Asda Launches ‘Express Delivery’ Service

This offers home delivery within an hour. However, unlike some other providers, the UK’s third-largest supermarket is making its full online product range available for rapid delivery.

NamNews Implications:

• If Asda customers are prepared to pay delivery fees (£8 plus) for Asda’s service…
• …this becomes a pointer for other mults.
• Suppliers need to ensure their supply chain responses are up to these standards.
• And add Fancy, Getir, Weezy, Gorillas and Jiffy to their strategies...

#QuickCommerce #AggregatorsPurePlaysRetailers

Grocery Market To Slow Sharply In Short Term; Online, Discount And Convenience To Remain Fastest-Growing Channels

In its annual retail food and grocery channel forecasts, IGD predicts that the unprecedented 8.5% growth seen in 2020 will slow to 1.7% in 2021 and then to 0.9% in 2022, as shoppers economise and the eating out industry reclaims sales. However, this sharp decline is expected to be followed by a period of modest recovery that will see the market grow by 8.1% to £229.1bn over the next five years. 

#PredictionsByChannel #GroceryChannelShares #5YearPredictions

Asda To Adopt Hybrid Working Model

The 4,000 staff who work at Asda House in Leeds and George House in Leicester will be able to choose where they work, including home, in the office, or even at a store or depot.

NamNews Implications:

• A pointer for all suppliers and retailers.
• 4,000 Head Office staff will be able to choose where they work, including home, in the office…
• …or even at a store or depot.
• Radical and permanent.
• Welcome to the new normal…
• Just one of today's 17 NamNews bulletin-items

#NewNormal #WorkingFromHome

Optimising the risk and uncertainty of 2021

 

Most people are heading towards a 10-day break that will be anything but traditional. After a traumatic, challenging year many would have used this as a period of reflection and mental adjustment to the year ahead.

However, this coming post-lockdown year will be different.

A nine month restraint on trade has severely fractured the UK economy, causing untold damage, sometimes terminal, to sectors like traditional non-food retail, hospitality, and travel both commute and tourist, via rail, air and sea. The resulting decimation of demand means there is a need for fundamental resets of business models, a subject of separate NamNews coverage in the New Year.

All of this with an overhang of Brexit uncertainty to further complicate the mix.

Companies will struggle to cope with this toxic mix to varying degrees, all reflecting their risk profile and that of their people. In other words, they will act in ways determined by the extent to which they are risk-seeking, risk-neutral or risk-averse…

They will attempt to apply a mix of fire-fighting to survive, trying to be certain about a medium-term that is anything but, and at the same time needing to apply some type of long term strategy.

All of this without being able to derive much benefit from analysis of unprecedented historical performance.

In terms of how 2021 will affect you and your business, think uncertainty, short supply, inadequate resources of time, money and people. This uncertainty will encourage risk aversion in companies playing it safe whilst awaiting a return to ‘normal’...

But the fact that so many businesses will react in this way means there are opportunities available for those that are risk-seeking, willing to take a calculated chance based on inadequate data, making sufficient sense of the uncertainty that they can take meaningful action.. Even companies and management that are risk neutral, willing to take some risk, can avail of some of the opportunities that an uncertain 2021 will provide, in a world of super-savvy consumers unwilling to accept anything but demonstrable value for money.

In other words, for those that are willing to emerge from under the duvet in the New Year, opportunities abound…

However, whilst it might seem reasonable to allow a ‘settling down’ period before making robust plans to cope, pragmatists know that even in normal times, business does not permit such luxuries.

Despite the unprecedented nature of what is still happening globally, regionally and locally, we have to make sufficient sense of the turmoil to survive and even grow a little in 2021. In attempting to so do, we can rely on the fact that many will ‘wait and see’, thereby providing proactive competitors with opportunities to optimise rivals’ ‘inertia’ in 2021…

In effect, we have to try to make the abnormal normal, and attempt to optimise the chaos via a lens of pragmatic realism… In fact, if our business world in 2021 seems in any way ordered, we are probably not looking at it properly.

Essentially, we believe it is imperative that the ‘pandemic’ be regarded simply as a catalyst and that the real damage to businesses and the economy has been caused by universal lockdown. This is a fundamental requirement for anyone wishing to take meaningful and productive action in 2021.

We then have to reduce our offering of Product, Price, Presentation and Place to its very basics, a ‘package’ that is equal to or slightly better than alternatives available, delivering to our consumer literally in any way the choose to buy, and resulting in sufficient satisfaction that they will willingly come back for more... (and perhaps even ‘tell a friend’)…

In effect, we have reached a position so fundamental that we need to go back to basics, as if entering a market for the first time, with a partial advantage of some basic knowledge of the category.

So, as we move into the final reflective-time mode of a final ‘traditional’ Christmas break, instead of trying to forget it all, we have an opportunity to spend a little time trying to reduce our business idea to its fundamentals, meeting consumer need by delivering more than it says on the tin, every time.

But above all, keeping in mind that in 2021 those that can manage risk will survive and can even thrive…

ROCE - the ultimate KPI Helping Sainsbury's grow their ROCE

NAMs needing to understand real profitability (their own or that of the customer) have to be able to calculate Return On Capital Employed. i.e. (see above diagram) putting a company's sales below and above the line, shows that ROCE is a combination of Profit on Sales, times Sales divided by Capital Employed. In other words, Margin x Capital turn.

You are either in a small margin, rapid rotation business (chilled produce) or a large margin, slower rotation business (Cosmetics).

You improve business profitability by improving the margin or speeding up rotation...

Taking Sainsbury's latest 2019 Annual Report, we have NamCalced their ROCE 1.97%, pre-tax Net Margin 0.82% and Stockturn 15.03 times, as follows (in millions):

Help Sainsbury's improve their ROCE (and thereby drive their share price) by a combination of improving their net margin, and improving their capital rotation, as follows:

Three of the calculators for NAMs in NamCalc!

Delay of a price increase - Cost & Value?

(Holding back a trade price increase for Asda, the cost and value for supplier and retailer)

You need a price increase to cover rising costs but have agreed with Asda to maintain current prices for 1.5 months following the new price introduction.

What is the cost to you and the value to Asda in terms of incremental sales?

Assumptions:

Annual sales to Asda = £660k
Your Gross Margin = 43.6%
Costs rise = 8%

You have agreed an 8% price increase to restore your % Gross Margin

You have negotiated a 1.5 month delay in implementing the price increase for Asda.

What is the cost to you and the value to Asda of the delay?

NamCalc Tool 13 below, demonstrates that an 8% price rise is required to restore your % Gross Margin.

It also shows that the 1.5 month delay costs you £3,720, and you would need incremental sales of £8,525 to recover your lost gross margin.

For Asda, with a pre-tax Net Margin of 2.1%, the £3,720 is equivalent to incremental sales of £177,142, a point worth making in negotiation…?

Click to enlarge

Just one of the 33 calculator-tools available in NamCalc

Settlement Discounts: How much to pay for earlier payment in unprecedented times...?

Given the current casualty rate in retail, getting your money in faster can help.

The issue then becomes: How much to pay the customer i.e. what discount off invoice will make earlier payment attractive to the retailer?

The following screen-pull from NamCalc illustrates the calculation for a 15-day reduction in payment period. 

[The exercise proves that a 0.5% discount is equivalent to a return of 12% on the money for the retailer. We also add in the incremental sales required by supplier and retailer to recover the settlement discount amount]

Just one of the 33 calculator-tools for NAMs available in NamCalc

When a customer goes bust...

Given these unprecedented times, some customers will not succeed...

Supplier NAMs that can anticipate the inevitable, can avoid the fall-out..

One way of increasing your team's sensitivity to the signals is to calculate the cost of profit recovery following liquidation. i.e. the extra sales you need to recover lost profit.

Suppose a customer goes bust owing you £240k, and your Net Profit Before Tax is 3.4%, then via NamCalc below, you will need incremental sales of £7,058,823 to recover your lost profit!

Or would prefer to await a call from the liquidator?

Use of GMROII to demonstrate your value to Tesco

Gross Margin Return On Inventory Investment is probably one of the most valuable, yet underutilised tools in the NAM kit-bag today.

It follows that those that take the (small amount) of time to practice its use, automatically gain a competitive advantage over the competition, invaluable in these unprecedented times.

Essentially, GMROII is valuable because it links your product's Gross Margin for the Retailer, with the retailer’s stockturn of your product, instead of simply focusing on the Gross Margin.

For example, suppose the retailer sells £750k of your product per annum, enjoys a Gross Margin of 35%, and holds an average of 7 days stock of the product.

NamCalc (below) shows that the retailer is making a GMROII of 2,807% on the product. (any queries re the calculation, please let me know on bmoore@namnews.com).

Suppose the retailer is Tesco

Tesco’s latest Sales are £56.9bn, its internal Gross Margin is approx 21%, and it holds an average of 22 days stock i.e. £2.6bn in stock at any time.

Tesco’s GMROII on its total business is therefore 460%

[£56.9 x 0.21/2.6 x 100 = 460%]

Therefore your product’s GMROII of 2,807% is a significant contributor to Tesco’s business.

See details on the NamCalc screen-pull below. Each of the 33 calculator tools also has editorial detail explaining key uses/interpretations of the tool.

More details here

Radical change of business model: Kellogg’s Launches Brand-based Meal Delivery Service Via Deliveroo

Kellogg’s Kitchen Creations is a delivery-only meal service that has launched in East London offering vegetarian and vegan dishes.

Rather than selling bowls of its Rice Krispies or Cornflakes, the firm has hired chefs to create a menu of meals and snacks incorporating some of Kellogg’s popular cereals and cereal bars. [more]

• A two way route to Kellogg’s brands:
• - indirect via the delivered meals
• - a DIY incentive for recipients…
• …and not a whiff of cannibalisation.
• The fundamental issue is a branded food supplier is optimising its brands by incorporating them as ingredients in prepared healthy meals 'hand delivered' to consumers' homes.
• An entirely new relationship with their consumers that could transform Kellogg's business model and perception of the company and its brands.
• A incremental no brainer, one to watch...