Fancy a half-empty, half-full beer?

                      Pic: Simon Lambert and Sons, a pub in Wexford

A Brand New Challenge?

                                                                                                      Pic: Brilliant Ads

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…

Amazon Pantry could help itself to Ocado's lunch, but the combination impacts us all

                                                                                 Source: Wired via Business Insider

An article in Business Insider, acknowledges that the introduction of Amazon Pantry, already impacting Ocado shares, down 35% since June 2015, is hurting Ocado, but reports that Goldman Sachs has an interesting theory about how this might actually be good for Ocado.

Essentially, apart from putting Ocado into the takeover frame, Amazon Pantry will add to pressure on the mults, pointing them at possibly leasing Ocado's online platform and delivery infrastructure, and, as per Paul Clarke's presentation above, online grocery delivery is more complicated than general merchandise.

However, the real issue is that the combination of Amazon and Ocado expertise is raising the online bar to such an extent that other retailers may not even bother...

NB Making a difference to your online approach in 2016:  If you want a real insight into the unprecedented standards being set by Ocado in developing an online multi-product delivery-pipeline into your home, see CEO Paul Clarke's 16min +10min Q&A presentation to the Wired Retail conference above

Sir Ken Morrison's £6.6m Stake In Sainsbury’s, 'just looking'?

Sir Ken Morrison, the former Chairman and life president of Morrisons, has built up a £6.6m stake in Sainsbury’s.

According to The Times, Sir Ken owns 2.6m shares in the rival supermarket whilst his son William owns 2.1m, giving them a combined stake worth of £11.9m. Filings reveal that Sir Ken purchased his stake around April last year when as his frustrations with the management team of Morrisons was reaching its peak. He memorably criticised the then Chief Executive Dalton Philips, saying his turnaround strategy was "bulls***"....more

Coles' onshelf Price-rise buck-pass

                                                                                                             pic: The Sydney Morning Herald

In a move reported in The Sydney Morning Herald, allegedly aimed at pressuring a supplier to reverse price rises, Coles in Australia has put signs on its shelves, saying popular infant formula maker Bellamy's threatened to pull its product if the grocer didn't accept its price rises.

Fortunately, demand for Bellamy's is too big to delist - part of the unprecedented Chinese demand for infant formula - but the real risk for suppliers and retailers is that one-sided revelations of a price negotiation could result in exposure of full concession exchange - think trade investment, pricing support, and all the other product-support mechanisms that would look outrageous in the tabloid press...

A pointer for other retailers, in other places?   

Earthquake-bed, for extreme earth-movement over Christmas...

                                                                                                                                  pic: The Telegraph
Key is not to be halfway in/out when activated...

Back to the Future via Hovering Lucozade Thief

Sky News report (here) the theft of a case of Lucozade from a Mitcham Co-op by a man on a hoverboard. When you check the security video, the shock is not that it can be done, but the fact that it happened in slow-motion, proving that really original instore theatre can over-ride blatant theft, the first time…

Negative Interest Rates: Bankers vs. Mattresses - but what does it mean for NAMs?

                                                       Burglar Guide pic: The Daily Mail 

According to The Economist via CFO, in June of last year the European Central Bank reduced its benchmark interest rate, at which it lends to commercial banks, to 0.15% and its deposit rate, which it pays to banks on their reserves, to -0.1%.

As you know, in practice this negative interest rate means the ECB has been charging banks for holding their excess deposits in order to encourage more lending, in theory...

From a consumer point of view, it is likely that banks will be tempted to follow Alternative Bank Schweiz plan to charge consumers to hold their deposits via negative interest rates from January 2016.

This is where consumer savviness comes in...
Apart from putting their money under a mattress, depositors might choose to safeguard their savings by making advance payments to the taxman and then claiming them back, or withdraw their money as bankers' drafts and liquidate them when required...

The article adds that any form of pre-paid card, such as urban-transport passes, gift vouchers, or mobile phone SIMs could also double up as zero-yielding assets.

If interest rates became deeply negative, it would turn business conventions upside down. Companies would seek to make payments quickly and receive them slowly. Their inventories would grow fatter.

In other words, like deflation, negative interest rates are not an easy concept to work into the NAM's day-job, but we can be sure that the savvy consumer will be way ahead of us...

In fact, since since some savvy consumers are also well-networked burglars, you might usefully chalk the 'nothing worth stealing' option outside your house to disguise the fact that  you have personally taken the 'under-mattress' option...

Sainsbury's ahead of the flatline and redundant-space curve?

Far from being ‘doom & gloom’, Mike Coupe has made a realistic call on the market by describing current demand as flatline and remaining so for the foreseeable trading future. In the same way he pointed out the emerging ‘20%' redundancy of large space retail, way ahead of other retailers.

So, when he says that multiples retail prices need to fall to a 5% to 10% differential to halt discounter drift, it would be unwise not to listen…

In other words, time for a ‘what if’ on your brand's Multiple presence, if he is even half right? 

Anti-LEGO Slippers, Knee-pads en route?

                                                                                                                               pic: Brilliant Ads

Savvy Consuming 2015?

The Offline Limit to Online Growth hits Debenham's share price

Yesterday's news of Goldman Sachs warning that Debenhams online shoppers are cannibalising in-store sales was the first overt sign that the market is acknowledging the profit-diluting effect of online growth in B&M business. The resulting 7% plunge in share price indicates the impact of online profit dilution for investors in B&M retail.

Essentially, given that it is one of the only real growth areas in retail, major retailers cannot afford not to optimise the full online potential of their brand. However, compared with the relative simplicity of serving a customer instore, meeting a consumer’s online needs means additional fulfilment costs including picking, packing, shipping and handling returns.

Online grocery is even more complex in that a typical online shopping basket contains more low value and bulky items, reducing the number of orders per van and thus dilutes van productivity. In addition, consumers are generally unwilling to pay for delivery.

As a result, given that a home delivery costs £20, and that the consumer is unwilling to pay more than £5 per order, the retailer loses £15 per drop, only partly recovered via the margin on the goods delivered. Incidentally, those retailers hoping to improve online profitability by shifting their emphasis onto more lucrative categories (i.e. bigger margin non-foods), then pick up the additional profit-dilutor of online returns, where shoppers send back goods at four times the rate of returns made to Bricks & Mortar stores…

Given that B&M retailing can be more profitable than online, it follows that, as a retailer grows their online business faster than their B&M sales, the overall profitability of their business will be diluted.

Click & Collect is not the full answer
Meanwhile, Click & Collect is not a compete solution, in that, having the shopper shoulder the burden of the last mile by collecting from the store, this still leaves the retailer to cover the cost of picking, packing, order admin, payment and returns. Compare this with the relative simplicity of a store visit by a regular shopper....

However, Click & Collect can have the added benefit of possible additional sales resulting from the ‘collect’ visit. This is probably one of the reasons that Tesco is converting some of its redundant superstore space into fulfilment/click & collect centres by using 42,000 sq. ft. of its Dudley Extra store in the West Midlands (The Grocer).

Action for NAMs?
Online profit dilution means that suppliers need to ensure that your part of the B&M retailer’s online portfolio is tightly matched to consumer need, in order to minimise the possibility of returns. This means pruning your online range to fit specific retailer online traffic, although given that space is not a cost online, the retailer’s online portfolio can contain many of your slow moving ‘long tail’ products and thus compensate for any instore 'culling' based on rate-of-sale hurdles.

Longer term, it is important to monitor the B&M retailers annual accounts in order to track overall profit dilution as their online business grows. Retailers will not normally divulge % of sales made online so you will have to rely on anecdotal feedback, but it could be worthwhile to use say 15% online vs. 85% mainstream until you pick up evidence to the contrary.

Ideally, well-run B&M retailers should make 5%+ Net Margin in the UK, but obviously the typical 2% to 3% currently being made are the result of 8 years of flat-line demand and increasingly the growth of their online business.

What is indisputable is the fact that online is a profit dilutor, the stock-market now coming around to that view, and you are ideally ahead of the curve…

Morrisons' fall from the FTSE 100 - what's the big deal?

As you know, a place in the FTSE 100 is determined by the size of a company's market capitalisation, in turn driven by share price, ROCE, itself a product of a company's Net Margin and rotation of capital i.e. sales/capital employed, which regulars will remember is stockturn and sales/sq. ft...

Over the past eight months, Morrisons' share price has fallen from £2.08 to £1.51, taking its market capitalisation i.e. market value of the company, down to £3.6bn, below the FTSE 100 hurdle rate, meaning that the stock market has not bought into the company's recovery plans...

Why does demotion to the lower league FTSE 250 matter?
First, some major investment funds track the FTSE 100, and will now sell all their Morrisons' shares, driving its share price down.

Second, since the key people in Morrisons are on share options, so the value of their wealth will fall...

But what can I do?
Whilst your job as a NAM is to optimise your brand in the marketplace, from Morrisons point-of-view, you are there to help them improve their share price...

This means driving their ROCE (think of 15% to make a difference), by helping them increase Net Profit (3% would make a difference, from its current negative territory) and increasing its capital turn (i.e. increasing its space productivity - sales per sq. ft. - and by delivering smaller quantities, more often, thereby increasing its stock turn of your brand. With a benchmark of £1,000/sq. ft./annum, you should easily be able to prove that your brand footprint generates at least three times that in terms of sales/sq. ft...

Meanwhile, remembering that their average gross margin is 25%, your brand's 30% retail margin should easily carry the 15% store running costs, and head office overheads of 5% to deliver 10% to the bottom line.

In other words, hone your skills in calculating the cost of everything you do for the customer, translate it into direct impact on their P&L, and Balance Sheet, and really connect with Morrisons' top-of-mind issues. 

You really think your brand matters to them other than as a means of improving the share price?

...and the big deal?
With the share price falling to £1.51, the resulting market cap. puts Morrisons firmly in play for those major retailers and private equity players that feel that at £3.5bn, or less, the company would respond favourably to a change of ownership and a little re-engineering....

Now do you still feel that the buyer's top-of-mind concern this morning is your brand's latest improvement in consumer blind taste-test performance?

Grazing Shrinkers and the Grape-test…

A new study reported in The Retail Bulletin has found that almost £3 billion worth of items are stolen annually through 27% of shoppers 'grazing' in supermarkets, and stealing £4 each per week.

Shoppers ‘grazing’ on grapes as they shop the store, can add up to a significant shrinkage problem for the retailer.  However, the issue can be further complicated by the fact that a shopper may not regard unauthorised snacking as thieving.

This presents an opportunity for the retailer in that as the grazing shopper makes little attempt at concealment, the ‘thief’ can be more easily apprehended.  However, when challenged, shoppers have been known to claim that they deserve a reward for buying, in that a £50 grocery purchase entitles them to a treat or discount.  Besides, active sampling at the Deli counter, specialist shops encouraging tasting, and continuous in-store recipe demonstrations can add to the ambiguity of the issue.

In-store grazing ‘condoned’ by the retailer and left unchecked, can lead to an escalation of the problem.  Regular shoppers, encouraged by fellow grazers and a seemingly tolerant environment, can then graduate from loose grapes to individually wrapped sweets and confectionery, and then move on to bars or countlines.  From these humble beginnings, razor blades and batteries may not seem like a big step.  There are obviously problems with apprehending a grazer in the store, in that in the first place the retailer is accusing an ‘innocent’ thief, who happens to be a regular customer.  Moreover the grazer may be a customer’s child, and young children, especially female, pose problems for male security guards, inside or outside the store.

An added complication is that, in law, a suspected shop-lifter cannot be accused until they have left the store, and then two witnesses are required in order to successfully press charges.  Apart from the fact that much of the evidence is edible, coupled with the inconvenience and potential waste of staff time, the retailer can be reluctant to take the matter as far as the courts.  However, it is essential that the retailer be seen to press charges and prosecute shoplifters.  For instance, a retailer making 2% net profit has to make incremental sales of £250 in order to recover £5 stolen in-store.

In reality, most shoppers probably stop at the grapes stage…but those that graduate to confectionery can pose a problem.  First there is the issue of ownership of the problem in that a grazer moving from grapes to confectionery may cause the retailer to attempt to shift some of the ‘blame’ for this aspect of shrinkage to the supply chain, in effect penalising the supplier for producing a product that is susceptible to above-average shrinkage.

Whilst grape shrinkage will always be regarded as wastage, escalating shrinkage can seriously damage sales of impulse confectionery.  For the consumer, this can mean reduced opportunities to buy resulting from restricted access to the product at point of purchase.  Inaccurate stock-counts can cause reduced availability and challenges to data credibility and insight, which in turn may sour supplier-retailer relationships.  Incidentally, a quick fix via selling on consignment merely shifts the cost i.e. the supplier delivers £100 and invoices £98, reflecting 2% shrinkage as the product passes through the checkout.

Attempting to measure the scale of the problem has to be a first step in order to justify the work involved in overcoming the political barriers that have prevented action in the past.  This means re-examining goods in/out relationships for sensitive categories and attempting to distinguish ‘genuine’ wastage from shrinkage arising from grazing.  Here suppliers and retailers have a vested interest in sharing the measurement burden, in order to ensure that the problem and associated costs remain in the appropriate part of the supply chain.  This objective exposure of the extent of the problem will help to legitimise the steps necessary for its reduction.

In order to begin to deal with grazing-shrinkage, it is important that retailers clarify to staff and shoppers, the distinction between legitimate sampling in-store, and unauthorised piecemeal snacking on the way to the checkout.  Then begins the slow process of re-educating shoppers (and their offspring) to the realisation that taking products without paying is wrong and carries a penalty…

Alternatively, why not encourage them to become shareholders, hoping that they will then see shrinkage of any kind as a reduction in their own profits, and not another form of dividend…