Tuesday, 28 June 2022

A Brief encounter in Dublin:

Friday 28-6-1963 Cycling home from work Smithfield Motors on her birthday, my wife Nora was prevented from crossing the Liffey to allow an open Limo with an attractive American to drive slowly past... His beaming smile + birthday wink converted Nora into a JFK fan to this day...

#Dublin #JFK #Nora

Aldi Heading For ‘Big Four’ As Morrisons And Asda Lose Ground

Given proof that that Asda and Morrisons are losing market share as the cost of living crisis worsens, analysts have again raised questions over the impact of private equity ownership on the two chains.

Kantar data for 12 weeks to 12 June showed that take-home grocery sales at Asda and Morrisons had fallen 4.8% and 7.2%, respectively.

As a result, both lost market share as Tesco and the discounters made gains.

Morrisons’ 10.1% share fell to 9.6% YOY, while Aldi is 9%, up from 8.2%. If this trend continues, Aldi will soon take its position in the Big 4.
Richard Hyman on This is Money website said it was now a question of “when, not if” Morrisons falls behind Aldi.

Meanwhile, Shore Capital retail analyst Clive Black said: “It’s not fanciful to suggest that by 2023 Aldi will be the fourth-biggest grocer in the UK.”

The differing fortunes of leading grocers will fuel fears private equity firms are not good stewards as consumers are squeezed by surging inflation.

Asda and Morrisons have been accused of raising prices faster than rivals, and experts say the heavy debt piles picked up during their takeovers give them less flexibility to absorb increasing costs.

Hargreaves Lansdown analyst Susannah Streeter said: “The discount grocers are snatching more customers from Morrisons and Asda, which seem to be falling behind in the competition to cut prices since being bought out.

“They went on a price offensive in April, but as they face an ever-tighter squeeze with costs mounting as they carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts.”

Black also blamed the new ownership of Morrisons and Asda for the decline in sales and market share. He said: “They are profit maximisers and are clinical cash flow people. Whether they are getting the sums right between sales and margins, time will tell.”

The deals saw Morrisons saddled with £5.6bn of debt, while Asda’s buyout was funded with £4bn of debt.

Hyman blamed the exodus of senior leadership since the Issa brothers and TDR Capital takeover.
Hyman said Morrisons underperformance was “a bit more worrying”.

Earlier this month, CD&R’s £7bn takeover of Morrisons cleared its final regulatory hurdle, 8 months after completion. Potts said they could now work with its new owner on the path ahead, with it focused on helping its customers through the difficult economic times.

NamNews Implications:
* Given the consumer pain coming through the pipeline…
* …Aldi as No.4 is a running certainty.
* Asda & Morrisons “carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts”
* …begging the question: are you giving your major customers the attention deserving of their new ranking?
* …and acknowledging their differences in business model?
See: Tailoring Major Customer Management by Business Model (Vive la Difference?) https://www.blogger.com/blog/post/edit/3996218699030196297/8286938987751380613
#MarketShares #AldiRank

Sunday, 19 June 2022

Superdrug Benefitting From ‘Home Salon’ Trend

Superdrug has revealed that sales of at-home beauty devices and products have rocketed over the last year as consumers continue with habits picked up during the pandemic.

The health & beauty retailer highlighted that it had seen a surge in demand for hair removal devices, including a 103% rise in sales of Superdrug’s Studio Brow Razors (vs 2021), which following the latest dermaplaning ‘peach fuzz’ TikTok craze is now their best-selling items across its own brand make up accessories range.

Sales of the B. Brow Groomer are also up by 163% and Superdrug’s Male Grooming range has seen dramatic increases, with sales of their Men’s Nose Hair Trimmer increasing by 87% in the last year.

Superdrug has also seen an upsurge in the hair category, with at-home salon hair tools up by 38% (vs 2019) and hair rollers up by 81% (vs 2021).

Nailcare is also an area where Superdrug has seen strong growth, with sales up by 77% (vs 2021) as people turn to DIY nails. In particular, artificial nails have seen a 236% increase in sales, and
Superdrug now claims to be the number one supplier in the market.

The retailer noted that many consumers began their at-home beauty journeys throughout the pandemic, with manicures at home, following online hair tutorials, or how-to-wax guides. Superdrug pointed to research showing that 34% of shoppers replaced professional beauty and grooming treatments with DIY alternatives, and more than half of these (21%) intend to continue doing so. With the top two reasons being to save time and money, which comes as no surprise with the recent increased cost of living crisis.

Jamie Archer, Own Brand Director at Superdrug, said: “From looking at recent sales and how we have seen consumer shopping habits change in recent years, the home salon trend is here to stay. It’s been great to see these categories taking off and that the momentum is staying as shoppers look to experiment with beauty and try new treatments and looks.

“With the growth of TikTok our customers are able to trial a range of different trends from their homes, making beauty treatments even more accessible. We predict that we will continue to see growth in areas such as hair removal and DIY nails throughout the summer as the cost of living crisis continues, and we will continue to offer consumers a little bit of everyday luxury at cost-effective prices.”

NamNews Implications:
  • Like ‘working from home’…
  • …a genie has escaped the bottle in the case of home-grooming.
  • And Superdrug are perfectly positioned to optimise the Home Salon trend.
  • Especially as consumers begin to brag about the benefits…
  • …and demonstrate them in their appearance.
#PermanentShoppingChanges #HomeGrooming

Tuesday, 14 June 2022

The Untouched Cup of Coffee

How often do we finish a good meal out, with a cup of coffee we know is bad.

Not bad enough to complain or miss a tip. Just enough not to risk a repeat visit...

Leaving the waiter with an untouched cup, wondering why…?
#LastImpression #Hospitality #RepeatVisit

Saturday, 11 June 2022

Tailoring Major Customer Management by Business Model (Vive la Difference?)…

Given that the Morrisons takeover has now been approved and Boots endgame is fast approaching, it is perhaps time to acknowledge the different business models at play when managing UK major customers...

UK retailers now comprise two PLCs, two in Private Equity ownership, one Partnership, a Co-operative, and a strong probability that Boots will end up in PE hands, it seems logical that we should acknowledge that these fundamentally different business models should each be handled differently…

Given that they have different approaches to what success looks like, it seems natural that understanding their key drivers in the new norm and adjusting our approach to meeting those needs may help us gain a competitive advantage over our rivals that simply offer a ‘same size fits all’ option.

Their different business models cause retailers to have different business needs, to hear and assess our offerings from different perspectives, to have differing opinions re fair share, but more importantly, they are driven to behave differently based on the extent to which they perceive their needs are being met. Based upon the extent of these differences, making them an offer-in-common patently misses a trick in normal times. Making the same mistake in times unprecedented could be unrecoverable…

Clearly, differentiating these business models can help. Essentially there are five traditional retail business models operating in the UK (DTC and pureplay online are also present but will best be dealt with in a future NamNews article). These business models are PLC, Private Equity, Co-operative, Partnership and Private Company:

Public Limited Company (PLC)

Have shares traded on the stock market i.e. Tesco and Sainsbury’s. They are driven by Price to Earnings ratio (P/E), Share Price, in turn driven by Return On Capital Employed. ROCE is a multiple of Net Profit BT/Sales and Sales/Capital Employed i.e. Stockturn. They are also very focused on minimising Corporation Tax (For a detailed treatment of ROCE, see Finance in major customer management In other words, as you know, a PLC can be a low margin, fast rotation business or a high margin, slow rotation business. All that matters is the combination of margin and speed of rotation in producing an acceptable ROCE.

In selling to a PLC, it is worth keeping in mind that they are interested in what you do to improve their P&L i.e. Increase their sales, and reduce operational costs – in fact, reduce their business costs (including credit period) to improve their NPBT. They rely on small, frequent and accurate deliveries. They are obviously interested in your direct trade investment and increasingly interested in your use of retail media. In fact, retail media’s precision, impact and productivity at the point of purchase can make your retail media spend act in both your interests (See Alexander Knapman’s Retail Media summary on page 3). The PLC retailer obviously regards your brand as a means of attracting your consumer to the aisle to be confronted by their better-priced own-label equivalent. However, they also see your need to optimise your use of their retail media.

A PLC retailer operates entirely differently to a PE-retailer…

Private Equity Owned Retailer: i.e. Morrisons, Asda, Boots.

They are driven by Earnings Before Interest, Depreciation and Amortisation i.e. EBITDA. Think typical P&L starting with sales, then come the direct expenses (i.e. costs of generating sales, manufacturing/buying goods followed by sales and administration expenses. Then comes the EBITDA line, below which are Interest, Tax, Depreciation and Amortisation. Anything below the EBITDA line does not affect the valuation of the business, providing sufficient cash is generated to meet interest payments.

PE owners are less driven by net profit before tax because the nature of the business model means that the high cost of borrowing to buy the company results in little or no corporation tax being paid in the typically 5 to 7 years of PE ownership. Moreover, the retail management team are usually heavily incentivised to ensure a 100% focus on the EBITDA driver. A UK PE-retailer is typically valued at 10x EBITDA in the open market (other industries/sectors have different multiples of EBITDA). In other words, a PE retailer wants you to help reduce operational costs and simplify their processes whilst driving sales. Like PLCs, they can see brands as a means of drawing shoppers into the aisle to

be confronted by a better own-label offer. Following takeover, they will inevitably take steps such as selling off as many shops as possible, and leasing back those that are or can be made more profitable.

Hopefully, it can be seen that a PE-retailer is run very differently [See The-implications-of-private-equity-takeover-of-a-mult ]from a PLC retailer, but both see business through a strictly financial lens…

Co-operative Retailing:

As you know, Co-operatives arose in response to a fundamental need in the community. The core values that underpin the co-operative model – self-help, democracy, equality, equity and solidarity – guide the way decisions are reached. Ideally, this means that the Co-op will buy to serve the needs of their members and the interests of their community will be factored into their business decisions. Moreover, their one-member, one-vote rule means that the interests of the largest shareholders do not trump the rest. This group emphasis has caused them to appear less efficient than ‘normal’ retailers in the past, but they have evolved a sustainable model that generates sufficient profit to survive and grow in the current climate. Their emphasis on bottom-line impact tends to be less overt, and cash is used more as a measure of productivity than an end in itself.

The Co-op is thereby radically different to a PLC and a PE retailer and needs to be treated accordingly, if only to spread your business risk over the various routes to consumer…

Partnership Retailing: i.e. Waitrose

The John Lewis Partnership is a 100-year-old model and began as an experiment to find a better way of doing business by including staff in decision making on how the business would be run. The principles for how the company should operate were set out, along with a written constitution to help Partners understand their rights and responsibilities as co-owners.

The founders wanted to create a way of doing business that was both commercial, allowing it to move quickly and stay ahead in a highly-competitive industry, and democratic, giving every Partner a voice in the business they co-own. Their profit-sharing scheme can help partners focus on goals in common but given that profit-share is a significant part of their remuneration package, then issues can arise at times of low profitability when partner share is reduced.

Moreover, in a rapidly changing retail environment, the mix of retail format i.e. combination of department store and food retailing can cause difficulties in shifting gear. Suppliers have to sell to Waitrose in ways that acknowledge the influence of department store thinking and can accommodate the inefficiencies of combined distribution in terms of out-of-stocks.

Suppliers have to factor the high level of shopfloor partner involvement and their sense of ownership into business strategies, whilst allowing for potential dilution of morale when profits are not deliverable, factors that are not often present in PLC and PE-retailer relationships…

Privately Owned Limited Company: i.e. Aldi

Think Morrisons in Ken Morrisons’ day before going public i.e. little or no borrowing, a focus on minimising tax, simplicity of execution and limited frills, and a straightforward, no-nonsense offering representing good value for money…

In essence, Aldi simply fitted into the model that Morrisons could have become. The key advantages of the private company model include being able to act without having to have the approval of outside shareholders. That said, survival in the current climate means being able to generate an acceptable ROCE, capital rotation and a net profit before tax. Big ideas cannot be financed if internal funds are insufficient, thus limiting expansion. Negotiations, usually with owners of the business can be tough, and are usually finance-based and often need to deliver demonstrable value for money. Thus it can be seen that privately-owned retailers are different to Partnerships, Co-ops, PE-retailers, and PLCs…

It is important, and in the current climate vital, that suppliers treat all these models differently, using an approach that acknowledges these differences in business needs, objectives, and what good looks like, in order to ensure that what they hear from your proposals resonates with their financial aspirations and delivers accordingly.

All else is detail…

Wednesday, 8 June 2022

Swedish Online Supermarket Launches In The UK Offering Savings On Brands Of Up To 60%

Motatos, an online grocer that offers shoppers discounted prices on surplus inventory from wholesalers and distributors, launched in the UK this week.

The business was founded in Sweden in 2014, but now operates stores in Denmark, Finland, and Germany, and has proved popular with cash-strapped consumers.

Motatos sells food that would otherwise have been thrown away due to modifications in packaging, seasonal changes, or short best before dates. It focuses on ambient goods such as soft drinks, snacks, household goods, pet food and personal care products.

It sells lines from leading brands such as Cadbury, Kellogg’s, Heinz, Typhoo, Walkers, Ariel, and Dove, with claims of savings of up to 60% against the “normal retail price”.

Motatos founder Karl Andersson said: “We’re really excited to be launching in the UK at this stage in our development. There’s so much opportunity here for consumers to be able to help reduce waste whilst also reducing their weekly spend, meaning they don’t have to choose between price and being environmentally conscious.”

Christabel Biella, Motatos UK country manager, added: “The cost of living crisis is affecting all sectors, and UK shoppers are looking for ways to cut down their monthly spend without compromising on all the brands that they love.

“With prices surging, Motatos is hoping to make a real difference to consumers by offering savvy savings, allowing them to be sustainability-minded and reduce waste. It’s a win-win.”
The site has a minimum order value of £20. Deliveries are free for orders over £40, with a £2.99 charge for those below that level.

NamNews Implications:
  • The right offering, right timing, right brands, right target audience…
  • Pressing the right buttons: Waste-reduction, environment-protection, Sustainability, savvy savings...
  • Watch this one go…
#WasteReduction #Sustainability #Saving

Tesco Requesting ‘Back Margin’ Payments As Part Of Price Negotiations

Tesco has reportedly been using cost price inflation (CPI) negotiations with suppliers to make requests for fixed fees to support promotions.

According to trade magazine The Grocer, the development marks the return of the so-called ‘back margin’ practice that had largely disappeared under Tesco’s previous CEO Dave Lewis, who had moved the business towards front margin and an EDLP model.

The change comes as supermarkets face CPI requests from suppliers looking to offset surging commodity and energy costs.

A source is quoted by The Grocer as saying: “Before Dave Lewis came in, Tesco had an extraordinary number of ways of charging suppliers. But that completely changed and has been minimal ever since.

“However, they’ve obviously got a tsunami of suppliers coming to them looking to increase prices and so they have brought back margin into discussions.

“It’s actually quite a clever thing to do because, with the desperation of suppliers to get CPI through, many are going to accept this.”

It is believed that Tesco is offering a sliding scale of charges on promotions, such as positioning on gondola ends or in-aisle shelf markers.

Ged Futter, founder of consultancy The Retail Mind, told The Grocer that Tesco’s move was “legitimate” but urged suppliers to stand firm in negotiations and not allow a retailer to couple CPI negotiations with requests for fees for promotions.

Meanwhile, Tesco stated that it currently only operates five forms of back margin, compared with 24 in 2015. Its Chief Product Officer Ashwin Prasad is quoted by The Grocer as saying: “We’re working with our supplier partners to navigate the pressures of inflation and deliver the best possible value for our customers.”

NamNews Implications:
  • A reminder:
    • Front Margin: the margin that you get from the party to whom you sell the product, i.e. sell side.
    • Back Margin: the margin that you get from the party from whom you purchase the product i.e. Buy side
  • A reminder:
    • Avoid this return to the ‘old days’.
    • It is the precedent that counts…
    • …and should be counted.
  • i.e. ‘Eyes wide open’ even with trade partners…
#BackMargin #FrontMargin #TradeInvestment #TradeFunding

Major Oil Producer Eyeing MFG Forecourts

Motor Fuel Group (MFG), the forecourt giant that was put up for sale by its private equity owner earlier this year, has reportedly attracted interest from one of the world’s biggest oil producers.

According to Sky News, the Abu Dhabi National Oil Company (ADNOC) is lining up bankers to work on a potential offer for MFG, which has a price tag of around £5bn.

City sources are quoted as saying that ADNOC had yet to make a firm decision about whether to bid ahead of an initial deadline this week. However, they said it was preparing to hire JP Morgan to advise it on its interest in the UK company.

ADNOC, which is among the 20 biggest oil companies in the world, would be a significant player in a bidding war for a company that has rapidly grown its estate and profitability under the ownership of Clayton, Dubilier & Rice (CD&R), which acquired Morrisons last year.

MFG is currently embracing the transition to cleaner energy and has committed to spending £50m this year on installing hundreds of electric vehicle charging points across its roughly-900 sites.

If ADNOC does bid for MFG, it is expected to face a fight with Fortress Investment Group and Macquarie, the Australian financial services behemoth which recently bought Roadchef, the motorway services operator, for about £1bn.

However, Sky News noted that it was not certain a sale will go ahead given the difficult financing markets. Sources stated that CD&R will only proceed with a sale if it can secure an attractive valuation.

NamNews Implications:
  • From a NAM’s eye view, MFG are heading for a period of uncertainty.
  • Which will end upon receipt of an ‘attractive valuation’ (£5bn).
  • Then a 6 month ‘Settling-in period’ following the sale.
  •  Meaning a probable shift to short term strategies/Initiatives by suppliers…
#FuelDistribution #FuelOwnership