Wednesday 12 November 2014

Sainsbury's results - welcome to the real world of UK retail

Today’s interims reveal no surprises, and together with the Tesco, Morrisons and Co-op revelations, and given the relative transparency of Asda’s results and dialogue with the stockmarket (via Walmart), it can be assumed that everything is now out in the open, with the major players acknowledging that 'The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more’.

True, the Tesco SFO investigation may eventually yield some additional output, but in the main this will be limited to more precise definitions of the elements of Commercial Income along with some amendments to accounting process and a switch to results-based reward that major retailers will ignore at their peril.

The UK version of capitalism is generally very forgiving, provided stakeholders can rely on the truth of what they are shown, and there is no reason to second-guess via the share price. Therefore a line will be drawn and all will move forward.

In other words both Coupe and Lewis are openly clearing the decks and making ready to do battle with the discounters and other retailers, on the premise that in a flat-line market, any growth comes at the expense of the competition… 

Share prices will inevitably follow…

From suppliers’ points of view, we are into a new era of transparency and demonstrable value-for-money, real-time.

Retailers are now into cost-cutting mode with aggressive sell-off of non-productive assets (and suppliers?) a key feature of the programme.

In future, everything will be measured, with a heavy emphasis on assessment in terms of demonstrable impact upon ROCE - the driver of share price.

This means that NAMs will need to re-calculate the cost of every element of the trade offering, especially Trade Investment, and will be expected to demonstrate the benefits of compliance via the impact on a retailer’s P&L and Balance Sheet.

In turn, given the challenges faced by the multiples, and their overt need for help, suppliers are in a once-only position to demand fair-share dealings in return.

For those that hesitate to grasp this unprecedented opportunity, this could well be the last trick they will miss…

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