Waitrose 'pick your own discount' scheme - a further move from Back to Front margin?

Waitrose has introduced a new personalisation initiative instore and online called ‘pick your own offers’ to keep up with the competitive grocery market.

myWaitrose loyalty card holders will be encouraged  to select 10 products that they would like to save 20% on, from 1,000 own-label and branded goods (staple items and more luxurious treats).
Whilst Waitrose unique initiative democratises the discount-choice, the issue for suppliers has to be the removal of control from a classic back-margin driven bucket, to a 1,000 product pool of Waitrose choice, and ultimately the discretion of the shopper…

Not what was intended in supplier strategies, but perhaps the ultimate in meeting shopper needs?

...and if successful in terms of traffic driving, a pointer for other retailers?

BTW, if you feel more secure with traditional back margin utilisation, it may be worth checking your category promo-profitability rating in Nielsen's latest interactive Win-Lose survey of promo-breakeven results

Supermarket re-sets, an overdue cull of the obvious? A Guest-KamBlog from Wayne Robinson

First we had Kingsmill as a big brand casualty. Followed quickly by Rachel's Organic. Topped off by news that Cott have just been displaced in Tesco.

The range culling could take up to 18 months according to Jason Tarry at the IGD Tesco trade briefing.

That's 18 months of pain, and 18 month's watching the merry-go-round of brands and tertiary players being displaced in one retailer and (hopefully) winning in another retailer. It will be interesting to see how the brand distribution landscape looks at the end of the process. This industry "re-setting", whilst fascinating to observe, will undoubtedly have a far reaching and lasting impact, and not necessarily for the better for some manufacturers.

Certainly sme's at the other end of the manufacturing scale must be feeling very exposed. Research from Begbies Traynor highlighted over 1,400 food manufacturers were in "distress" - a rise of 94% yoy. The likely causes being the fall-out from the price war centered around the LAD's. Who knows what those numbers will look like once the full effects of the impending range changes kick-in.

So how do manufacturers respond to this next wave of turmoil and capitalise on the inevitable opportunities that it will throw up?

Could I suggest three ways?

1. Lurch into analysis mode...deep diving in to category data...ranking ros...etc. Am sure that it will help, but it feels a bit late for doing that...if you have a duff product with low ros then it shouldn't be on the shelf in the first place, and you have to accept that your days are numbered. (Dave Lewis stated at the IGD trade briefing that 20% of sku's in an Extra store were only selling 1 pack per store per week. Gulp.) Let's face it do we really think that Kingsmill, Rachel's and Cott didn't put the data in front of Tesco? It's not only the market/consumer data that will be swaying decisions about products on the shelves; there will be a financial element to this too.

2. Use your research and insight to bring products to market that are focused on consumers needs and have a true usp that add value to the category...otherwise known as innovation. Pret recently claimed in their annual results that innovation was a major contributing factor to their record results. We are so in need of some new news on the supermarket shelves to inspire us back in to shopping and move us all away from the price point paranoia that is taking the entire industry down a one-way street. Great article here highlighting that consumers are still searching for those exciting products...but struggling to find them, other than in specialists shops. Go figure.

3. Channel diversification. No manufacturer should be overly reliant on any one customer. There needs to be an acceptance that business with specific customers will ebb and flow; if you have a wide enough customer base then your overall sales will continue to grow and expand. There are plenty of growth opportunities outside of the grocery channel. Develop a plan, prioritise, and go forth and broaden your customer base!

With 30% of the range coming out of Tesco there is going to be some unpleasant fall-out. And whilst the remaining range will benefit from more space and perhaps more distribution, in the larger store format especially, there will still be plenty of opportunities and space for exciting and relevant new product development - Jason Tarry has made it clear that Tesco still want to have a market leading choice of products...and with Tesco claiming a renewed focus back on the Tesco brand, then this might be the saviour for many manufacturers looking to plug sales gaps.


Wayne Robinson - wayne@wayne-robinson.uk

The 8 Variables making every retailer a Big 4 competitor, and every consumer ‘the Boss’

Time was when the ‘available alternatives’ in retail competition were the remaining Big 3 for any of the four major players in UK retail, and every other retailer worried about the Big 4….

Now it could be said that the consumer enjoys 100% access to any way they choose to buy, whenever they want…

This means that all retailers compete with one another, in a zero-sum game - total available demand - with international online generating worrying amounts of leakage at the edges….

In practice the variables - the bases for comparison – include:

Products & Assortment: ‘I need access to any size, shape or variant - someone will provide…’ 

Pricing: ‘I want to have this for whatever, whenever, however I choose to pay…’

Promotional activities: ‘I may need help in making my choice, but I believe nothing’

Place i.e. store location: ‘I need to be able to reach out and buy one, ideally via the nearest button…’

Personnel: the ‘people interface’ becoming a liability?

Physical distribution & handling: ‘I don’t want or need to know…’

Presentation of stores & products: ‘If I choose to visit, it had better be my version of good'

Productivity: ‘ If you cannot make money in competition with my 100% access, that’s your problem..’

Retailers no longer have any real choice, and it hurts..

This new ‘retail’ reality also raises a fundamental issue for brand suppliers: we cannot be everything, everywhere, what are the cut-off points within our current business model?

As brand suppliers, we have the advantage of a little warning re this fundamental change in consumer democratisation - the arrival of Sam Walton’s ‘consumer is boss’ realisation - via the retail turmoil occurring further down the supply chain..

Best we anticipate the changes required, before the consumer makes them on our behalf…

Missing the obvious in urban evolution?

                                                                                                                         pic via BBC
Cycle lanes for protection from cars...
Pedestrian streets for protection from cars...
and now, texting lanes for protection from cars...
Begging the obvious question: Why not ban cars?

Complex times in retail need grown-up answers - ROCE can help...

Back-margin funding of deeper price-cut by the Big 4?

The Telegraph today highlights a new report from Moody’s that says Tesco, Sainsbury's and Morrisons 'can't afford more price cuts', with sales and profits set to fall for another 12 to 18 months…

In other words, there has been some retrieval of customers, but the cost has resulted in margins being reduced by half since fiscal 2013/4....

However, this assumes that supplier trade investment has been used for the purpose intended i.e. in-store motivation of the shopper.

What if the retailer decides to switch a significant amount of back margin into price-cutting?

In practice this could work out as follows: Say suppliers contribute trade investment amounting to 20% of their turnover, to a retailer on 25% retail margin. This translates into 15% of net shelf price.

If the retailer decides to allocate say 5% for ‘back margin’ purposes, this frees up 10% of net sales that could be used for a combination of further price cuts and supplementing the bottom line….

This raises a number of issues for suppliers:

• Would you even know it had happened? i.e. Have you got updated T&Cs in place for each Back Margin bucket, along with appropriate KPIs?
• How ready are you to re-evaluate each element of your trade investment, confident in your ability to quantify the cost, and demonstrate the value to the buyer, using the retailer’s latest financials…?

These unprecedented times still have a bit to run, can you afford to sit it out?

Tesco South Korea Sale - an urgent deep-cut to UK resurgence?

                                                                                                    pic: South Korean flag with definitions

With six potential bidders apparently in the frame, it is possible that Tesco could raise £3.9bn from the sale of South Korea Homeplus. Whilst any retreat from a retail market makes a return difficult, recent market indicators reveal that retail sales have been slowing, possibly because South Korea now has nearly one hypermarket per 100,000 people, twice the industry ideal of one per 200,000.

The real issue is the extent to which Tesco is prepared to redefine core as UK, Grocery, Physical and Online.

This means they could cut back everything – all overseas operations, non-grocery categories and any stores that fail to deliver acceptable profit – to rebuild their Balance Sheet around a 25% market share, ROCE 15%,and 5% Net Margins.

A 25% market share would mean they could operate below the radar - farmers, special interest groups, politicians etc. – generate acceptable rewards for risk, create a stable, dominant base in the UK and gradually go global again…

Just-in-time?
As the Motley Fool says: … if a successful disrupting alternative (like discounters) in a market gains traction its growth can pyramid exponentially…

In other words, Tesco’s unhelpful little discounter issue could become unbeatable tomorrow…

When the buyer wants the smart-shirt off your back - a variation on Back-to-Front margin?

Step-improvements in supplier-retailer relationships notwithstanding, and despite high level assurances of progress from pre-financial crisis days i.e. suppliers are now 'our best friends', NAMs may be puzzled to find that on occasions, some buyers may still want the shirt off your back, literally....

However, rather than being a variation on Back-to-Front margin, this may simply be a reaction to the launch of the Ralph Lauren Smart Shirt;

Sensors attached to silver threads inside the shirt pick up the wearer’s movement data as well as heart and breathing rates, which can be monitored on an accompanying smart phone app and, potentially, uploaded to the cloud for analysis, via the shirt's removable slightly-larger-than-credit-card-sized Bluetooth transmitter.

We all know that a wealth of data is generated in the average buying meeting – not just in what is said, but who says it and the manner and tone of voice in which they say it. The smart shirt therefore represents an obvious leap forward for a buyer wanting to compensate for possible shortfalls in body language interpretation skills, and wishing to gain a competitive advantage before GSCOP adds an appendix...

NAMtip:
NAMs wishing to remain leading-edge can anticipate and circumvent this latest buying tactic by purchasing two smart shirts, wearing one in an extremely relaxed, non-pressured social situation and covertly swapping the card transmitter during handover of the 'selling-shirt'...  

HT to Tim Manasseh for pointer to article

Boots new single 2-way trip travel insurance for 115-year-olds, ideal for Ryanair travellers that need a name-change?

According to The Guardian, Boots has raised the upper age limit on its single-trip travel insurance policies to 115 years, effectively insuring anyone regardless of age, but only on a single-trip basis..

Meanwhile, the Independent reports that a passenger changed his name by deed poll because it was cheaper than Ryanair's penalty for altering a booking that got his name wrong...

I am sure both companies have factored in the possibility of a very senior citizen making an outward journey in his new name to a little-known out-of-town Ryanair airport, enjoying an unforgettable but distracting holiday before checking in under his old name for the return journey, stopping half way to the departure-gate for a mental re-boot, and then not being able to remember whether he was coming or going?

...and not forgetting the confusion at airport security....

The £1 Cafe - Austerity biting, or meeting a market need?

                                                                                                                         pic: The Guardian

According to The Guardian, Fitzrovia’s new Caffix cafe is drawing in Londoners looking for an affordable lunch option by charging just £1 for all items.

From avocado and chicken baguettes to pots of curried chickpeas, quinoa salad or pesto pasta with roast beef, all cooked on site, Caffix cafe on Newman Street sells food for a fraction of the price that they would normally spend in the heart of capital.

Simple scalable idea, almost as impossible as setting up a Pound Shop in sophisticated UK retail...

Thinking of which, a possible service extension for Poundland?

For the Maturing NAM - all your daily medication in one pack!

                                                                                                       Source: PillPack Inc. via Bloomberg

According to Bloomberg, PillPack Inc have raised $50m to build a better online drugstore with a simple idea: dividing up customers’ pills by the time and date they should be taken.

Following its launch of the ‘daily’ service in February 2014, PillPack (see video here) has delivered over 1m packs by focusing on routine prescriptions and OTC products.

An obvious plus for an ageing population on an increasingly complex mix of medication, reaching new levels in convenience, and inevitable lock-in for satisfied users.

The issue for suppliers might be possible loss of the pack-to-patient connection

The only question is whether Walgreens-Boots and CVS can organise to replicate the service, cheaper…

Coming to a hall-door near you - Amazon on-box advertising!

                                                                                                                          pic: www.geekwire.com

Story here

Apple Stores $4,500/sq ft/annum, strategically designed for optimum productivity

Over 15 years Apple have evolved a layout that beats all other retailers, key details at Business Insider, here

Regrettably, in case you feel inclined to pass some of these insights to your favourite buyer, let it be known that Apple are so fond of their layout, last year they succeeded in trademarking their store layout across Europe...

As a result, the ruling will apply not only in Germany, but will prevent others across Europe from replicating the interior of Apple Stores, with their distinctive symmetrical wooden benches on which electronics are laid out within a large, white space.

Fortunately no other retailer looks like this, which begs a question...

Mike Ashley planning to launch chain of cut-price high street stores – a step away or ahead of Food Discounting?

According to the Mail On Sunday, the Sports Direct billionaire has launched a new discount store MEGA VALUE, in Kidderminster, Worcestershire. Similar to B&M and Wilko, it will stock products once found in Woolworths.

The issue for those acquainted with the Sports Direct model has to be the roll-out effect on the Big 4, but also the speed with which the new venture will climb aboard and accelerate the pace of Aldi & Lidl's impact on the UK grocery market.

Apart from some tough negotiations ahead, suppliers might take some consolation from Ashley’s belief in brands, as they decide whether to ignore or collaborate with the new kid on the block.

Either way, a store visit to Kidderminster might not go amiss…?

Back to Front Margin - Then What?