Showing posts with label Sainsbury's. Show all posts
Showing posts with label Sainsbury's. Show all posts

Monday, 25 February 2019

Private Equity Giant KKR Mulling Bid For Asda

According to The Sunday Times, the US private equity giant, whose past investments include Alliance Boots, is working with former Asda boss Tony De Nunzio on a possible approach. He is now a senior adviser to KKR and the report suggested he would become Chairman of Asda in the event of an acquisition. [more for NamNews readers]
  • From a NAMs-eye-view, the issue is the probability of new private equity-based majority ownership of Asda…
  • …meaning sale & leaseback of outlets.
  • …P&L by outlet…
  • …all adding up to finance-based buying…
  • …quite apart from an Amazon wanting to buy an inexpensive Sainsbury’s via the petty-cash box…

Monday, 22 February 2016

Where next for Sainsbury's-Argos?

News of Steinhoff’s last minute counter-bid for Argos, from a company with a market capitalisation of €19bn vs. Sainsbury’s €6.2bn (£4.9bn), and taking into account Sainsbury’s top limit vs. Steinhoff’s opening bid, it is probable that Sainsbury’s will ask for, and receive, an extension of the bidding process to 18th March to consider their options.

However, given that they are at the limit of a cash & shares combination, it is unlikely that Sainsbury’s will enter, much less beat Steinhoff in a bidding war.

This means that Sainsbury’s NAMs need to factor in a period (until 18th March) of uncertainty and distraction. Barring accidents - some outside development by government or counter bidder - Steinhoff will be successful...

In practice the inevitability of a failure by Sainsbury's to diversify via Argos means either a re-focus on optimising the current operation ‘as is’ or a new search for further diversification opportunities. Making the best of the existing mix means growing at the expense of the other mults, sharpening its competitive edge, with the help of suppliers

NAMs need to drill down to the level of their Sainsbury’s categories in order to best position their offerings within the retailer’s competitive platform, whilst maintaining the harmony of their trading relationships with other mults.

Meanwhile, Argos NAMs need to prepare for a radically different approach to their major customer, under new ownership. This means, treating the 'new' Argos as a new customer, going back to basics and re-profiling the retailer within their customer portfolio....

Exploring how Steinhoff's other UK operations are managed might also help...



Wednesday, 6 January 2016

Argos - a Local-leap by Sainsbury's?

Yesterday’s surprise announcement of an initial rebuff by HRG not only places the Argos-Homebase combination firmly in the takeover frame, but also sets a minimum starting price of £1bn.

The advantages for Sainsbury’s in terms of adding to their non-food offering, making more use of big-space via a transfer of Argos Click & Collect, and re-acquiring a DIY operation they sold some years back, combined with successful initial trials of Argos shop-in-shop make this a must-have acquisition, but not at any price.

Incidentally, gaining access to Argos Click & Collect expertise hopefully does not rank high in terms of plus-points, given that this ‘mail-order’ company transitioned into ‘hard-copy’ click & collect as an extension of their original business rather than a high-tech entry into online…

It also goes without saying that Argos vs. Amazon is a no-contest battle, on any parameter…

In terms of upping-the-ante, with a market capitalisation of £5bn, a share price showing a 57% drop since 2008, and continuing pressure from the discounters, Sainsbury’s is not in a position to raise their bid significantly in the month that remains in which to make an improved offer.

However, having put HRG in the spotlight, other mults now have until 2nd February to assess the relative appeal of acquisition in terms of similar advantages to their businesses.

In practice, Tesco and Morrisons are currently distracted by more pressing issues, but Asda’s Walmart (Mkt Cap $196bn) would have little problem in covering ‘whatever it takes’ to add scale to their UK repertoire…

On balance, the next move depends on the extent to which Sainsbury’s faith in the future of Local convenience causes them to consider converting ‘as many as it takes’ of Argos 800 High Street outlets – moving more Argos ranges into larger Sainsbury’s outlets – into additional Local branches, and persuading their largest shareholder - Qatari - to make up the difference…

Wednesday, 6 May 2015

Sainsbury's space productivity, getting into the space behind the headlines

Whilst the headline numbers provide some indication of the unprecedented pressures on Sainsbury’s and the other mults, in “...a marketplace changing faster than at any time in the past 30 years…”, working NAMs can derive usable insight by digging deeper into the detailed results issued this morning. (Sainsbury’s Results: 52 wks end March 2015)

Having written its space down by £900m i.e. 7.5% of a £12bn portfolio, Sainsbury’s have focused City attention on sales productivity i.e. Sales and Profit per sq. ft. per annum

See page 15, JS Results:
2015 Sales/sq. ft./annum       = £1,027
Op Profit/sq. ft./per annum   = £32.6

In other words, for the coming year Sainsbury’s have to be very receptive to supplier initiatives that drive Sales and Profit productivity.

For NAMs, this means calculating the ex VAT consumer sales generated in Sainsbury's by your brand footprint per annum – think number of facings x on-shelf backup stock x number of stores x SKU footprint - will give you a figure at least twice Sainsbury’s £1k/pa.

OK, they still have to carry all of the in-store waste area – non sales space like aisles etc.) - but it will still be possible to demonstrate that your brand is a high net contributor to Sainsbury’s major KPI for 2015/16…

However, your real contribution is via your brand's ability to improve on Sainsbury’s operating profit/sq. ft./annum.
(Sales per sq. ft. will keep you listed, Profit per sq. ft. will keep you in the inner circle…)

As you can calculate from their latest figures (page 15), Sainsbury’s are currently generating operating profits of £32.6/sq. ft./annum, i.e. 9p/day!

Your brand’s footprint, with its retail margin of 25%, trade investment of 20%, and 30 days credit has to be generating a lot more than 9p/sq. ft./day for Sainsbury’s…
(Why not grab an envelope and try it out, using your figures? – for precision, take off 15% to cover handling and shrink)

Space productivity is one of the biggest issues for the mults this year, your brand can help…  

Application to Tesco?
Incidentally, applying the above to another mult that occasionally makes the headlines, why not dig a bit deeper into Tesco’s recent results?

Page 3 & page 40 Results:
2015 UK Sales/sq. ft./annum               = £1,030
UK Trading Profit/sq. ft./per annum   = £11.04  i.e. 3p/sq. ft./day!

BTW, given that you are on the Tesco page, why not find some gems for your overseas colleagues in Asia and EU markets?

2015 EU Sales/sq. ft./annum               = £254
EU Trading Profit/sq. ft./per annum   = £5  

2015 Asia Sales/sq. ft./annum             = £298
Asia Trading Profit/sq. ft./per annum  = £17  

Wednesday, 7 January 2015

Sainsbury's - Elephant-management in the main aisle...

With a less than expected fall in its third quarter, and confirmation of their convenience and quality credentials, there are many things right about Sainsbury’s.

Bearing in mind that the reported results reflect the whole of Sainsbury’s business, NAMs will have already compared their brands’ performance to check fair shares at category level.

However, in order to optimise opportunities, it is necessary for NAMs to go beyond Mike Coupe’s understated warning that "The outlook for the remainder of the financial year is set to remain challenging…” and explore possible issues and implications, ideally ahead of the competition.

Essentially, Sainsbury’s have to be considering the following:

Space redundancy
Like the other multiples, Sainsbury’s are probably occupying retail space that is 20% in excess of need, especially out-of-town. This means they will close and sell off some low-profit outlets. (See impact here )

However, this leaves some outlets that are too big for purpose in terms of the company’s current offering. These require re-engineering in terms of possibly franchising redundant space for complementary categories that might benefit from Sainsbury’s pulling power.

Meanwhile, there are instore theatre opportunities for suppliers in appropriate categories, providing that the resulting numbers exceed current-use performance…

Commercial Income
With Tesco re-negotiating its supplier contracts (see yesterday’s KamBlog below) it is likely that other multiples will have to follow suit.

This could mean that significant amounts of supplier trade investment will transfer into front margin, with a strong possibility (as you know, in current retail, only yesterday is certain!) that this will result in price-cuts sufficient to neutralise the discounters….

Whilst Sainsbury’s will probably edge upmarket to optimise their strengths at Waitrose end of the field, they will need to keep one foot firmly in mass retail and follow Tesco…

Meanwhile, the multiples and their suppliers need to re-assess their use of trade investment /commercial income as per the UK Financial Reporting Council (FRC) warning (see details).

Hopefully, proactive management of these two elephants will leave some time to deal with other distractions like food price deflation, flat-line demand and increasingly savvy consumers…

Monday, 11 August 2014

Short-sellers target Sainsbury's on Tesco fears

News in The Telegraph that short-sellers in the stock-market are betting that Sainsbury's share-price will fall as a result of Dave Lewis sacrificing Tesco margins to regain market share, offers a valuable insight-tool for NAMs wishing to anticipate additional pressures on the retail-buyer in the supplier-retailer relationship i.e. buyers are increasingly remunerated by share-options in their own company.

In short-selling Sainsbury's shares, the market believes that Tesco has more scope for cutting prices than Sainsbury's bottom line would allow.

As you know, short-selling is a process whereby stock-market traders bet that the share-price will fall by borrowing shares of a company, then selling  them 'short' at the current price. They then hope to buy them in the market at a lower price when it is time to fulfill the contract, thus making a profit on the deal...

The percentage of a company's shares 'on loan' in this way can be tracked (see Short Tracker) and the greater the percentage, the more shorting of the stock is going on, meaning that the market believes that the share-price will fall.

For instance, Short Tracker's details this morning on the top most-shorted retailers are as follows: (the % is the amount of a company's shares currently 'borrowed')
-  WH Smith        11.4%
-  HMV                 8.1%
-  Sainsbury's         8.0%
-  Ocado               5.6%
-  Morrisons          4.72%
-  Debenhams        3.13%

Another NAM tool to add to your repertoire!

Thanks to Richard for his persistence re this short-sell pointer.

NB. Should you be tempted to try some short-selling, it must be emphasised that the bet is on the price going down. If, for whatever reason (i.e. a sudden takeover bid) the share price rises, and the rise can be infinite, the short-seller is still legally liable for fulfillment of the contract, thereby losing the difference between the latest purchase price and the selling-price on the sell-contract.....!

NB. We wish to stress that we are in no way recommending dealing in shares, we are simply making observations re market activity in retail and other stocks in which our readers may be interested as part of the supplier-customer trading relationship.