and convince shareholders of the 'wisdom' of the move.

This means

• Increasing sales and cutting costs
• 'De-duplicating' Fixed Assets i.e. Land, Buildings, Plant and Equipment ('they don't need two of anything')
• Reduce stocks, debtors (credit to customers) and optimise cash
• Increase creditor-days i.e. take longer to pay
• 'De-duplicating' job-roles
• Anticipate demands of the regulators re competition legislation
• Selling off anything that 'does not fit'

In other words, drive ROCE upwards to match that of the acquiring company

Action for NAMs

• For NAMs in target and acquirer companies, check through the above (and see more here) to anticipate the inevitable moves...
• For NAMs in other companies in category, re-assess the new competitive landscape (See Buying Mix Analysis)
• For all other NAMs, find ways of driving ROCE (your personal contribution, your company's and the customers' ROCE) to ensure autonomy, and become too expensive to buy i.e. so that the above synergies are not worth the cost for potential acquirers

All else is detail

Tesco culling: anticipating the obvious?

As the Tesco management-cull continues in high profile, the 30% product-cull remains beneath the pre-September radar. In the meantime, NAMs have to speculate and focus on the ‘no-brainers’, or wait and see….

One obvious criterion, apart from cutting overlap and de-duplicating ranges/categories, has to be relative rate of sale. In other words, given that supermarketing (!) is an extreme version of the 80/20 rule, and a key issue for Tesco has to be what to do about the long tail of slow-selling SKUs...

One approach would be to agree an economic tail-length and simply cut off the rest – the ‘P&G approach’?  
This would obviously result in issues re space redundancies, franchising the freed-up space, or even outlet disposal.

An alternative way forward would be to acknowledge that the long tail exists in many categories because demand exists, albeit in low purchasing frequencies. The problem of viability arises because of the relatively high cost of bricks & mortar space, and the need for physical productivity.

However, in online retailing, selling space is limitless and is available at minimal cost...
Does this mean that Tesco will simply shift ‘long tail’ SKUs into their online offering, leaving ‘best sellers’ in-store?

In other words, realigning the business  to focus on core strengths of B&M retailing (simpler offer), and making online more productive (the Unilever approach?)

I wonder which way ex-Unilever Dave Lewis will choose?

The Kraft-Heinz Co. - the next steps?

This deal will see Heinz pick up a 51% stake in Kraft Foods, becoming a shot-caller in anybody’s language...

Draft Agenda as follows:

• Key driver is changing eating habits in many countries, resulting in reduced sales and over-capacity, a trigger for more of the same
• Obvious synergies in terms of geographical and category coverage globally
• Increased negotiating muscle ref. major global, local customers and bought-in goods and services...
• ...which will help when rationalising credit terms, margins and trade support
• Inevitable regulator-driven disposals arising from competition issues
• Leading to acquisition opportunities for other suppliers…

Next one, please?

Morrisons chief admits multiples' recession price rises 'mistake' - a need for a trust-reboot?

If it has taken 60 years for supermarkets to build trust in best prices since the fifties, and has now been – as Andy Higginson says – ‘wiped out in an instant’, the issues for retailers have to be:

- How long to rebuild that trust?
- What degree of price-cutting will be necessary to make a difference?

Rebuilding trust?
Given that pricing confusion – difficulties in making like-with-like comparisons -  is but one element of the consumer-retailer-supplier contract, those retailers that are really serious about rebuilding their credibility with shoppers will need to re-assess the entire ‘package’ in order to ensure that any gains via deep-cut prices are not diluted by disappointment on opening the tin…

In other words, household brands and even private label products that have been disguising price increases by reducing contents have to be regarded as parties to the ‘deception’ in that whilst they comply with the ‘letter’ of contents legislation, they are often in breach of the ‘spirit’ of consumer expectation…

Also, when it comes to actual ingredients, it hopefully goes without saying that any ‘short-changing’ of the shopper-consumer via inferior substitutes will add to a savvy consumer’s view that brand owners or retailers cannot be automatically relied upon as outsourcing-partners in making the decision to buy.

All of these areas have to be corrected to get to square one in rebuilding trust in major multiples…

Making a difference via price-cuts
Given the above entry-level changes on-shelf, the question is how big a price cut will make a difference?

Essentially, given the easy-availability of price-comparison facilities, on-shelf prices will have to at least match the discounters on an ongoing basis, with any (minimal) price premium being justified by advantages in the shopping experience. Any over-estimation arising from retailer-ego will soon be challenged via consumer walkaways...

How long?
Given that it took 60 years to build the trust…

Seriously, any retailer that succeeds in correcting the above trust-issues, has to experience growth at the expense not only of the discounters, but will also eat into the shares of other multiples...

It simply depends on how radical they want to be…

Amateur shopkeepers, breaking all the retail 'rules'?

pic: Brian Moore

Minimal shelving, some product samples and 10 floor staff.....
....and a world-beating £3,000 sales per sq ft per annum, 3 x Tesco performance, and no sign of being eclipsed, despite the built-in warning in their logo........

Simply creative - provocative, memorable, and above all 'uncopyable...'

http://adsoftheworld.com/media/print/carlsberg_dont_drink_and_drive  
Advertising Agency: BBR Saatchi & Saatchi, Israel

Hat-tip to Keith Hallam

Checkout scam for the 'discount' shopper?

pic: Brian Moore

Checkout operator tapes a barcode for a low-price item (say pack of screen-wipes @ £2.50) and scans it instead of the £30 Box-set in order to oblige a pal in the checkout queue.

Relating retail business rates to sales performance - the unintended pay-off?

Over at The Telegraph, Graham Ruddick develops some good reasons for how local councils’ discretionary expenditure of retail business rates could transform the high street in terms of positive use of the funds at local level.

However, basing rates on sales achievement could result in even more positive benefits for the High Street...  By relating the business-rate to a retailer’s sales, rather than an out-of-date value of the property, the retailer could focus on driving business rather than covering overheads.

Even more importantly, the council could actually play an active role in helping business succeed…

As a stakeholder, the focus of the council could change, giving councillors a reason to make pro-active moves to help create an environment that meets the needs of all parties in the High Street.

This could bring a whole new purpose to maintaining building fabric, level and quality of domestic and retail occupancy, access and parking facilities, cleansing and lighting, and even some accountability…

These moves would eventually result in higher retail property values, but the council having a pro-active stake in thriving businesses, combined with the power to spend locally at their discretion, could get everyone there faster… 

Does Cadbury chocolate taste different in different countries?

Can international taste-harmonisation help?

The BBC have published a detailed study of consumer reaction to perceived differences - 37,000 petition signatures to boycott Hershey's! - in the versions of CDM as made in the UK and by Hershey's under licence in the US.

The article goes into a degree of detail that will prove compulsive to those in the 'candy' sector, but the key issues raised in terms of consumer expectation that global brands should taste the same in every country may have implications for brands in other categories.

For instance, Nescafé UK blend might seem weak to hard-core Mediterranean coffee users... 

Now whilst traditionally, such variations in local versions of brands might have been 'kept where they belong' by harmonising prices and terms, in a well-travelled world where every little helps, it might be necessary to find a way of harmonising taste..

Accordingly may we propose the use of Taste-corridors..?

In the 'worst-case' scenario, the brand owner decides that one taste will fit all and pulls all global variations 'down' (?) to a common formula, in which case it had better be good...

In the 'Recommended Scenario' the extreme versions are gradually merged into a corridor that provides sufficient variation to satisfy some needs, saves face in the marketing department, and probably goes unnoticed by the bulk of users...

...until you try....

St Patrick's morning-after shop closure, a Reason vs an Excuse...

                                                                                              Galway, source Joe.ie

Hopefully, this valid reason for achieving a worthwhile life-work balance can provide an excuse for Mick to move to self-service...thus avoiding any perceived drop in service level!