Wednesday 30 September 2015

Where are the UK Mults headed in your portfolio?

With Mike Coupe reporting better than expected results (1.1% drop in Q2 sales, and profits 19.5% down on the previous year) for Sainsbury's, coupled with Morrisons 2.4% fall in like-for-like Q2 sales, Asda's 4.7% fall in Q1 underlying sales, and fingers crossed for next week's Tesco wheel-tightening, NAMs have to ask themselves where now for their four largest customers...

Having to struggle with a perfect storm of a fundamental shift in buying behaviour - smaller, cheaper, closer, more frequent - coupled with a war on waste, and cash-strapped consumers 'making do', the mults are barely holding their own, as they experience market share drift to the discounters, convenience and online...

However, it is the structural impact of increasingly redundant large space retailing that represents the main threat.

Given their inability to trade out of the problem, the mults will have to address the issue of increasingly excessive space by progressive sell-offs of redundant outlets, fast enough to reduce the capital base (improving ROCE) but slowly enough to avoid a collapse in market values..

Meanwhile, NAMs have to keep in mind that most discounter growth will come at the expense of brands, unless branded suppliers can find ways of optimising the discontinuous relationships required in dealing with Aldi and Lidl.

In addition, those that survive the Tesco product re-sets need to anticipate the inevitable knock-on removal of overlap in other retailers as they also attempt to simplify their offerings and shore up their balance sheets.

All of this means that all stakeholders need to go back to fundamentals, before someone does it on their behalf...

In practice this means stripping your offering down to the bare essentials that satisfy consumer need, make you better than available alternatives, and allow you to demonstrate a positive, but tailored contribution to each retail player, even the mults...

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