Tesco's Christmas' Surprise - a Final Shocker for the Market?

Today’s profit warning, indicating that February’s year-end profits will come in at £1.4bn, 25% lower than analysts’ expectations, had better be the final shock from Tesco…

Whilst the City will be relieved that no further scandals were revealed, this below-expectation profit guidance has to mean that analysts are still not reading Dave Lewis well enough, and will hopefully result in an over-reaction in terms of the share price…

In other words, the stock market will probably mark the shares down more than is warranted, just-in-case…

There is hopefully an element of ‘kitchen-sinking’ in the 2014-15 results in that we have to assume that all write-offs have been factored in, which, coupled with investments in price, availability and other improvements in its customer offer, lead us to expect that all future announcements will be defensible, transparent but above all, conservative….

We are obviously seeing only the surface impact of the changes being undergone in Tesco, as Dave Lewis’ new team revisits plans and strategies, implementing a new commercial approach that will underpin stronger long-term relationships with its suppliers to ensure that revenue recognition is transparent and appropriate, all in the shadow of an SFO investigation….

What it means for NAMs
• All commercial income will be redefined, quantified and where possible, retrospective
• All forecasts will be conservative, and ideally tied to clear KPI measures
• …However, in order to avoid missing out on unexpected demand, Tesco will expect a rapid response to sales surges...

The future conversation will be about demonstrable cost & value, as a base requirement.

In return, suppliers should insist on 100% compliance, and fair-share dealings, shock-proofed…

More on 'Tesco- the end of the beginning for a great retailer' here

When the target misses the point...

Most of us remember the Dudley Moore free-range chicken TV campaigns....??

It was intended as a way of having Dud discover different continental foods available at Tesco, such as farmers' cheese, wine etc, with free range chickens as a back-drop...

Unfortunately, the demand for free range chickens soared, resulting in numbers that far exceeded what was available in France...

Apparently, this meant that Tesco had to source overseas, discovering that chickens in different continents were bred/evolved to different profiles (big breasts here, big thighs there, you know how it is...) resulting in some confusion at UK tables.

The campaign eventually ran out of steam also...

Hat-tip to Mike Anthony for the reminder of a truely memorable campaign

Premier Foods 'Invest or else' request from suppliers

According to the BBC, Premier Foods have allegedly been asking their suppliers for payments to continue doing business with the firm.

NAMs, long accustomed to fielding such ‘requests’ from major customers, might be forgiven for thinking that Premier Foods had diversified into retailing…

Essentially, when a company enters a supply arrangement with a customer, they obviously negotiate a working arrangement that should be summarised in a supply agreement – a legal completion of the agreement process where UK suppliers still lag behind their continental cousins.

However, commercially speaking, a contract is an instrument that ‘can’ rather than should be used, because in practice, resorting to the law is an end-of-relationship process rather than a  basis for a mutually productive partnership…

The agreement to supply needs to include the total package – all terms and conditions, binding both parties. This up-front agreement can contain some ‘gun-to-head’ elements in that the customer, exploiting their size, can make it a condition that they will pay in 90 days for a product delivered daily.

Strictly speaking, this condition can be in compliance with current ‘pay-on-time’ legislation, but ignores the fact that the 90 days can be unreasonable where the customer experiences the value of the product within days of receipt on a rapid rotation line, and credit period was always meant to simply cover the gap between delivery and resale of a product.

In other words, the customer observes the letter of the law, as worded, and ignores the real issue, the need for payment within an appropriate-for-purpose time frame – the law patently needs modifying to make this more explicit.

The same holds for a retro-demand for additional cash, for whatever purpose. However, if the request applies to future dealing, then that becomes a basis for negotiation, however unfair the balance of power…

When a customer steps outside an agreement and imposes a new condition retrospectively, the supplier has a genuine grievance, and a basis for action, if a comprehensive written contract exists. It may still be unrealistic to expect a small supplier to take on a big customer. In fact the little guy may even  'knuckle under', with wise customers keeping in mind the possibility of the ‘don’t get mad, get even’ condition being invoked….

The real issue is the damage being done to the customer’s reputation for fair dealing, both with other suppliers, the legislature and current employees, and especially with the general public - the ultimate consumers - in times where abuse by big business is becoming an increasingly sensitive topic….

Additional details in The Telegraph here
Update in The Independent here

The pop-up store that will allow you to pay with 'social currency' instead of cash

                                                                                                                                           pic: Velcro

According to The Daily Mail, the Velcro Brand Holiday Hackshop has declared Monday, December 15, its 'Social Currency Day,' when customers can pay for select items with 'retweets, posts and more' in which the brand is mentioned. The company is hoping to get more followers on social media sites by running a holiday pop-up shop in lower Manhattan where customers are encouraged to post about their experience.

Velcro missing a trick?
In the excitement of combining pop-up shopping with social media optimisation and despite illustrating 19 different uses of Velcro in POS, the company might have capitalised on the creative potential and reach of their new audience by building in incentives to think up additional ways of using the product and crowd-sourcing ideas via the network…

Other NAMs missing a trick?
Think beyond adhesion to the process operating here and its potential as a way of stretching scarce promotional monies for your brand.

Go even further and think amplification of message, in the way that some major retailers optimised their dismantling of Sunday trading legislation, all those years ago.

As a reminder of the method, say a branch in Neasden decided to open on a single Sunday in breach of the legislation, and were promptly brought to court and fined £10k. The resulting media coverage was invariably worth in excess of £250k, advertising their role as ‘champions of the people’…

The authorities eventually saw the wisdom of acknowledging real-world consumer need by allowing 24/7 trading… 

Landlines giving a final boost to mobile usage?

According to the BBC, the major landline providers are raising their line rental charges to approximately £17 per month, three times the rate of inflation.

Ofcom figures confirm that while the number of residential lines has risen, this has been more than offset by a fall in the number of business lines.  However, call usage on landlines has fallen by 12.7% in the year to June 2014….

Given the increase in mobile usage, the ultimate move to user convenience, this makes the idea of having to be anchored to the home ‘to receive and make calls’ seem Neanderthal…

It seems obvious that any increase in landline installations is surely arising from a need to bring wifi to the household, a position increasingly under threat from mobile operators willing to develop a pricing model that ‘wifies’ a home at something less than £17 per month.

In other words, in the way that the Post Office price-increases & and postal strikes boosted the growth of fax machines, so too are price increases drawing attention to the increasing redundancy of that old fashioned telecommunications technology on the hall table… 

What if a supplier was running Tesco UK - as Dave Lewis takes charge of helping the consumer to buy...

As NAMs we have all stayed in hotels, supped in restaurants and bars and concluded that a NAM in charge would make a real difference.

Ditto with retailing

Given that much of our effort in front of the buyer is devoted to fighting the consumer’s corner, then perhaps with Dave Lewis’ decision to work ‘hands-on’, a NAM dream has been realised and we are entering a new era with Tesco?

Think about it:

As a brand marketer, Lewis’ starting point has to be consumption, in the home. This means that Tesco will at last acknowledge that the process starts with ensuring that the consumer’s needs as a consumer are met, in that the contents of the box are fit for purpose and exceed expectation.

The next step is to ensure that the product is made available wherever, whenever and however the consumer-shopper chooses to buy -  a multi-channel approach, writ large…

When it comes to bricks & mortar, 100% on-shelf availability is a given, with no excuses.
It follows that category-based in-store presence via aisle-based shopper-marketing will be made conducive to optimising repeat purchase, with theater to match…

This means 100% zero-defect delivery, all based upon sales-based demand and fulfilment.

That only works if the brands are purchased within a realistic competitive-set, with private label having its fair share, instead of being an over-faced passenger  ...and never forgetting that the guy in charge knows more about supply than Tesco could only dream about….

And patently, given the stock-market impact of the Tesco crisis, the financials have to stack up…

In other words, the next three months are going to make or break Dave Lewis, so I don’t mind betting he will give it his best shot, in the only way he knows…

NAMs and other retailers might well profit by taking a leaf from his new book, and attempting to turn around their entire approach to helping consumer-shoppers to buy, again and again and again and again…

Tesco's poetic response to a rhyming complaint

According to an article in Metro, Isabelle Bousquette, 20, and Tomi Baikie, 18, students at St Andrews university, wrote to Tesco after discovering their Tesco store in Fife no longer stocked salted Popcorn Sensations. They used the 'only language' they knew - a Shakespearean sonnet.

They were astonished to receive a Shakespearean sonnet in reply.

                                                                                                           pic: Facebook

Key learnings for NAMs:

• If Tesco still have a sense of humour after this Annus Horribilis, they are on the way back...
• They may be expecting NAMs to rise to new heights of creative endeavour in their 2015 trade strategies
• For our part, as an aide memoire for NAMs, we are looking into adding some rhyming couplets to our treatment of trade finance...
• (Don't hold your breath, writing poetry ain't for sissies....)  

Christmas & Thanksgiving: a contrarian view...

                                                                 ...from a key stakeholder

Hat-tip to Mike Greene for pointer to pic

Multi-Channel Retailing - a business consulting role for NAMs?

John Nevens’ article in yesterday’s NamNews revealed an unanticipated consequence of the development of Multi-Channel Retailing: the resulting need for NAMs to be experts in all routes to consumer. 

This requirement, coupled with the need to place all initiatives within a continuous ‘time-framed’ strategy, can place an impossible burden on busy NAMs with barely manageable workloads.

But it can and should be done – the real issue is how?

Essentially, NAMs should see themselves as business consultants to the customer, providing a unique insight that answers the fundamental question in a buyer’s mind: How am I doing compared with the other guys? (They are looking for context)

A retailer/buyer is an in-depth but narrow expert in their own business, and a ‘permanent’ fire-fighting mode coupled with excessive buyer-churn can prevent them from taking a strategic view.

A NAM can provide solutions for these deficiencies in the buyer role, and transform relationships in the process.

As a business consultant that happens to carry a supplier’s bag, the NAM needs to be an expert in how the consumer can be helped to buy the category, however, whenever, and wherever they choose – a truly multi-channel approach to retailing…

However, it is not necessary to know as much as a dedicated expert in a particular channel.  The NAM is meant to be a broad but, of necessity, a relatively shallow expert in how their category functions and can be optimised in each of the different routes to consumer.

In other words, a NAM needs to know enough about a channel to be able to place their brand and its category in that channel in a way that meets consumer need and does not compromise other routes to consumer, especially that of the buyer in question. The NAM also needs to think short, medium and long-term in order to be able anticipate and respond to opportunities down the line..

It is for other people in the NAM’s business to take an overall view of the different roles of all channels for the brand, and label the channels invest, maintain or divest, as appropriate. It would obviously be unwise of a company not to involve the NAMs in these deliberations….

(I personally believe that being able to translate everything into cost and value, within an ROCE and commercial context, can then help place the trade initiatives within a strategic context and makes the NAM job manageable)

So, applying the NAM role in terms of broad, but shallow multi-channel category expertise, and combining this insight with the narrow, but in-depth expertise of the buyer can help the NAM to meet the increasing demands to create and sustain strategic rather than purely transactional relationships with retailers.

A small step on the way to fulfilling the new requirements of the NAM role identified by John…. 

Making a 'shelfie' pay, on your next OOS shopping trip

If we accept that a complaining customer is someone trying to give us a second chance, then why not help them over the final mile by using aisle-engagement to simplify shopper reporting of Out-Of-Stocks?

...and instead of an insincere apology, acknowledge their help via reward points, and better on-shelf availability...

US based Datacrowd* have launched an app that allows consumers to take a ‘shelfie’ of an empty facing and shelf price-tag, and email it to Datacrowd with the GPS location.

This entitles them to reward points that can be redeemed in-store, whilst Datacrowd passes the information to the supermarket, hopefully resulting in remedial action. 

Datacrowd have obviously taken the logical step of going directly to the retailer, but NAMs will appreciate that passing the information to appropriate suppliers would add considerable leverage to the process.

In other words, given that brand owners have both an interest in maintaining high levels of on-shelf availability, and ensuring that agreements with the buyer result in on-shelf execution, a shelfie becomes a very powerful enforcer of in-store compliance…. 

*Currently available in the US, but patently a no-brainer for the UK..

What if Aldi UK keeps going?

Given its UK 2013 sales of £5,275m and growing at 25%, Aldi could reach £16bn by 2018.
In a flat-line market, this would make it twice the size the Co-op Foods business and say 50% of a major multiple, given zero to very low growth of its competitors in the meantime.

Apart from a ‘handful’ of brands, this means that most of its business would be in surrogate brands, at the expense of national brands, effectively taking demand from the branded market.

This suggests that brand-suppliers have to find a way of dealing with Aldi, either via 1-off discontinuous promoting, or through supply of surrogate labels…

And with Lidl showing similar signs, they should be added to a new trade strategy

Perhaps yesterday’s news of changes at the top of Aldi UK - our biggest story of the day - provides NAMs with an excuse to help your company revisit corporate policy re the discounters?

Royal Mail: the real threat of Amazon going it alone on parcel delivery

News in The Guardian that Royal Mail shares slumped by 8.4% on Wednesday after the newly privatised postal service warned that its profits would be hit by Amazon launching its own delivery service should have been a no-brainer....

Royal Mail said its parcel growth rate would decline from 4%-5% to 1%-2% for at least two years because of Amazon’s decision.

Amazon launched its first same-day delivery service in the UK last month. The new service, called Pass my Parcel, promises to deliver parcels on the same day ordered to hundreds of newsagents across the country.

However, anyone taking a cursory glance at Amazon’s history will realise that Royal Mail, by focusing on the fact that Amazon are simply taking over delivery of their own traffic, are missing the real agenda…

Those with long memories will recall how a series of postal strikes helped the growth of fax-machines... And once the public had become accustomed to the use of alternative written communication, the transition to emails became so inevitable...

Like home-location ‘tie’ of land-line was made redundant by mobile technology, so too the increasing complexity of sending parcels via traditional carriers will become a driver for the growth of a simpler model...

With so much practice, it is surprising that Royal Mail still sees the introduction of Amazon’s own parcel delivery service in terms of the loss of one of its major customers and the 6% hit to Royal Mail’s parcel volume sales.

Anyone who has tried to run the pricing/volume challenge of parcel despatch at the local post office and fared equally badly using alternative providers (see BBC for details of the 16-page Royal Mail guidelines) will realise that the increasing complexity has to present an open goal for Amazon to introduce the parcel-delivery equivalent of 1-click ordering and no-quibble returns when they decide to enter the market for domestic and corporate deliveries…

Apart from making some savings, Amazon have to be taking on their own-delivery to learn the process...

This has to be the ultimate agenda, and NAMs might usefully factor this inevitability of this threat to ALL parcel delivery into their online strategies… 

Store closures of 20% en route to store-level assortment, and more?

The emerging sense that UK multiples are sitting on redundant space representing around 20% of their estates means that large store disposals will have to begin, in order to convince the City that the capital base is being brought in line with current market demand.  This in turn will impact how suppliers manage their major customers, in terms of reward for risk and investment.

Moving to store-level profitability
Obviously, the multiples will reassess their estates via store-by-store re-evaluation to identify which of the larger outlets fail to produce an acceptable level of profit, ideally using ROCE, the driver of share price.

A starting point would be to highlight every store that is delivering less that the corporate average ROCE, and since the corporate ROCE is in fact an average of good and bad, eliminating the under-performers would automatically raise the corporate ROCE.

Selling off redundant space
Next step would be to attempt to sell the redundant stores.  This will not be an easy task, given the rationale re viability of alternative use in our recent blog.

In extreme cases, this means lowering the price (thereby possibly challenging the book-value of the remaining stores in the estate) to a point where a sale is possible.  Any such write-down below book-value then causes a hit on the P&L, thereby resulting in a reduction in profits.

More importantly, the simultaneous issue of ‘for sale’ notices by the multiples could depress all UK store values.

In fact, given most retailers’ gut-response to slowing sales, we might be on the verge of the first price war in retail property history, possibly opening the door to BOGOFs, multi-buys and even loyalty-points!

Moving to store-level autonomy
Seriously, this new focus on store profit margin and ROCE has to lead to the treatment of each outlet as an individual market.  Specifically, a 70,000 sq. ft. store, with say 400 staff and an annual sales turnover of £100m, means that the store’s CEO is in fact in charge of a medium-sized UK business, and is likely to demand equivalent autonomies at operational level, complete with Balance Sheet and P&L.  In practice, this means having the freedom to decide on an assortment that matches local need, rather than the blunt tailoring dictated by a head office 200 miles away.

What it means for suppliers
From a supplier point of view, this development spells the end of ‘national coverage and distribution’ and instead sees the introduction of ‘patchwork presence’ that matches real need for the brand at local level.  This will in turn calls into doubt the cost-effectiveness of ‘national’ and even regional advertising compared with the 1:1 pinpointing of social marketing…

Impact on how we market brands
In terms of brands, our repeat-sale ‘relationship’ with the consumer becomes a series of SKU-by-SKU sales, available to buy wherever, whenever, however the savvy consumer chooses, with no channel off limits.  In practice, this means regarding each successful 'sale' as a springboard to the next, with every tin they open containing more than they expect - not 25% empty to help disguise a price increase that fools no one - least of all a savvy consumer, already trained by the banks and politicians to trust no one, and helped by the most sophisticated price-comparison kits ever available, costing a fraction of the saving on the first purchase.

In effect, the consumer is giving us all a second and possibly final chance to get it right...

...and all because of a creeping realisation that the UK is over-shopped and currently unfit for purpose. 

Supermarkets facing big store closure - Why the big deal?

Mark Price's predictions of big store closures in The Sunday Telegraph should be no surprise to NAMs that know their ROCEs.

Essentially, retailer share prices are driven by the rewards they generate for risk. In other words, if a retail (or any other) business fails to generate an adequate pre-tax Net Profit on the Capital Employed in the business, then the ROCE will fall, and with it, the share price.

This means that in the case of large space outlets, say 100,000+ sq. ft., it is vital that sales/sq. ft. of at least £1,000 p.a. are generated, otherwise that outlet will dilute the group's performance.

As NamNews readers will know, the structural changes taking place in retail, such as consumers buying less and shopping more often means that the cost of driving out-of-town becomes an increasingly expensive issue, and not just for cash-strapped shoppers. Moreover, given the economic uncertainties, and the increasing ease of buying online, shoppers have become increasingly attracted to discounters and convenience stores, closer to home.

As you know, retail is meant to be flexible, capable of responding to any change in consumer demand. 

Unfortunately, UK retailers made the mistake of building and holding large space retail units, where scale economies helped them to generate high net margins, as long as sales remained high. With the benefit of 20/20 hindsight, holding rather than selling and leasing back the store meant that it was put in the Balance Sheet as a capital item, part of the Capital Employed. This meant that high net margins were required in order to produce an adequate ROCE of 15% or more.

With falling sales in large outlets, resulting in the same overheads eating into the margin, the retailer is faced with the dilemma of finding alternative uses for some of the space - such as restaurants, entertainment, and leisure - the only proviso being that these alternative options generate at least £1,000+ per sq. ft. p/a.

Alternatively, suppliers can help by organising in-store theatre initiatives that drive sales to such an extent that the overall store's selling intensity is greater than £1,000 per sq.ft./annum.

Otherwise, the store closes, or is hopefully sold off to other businesses that can exceed the sales-to-space parameters of viable usage, in order that the remainder of the estate, with a smaller footprint, can generate a level of ROCE that the City rewards via share price increases.

Failing that, the retailer slowly goes out of business..., whilst suppliers become stronger...

Unfortunately, and fortunately, it is as simple as that.  

When an unexpected listing may benefit from a Drone defibrillator...

                                                                                                                              pic: EPA

Whilst many NAMs may be focused on Amazon’s latest trial of same-day drone drop-offs in Cambridge, a more useful application might be where speed of reaction can mean a difference between life and a death. Alec Momont at The Netherlands’ Delft University of Technology has unveiled an ambulance drone that can fly up to 100 km/hr to deliver a defibrillator to a patient in mere minutes…

The ambulance drone is a hexacopter painted in yellow. It can be dispatched to a location within 12 sq. km in about a minute. Upon landing, anyone able to help the victim will be talked through using the attached defibrillator by an operator. The drone has an on-board camera which allows the operator to talk to the victim and provide instructions to whomever is on the ground – essentially serving as a remote paramedic...

Given the $19k price-tag, and the stretched budgets of the emergency services, perhaps there is scope for some collaborative efforts by suppliers living within 12 sq. km of Cheshunt?

See a video that shows what the ambulance drone does - and how the project came to fruition - here

Hat-tip to Francisco and Rui for the pointer