Friday 24 October 2014

Tesco aftermath: The options for other mults' NAMs?

Given yesterday’s surprises, and bearing in mind the degree of fall-out, despite the fact that precise causes still await the revelations of the FCA investigation, it is important that other mults’ NAMs anticipate the obvious and take action now.

Because of Tesco’s Commercial Income issue, compounded by structural changes in the market and how people shop, we are now embarking on an era of retailing simplicity as per the French formula: fewer complex promotions and big price cuts across the board.

For consumers this means lower prices, clearer promotions, demonstrable value for money, with the same transparency for auditors and the authorities, stripping out all non-essentials to reduce complexity and costs...

Back to the future of Commercial Income
This is a situation that 'just growed and growed', where the introduction of a 5% 'discretionary' trade fund gradually morphed into a trade investment budget in excess of 20% of a supplier's sales...yet retains many elements of a 'nodding through' process unsuited to the new post-Tesco climate of 'accountability'...

This all changed as of yesterday

This long-overdue investigation of Commercial Income practices will not stop at Tesco…

From an auditing point-of-view, from now on, think post-audit recovery, on steroids...
In other words, auditors and management of all major retailers will have to move to more focused assessment of all trade investment, examining actual transactions rather than accounting process, in order to satisfy any retrospective re-auditing and possibly legal assessment arising from the FCA examination.

For NAMs, acting now will help optimise new opportunities arising in the market

  • Tighten up Commercial Income practices in anticipation of more aggressive auditing in anticipation of fall-out from the Tesco issue. In practice this means revisiting your definitions and conditions ref Commercial Income and ensure their alignment with the customer and their accounting practices
  • Avail of the opportunity to establish clearer and more transparent KPIs for all trade investment
  • Push for a move to payment in arrears, based upon results achieved
  • Above all, insist on fair share dealings in negotiated agreements - your customer needs you now, like never before...
Seems opportunistic on the part of suppliers?
Much of Tesco's issues are due to a massive imbalance of supplier-retailer power that has been allowed to build up over the years. The trade now needs and is ready for a seismic shift back to a situation where trading partners understand their roles, relative risk-levels, challenge one another and are ready to accept a reward-split that reflects relative levels of investment in the consumer-brand relationship.

In other words, think savvy consumer buying from savvy retailer, buying from savvy supplier, all based on 'fair is fair'.....

Do you really think that any auditing firm will be able to resist this golden opportunity to increase its fee income in the current climate?
A lot of extra work? 
Then think about the work involved if left unchecked until your customer drifts to the top of the radar screen....

NB. Tips for Tesco NAMs: Here 

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