JLP 'never knowingly underinflated' Raises Inflation Concerns

After hailing the success of its recovery programme yesterday, the head of the John Lewis Partnership added to warnings from across the retail and manufacturing sectors that Russia’s invasion of Ukraine will lead to a further jump in inflation.

Chairman Sharon White said that the conflict meant inflation would be “more persistent” and at a higher rate than previously expected.

She highlighted that the group was facing “significant persistent pressures” on costs, adding: “As far as we can, we’re trying to absorb the cost pressures … not all of these pressures are absorbable.”

Both the group’s Waitrose and John Lewis chains have been forced to increase prices on certain items in recent weeks, with prices at the supermarket chain rising by between 3% to 4% compared with 2% last year.

White said: “We’re expecting inflation to be more permanent, more persistent, and certainly at a higher level than when we were all gathered for half-year results [in September].

NamNews Implications:

• '…invasion of Ukraine will lead to a FURTHER jump in inflation’
• The key word is ‘further’ …
• …in that most of the current inflation predictions (everywhere) are based on pre-Ukraine trends.
• i.e. ‘prices at the supermarket chain rising by between 3% to 4%’ are ‘historical, pre-Ukraine.
• We are now in uncharted territory, again (following Covid Lockdowns…)
• Given the risk that JLP will be 'never-knowingly-underinflated' suppliers need to take the initiative.
• Waitrose suppliers need more precision re inflation…
• …and should explore ‘what-ifs ‘ starting at 10%…
• …before opening discussions with the customer.
• In other words, the supplier has to take the lead this time…

#UkraineInflation #NormalInflation #NAM-Initiative

Grocery Price Inflation Accelerates; Discounters Gaining Share

Latest industry data confirms that prices in the grocery sector are continuing to rise, with further upward pressure likely to come from the conflict in Ukraine. With the market still contracting from last year’s pandemic-driven highs, Aldi and Lidl were the only physical retailers seeing growth and gaining share on the main multiples, apart from Tesco.

Take-home grocery figures from Kantar show that overall supermarket sales fell by 3.7% during the 12 weeks to 20 February in comparison with last year when the winter lockdown meant people were eating more meals and snacks at home.

However, sales remain 8.4% higher than the same period before the pandemic in 2020.

NamNews Implications:

• With the global Covid fears/uncertainties now replaced by Ukraine worries, consumers are spending cautiously...
• ...despite increasing their work-driven on-the-go consumption.
• Time for suppliers to justify why they are not optimising their potential business with the discounters?
• Especially given that Tesco and Ocado are the only other retailers growing at the expense of the rest…

#OnTheGoConsumption #FearUncertainty #Inflation

Sainsbury’s Closing Cafes As It Overhauls Eat-In And Takeaway Food Offer

Sainsbury’s is set to close 200 of its in-store cafes and some of its hot food counters as part of an overhaul that will see it roll out its new Restaurant Hub food hall format.

The retailer stated that it wants to transform its eat-in, takeaway and home delivery food and drink offer to give customers a better experience. Sainsbury’s has been trialling The Restaurant Hub concept at its Selly Oak store in Birmingham in conjunction with the Boparan Restaurant Group (BRG). It features a range of restaurant brands, including Caffè Carluccio’s, Gourmet Burger Kitchen, Ed’s Diner, and Slim Chickens.

The two companies are planning to open 30 more The Restaurant Hubs in the next year, with the intention to accelerate the roll-out if the format proves popular.

Sainsbury’s will also open another 30 Starbucks coffee shops in its supermarkets in the next twelve months, bringing the total number to 60. Working with BRG and Starbucks, Sainsbury’s plans to overhaul its offer in 250 supermarkets over the next three years

NamNews Implications:

• Lockdown and Takeaways says it all…
• But one of many fundamental shake-outs arising.
• Benefits for those businesses that can recognise the change, and act decisively…
• How about you?

[Just one of 12 news items in today's NamNews bulletin]

#LockdownDamage #HospitalityChange

Tesco’s Price Matching Scheme Now Following Aldi’s Price Rises

Amid soaring food prices, Tesco’s ‘Aldi Price Match’ scheme has gone into reverse.

The scheme had originally been conceived as a way of Tesco improving its competitiveness by cutting prices on everyday products to match Aldi to halt shoppers switching to the discounters.

According to trade publication The Grocer, Tesco is now raising the price of matching lines to keep up with increases at Aldi.

The report noted that Tesco’s determination not to let the pressure off the discounter despite cost inflation, meant Aldi was raising prices on some price-matched lines ahead of an identical increase by the supermarket giant. This has meant that Aldi was briefly more expensive than Tesco on some lines involved in the scheme.

NamNews Implications:

• All depends on shopper perception.
• The real bargain-hunters will capitalise on some of the Tesco price-lagging…
• But in general, most shoppers will simply ‘see’ the Aldi Price Match initiative in action…

GSK Unveils New Name For Consumer Healthcare Spin-Off

GlaxoSmithKline (GSK) has revealed that its Consumer Healthcare business will be called Haleon following its planned spinoff and stock market listing this summer.

The name, pronounced “Hay-Lee-On”, was inspired by the merging of the words ‘Hale’, which is an old English word that means ‘in good health’ and Leon, which is associated with the word ‘strength’.

The demerger of the Consumer Healthcare business is planned to take place by mid-2022, creating a standalone entity with sales of around £10bn from brands such as Sensodyne, Voltaren, Panadol and Centrum.

Once separated from GSK’s pharmaceuticals and vaccines operations, the new company will be led by the unit’s current Chief Executive Brian McNamara and recently appointed Chairman Designate Sir Dave Lewis, the former boss of Tesco. Haleon will be headquartered at a new campus in Weybridge, which is expected to open at the end of 2024 and will include an R&D centre and a shopper science lab.

NamNews Implications:

• Combination of new name and ‘separate’ existence, ‘independent’ of group…
• …means more focus on consumer optimisation.
• Time for rivals to reassess relative competitive appeal…

Price Rises Drive Growth At Nestlé, With More To Come

The world’s largest food manufacturer has posted its strongest growth in developed markets in a decade as it benefitted from price rises and robust demand for coffee, pet food, and vegan products.

Over the year to 31 December, Nestlé’s sales rose 7.5% on an organic basis to CHF87.1bn (€83.2bn), of which 2% came from price increases to offset “significant cost inflation”. This trend accelerated in the final quarter of the year, with prices up 3.1%.

The group stated that growth was also supported by continued momentum in retail sales, a steady recovery of out-of-home channels, and market share gains.

Nestlé’s coffee business was the single largest contributor to growth in 2021. Sales of Starbucks-branded products jumped 17.1% to CHF3.1bn, whilst the Nespresso division reported growth of 8.8% to CHF6.4bn

NamNews Implications:

• Nestlé is big enough in most markets to be able to ensure appropriate price rises across its brand and retail portfolios.
• “Significant cost inflation” has been factored into its price increases…
• …in a “super volatile environment”.
• Rivals need to reassess relative competitive appeal, by category, retailer and geography…
• ..Now

#ShelfPriceInflation #CostPriceInflation #Negotiation #Power

Sale Of MFG Moving Forward

Following recent rumours, it appears that the £5bn sale of Motor Fuel Group (MFG), the forecourt operator controlled by the new owners of Morrisons, is going ahead.

According to Sky News, Clayton, Dubilier & Rice (CD&R) has lined up Citi, Deutsche Bank, Goldman Sachs, and Royal Bank of Canada to sell MFG, which operates around 900 sites across the UK.

MFG has grown substantially since CD&R bought it in 2015 for £500m. Three years later, the private equity firm paid £1.2bn to add MRH, the market leader, creating a group operating under fuel brands such as BP, Esso, Shell and Texaco.

MFG’s profits are understood to have risen about tenfold since CD&R’s acquisition with the company investing heavily in its convenience retailing proposition, featuring the likes of Costa Coffee, Greggs and Subway at many of its sites.

NamNews Implications:

• MFG will be an attractive acquisition for either fuel companies or PE.
• Either way, any supplier-MFG relationships will be financially driven…
• …in order to maintain the profit impetus.
• Therefore NAMs need to refine their skills in counting cost…
• …and demonstrating the value of their proposals to MFG’s finances.

#Divestment #FinancialKPIs #GarageForeCourt

Morrisons Introduces Plastic-Free Toilet And Kitchen Roll Packaging

Morrisons has launched paper-wrapped toilet and kitchen rolls as part of its drive to reduce plastic waste.

The paper packaging, which is responsibly sourced and FSC certified, is fully recyclable with the toilet paper and kitchen sheets themselves are also made using recycled paper.

Morrisons jumbo kitchen rolls cost £3 (for a two pack) and the toilet rolls £3.50 (for a nine pack). The retailer highlighted that this is much cheaper than some other eco paper-wrapped products which can be as high as £2.80 for a single kitchen roll and £9 for nine toilet rolls.

NamNews Implications:

• Given the extent to which tissue is a narrow-margin business…
• …this pricing differential is going to be problematic…
• …at least for suppliers.

#BrandOwnLabelPremia #TissueProfitability #ScaleEconomies

Amazon Must Now Comply With GSCOP

Amazon’s increasing activity in the UK grocery sector has led the Competition and Markets Authority (CMA) to designate the online giant under the Groceries Market Investigation Order (the Order).

As a result, Amazon and its UK subsidiaries must now comply with the Groceries Supply Code of Practice (GSCOP).

The Code applies to retailers with an annual turnover of more than £1bn from grocery sales and aims to ensure that they treat their suppliers fairly.

NamNews Implications:

• Key is the extent to which Amazon feels responsible for the actions of all of its vendors…
• All else is detail...

#GSCOP #AmazonCompliance #AmazonEntersMainstreamRetail

Amazon Sales In The UK Up 82% On Pre-Pandemic Levels

An annual report SEC filing by Amazon last week shows just how popular the online retailer became in the UK during the pandemic. 

Over the year to 31 December 2021, Amazon’s net sales in the UK rose 20.5% to $31.9bn (£23.6bn). However, compared to two years ago before the start of the pandemic, the figure is up 82.1% from $17.5bn (£13.0bn).

Patrick O’Brien, research director at GlobalData, commented: “While other major digital players appear to have peaked earlier in the pandemic, UK consumers show little let-up in their reliance on Amazon. It’s a very strong performance against an exceptional comparative.”

NamNews Implications:

• No surprises, hopefully…
• Given their high degree of customer-centricity.
• And saturation coverage.
• Trickling down into cost-effective fulfilment.
• With rivals trailing behind.
•  Best for suppliers to be on board optimising this mix…
• …rather than trying to build up Amazon rivals in order to spread risk.

#AmazonResults #OnlineOnwards

Amazon Hikes Price Of Prime Membership In US To Offset Rising Costs

The price for annual membership is rising by 17% to $139, with the online giant blaming increased labour and shipping costs. The group stated that it had no announcements to make about other countries “at this time”.

NamNews Implications:

• As always, nothing is for nothing…
• And pipeline cost increases have to be reflected in prices, eventually…
• Unlikely that these increases will diminish Amazon Prime appeal…
• …given the convenience.

#amazon #PrimePriceIncrease

Shop Prices Rise At Fastest Pace Since 2012

The latest BRC-NielsenIQ Shop Price Index confirms that inflation is accelerating in both the food and non-food retail sectors.

The overall figure rose from 0.8% in December to 1.5% in January, the highest rate of inflation recorded by the index since December 2012.

Official figures last month showed that wider consumer inflation jumped to 5.4% in December, the highest rate for 30 years, driven up by higher energy costs and rising retail prices.

The BRC and NielsenIQ figures are based on price changes of commonly bought items in retail stores. They showed that food inflation increased from 2.4% to 2.7% in January, the highest inflation rate since October 2013.

NamNews Implications:

• From a NAM’s POV, the issue is how consumers view ‘real’ on-shelf inflation.
• i.e. inflation that affects their purchasing behaviour and hence demand.
• And street-level inflation is perceived to be running at 5%-10%, with more to come…
• And any action by the Bank of England to curb inflation will be a further deterrent to spending…
• See 'Pound-in-your-pocket Inflation' for more details

#PoundInYourPocketInflation

Businesses Braced For Insolvency Storm As Pandemic Aid And Protection Is Shut Off

589,168 businesses in the UK reported significant financial distress during the final quarter of 2021, a 5% rise on the previous three months.

This is according to Begbies Traynor’s ‘Red Flag Alert’ (monitors financial health of UK companies). The latest research shows Lockdown fault lines.

Data indicates that the debt storm which has been brewing for years, but had been held off by measures to provide breathing space for companies, could now be about to hit, sending shockwaves through many industries.

Julie Palmer, a partner at Begbies Traynor, said: “Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much. Support from the Government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever.

“Without these measures in place to protect them, a rising number of companies will have no other option but to relinquish their business after two years of struggling on in the economic uncertainty that has been tempered by measures to combat the impact of coronavirus.

“The lag effect of the economic fallout from Covid, plus significantly higher inflation, has created a perfect economic storm for many companies, particularly the UK’s SME sector, which will undoubtedly drive insolvency rates even higher.”

Inflation is now the greatest threat to the economy with the true rate potentially running far beyond the official 5.4% rate and possibly many multiples more than the Bank of England’s target of 2%. Rising wage, energy and materials costs mean the CPI figures are showing only part of the story in the UK and the subsequent impact on the public’s disposable income is expected to be far greater.

Despite Government support measures unwinding, Palmer said there are indications that the authorities are willing to help businesses that are trying to fight on. She added: “Anecdotally, we are hearing stories about HMRC giving companies two or even three years to pay their tax bills.

“Extra leniency may not be an official policy, but it sends a signal that officials are trying to help businesses survive – even though it might only be delaying the inevitable.”

NamNews Implications:

• We repeat: ‘589,168 businesses in the UK reported significant financial distress during the final quarter of 2021, a 5% rise on the previous three months’.
• This is going to affect your business, in terms of customers and rivals.
• To place the issue in context, calculate the incremental sales required to replace your losses from a customer:
• i.e. Divide outstanding credit by your Net Profit before Tax %, and multiply by 100.
• Then apply this formula to each customer you manage…
• (Meanwhile, furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever)
• What now Boris?

Princes Moves Into The Frozen Aisle

Princes, the company best known for its canned food, is making its debut in the frozen aisle with a new range of meat kebabs.

Called Princes Street Food, the range of frozen marinated kebabs comes in three flavours: Indian Tandoori Chargrilled Chicken Kebabs, Korean Style BBQ Chargrilled Chicken Kebabs and Malaysian Style Satay Chargrilled Chicken Kebabs (RSP: £3.75/260g).

NamNews Implications:

• Princes is coming to this category…
• ...without the baggage of a pre-HFSS product having to be reformulated (taste/texture).
• - with no history other than canned.
• - i.e. a clean slate and no preconceived notions.
• From there, anything is possible...
• And provided the spec and execution resonate with consumers (and trade), and always delivers more than it says on the 'tin'…
• …this could be interesting.

#CleanSlateMarketing #ScratchMarketing

Aldi Opens Doors To New Checkout-Free Concept Store

The Shop&Go concept store in Greenwich, London opened this morning for public testing, having been trialled by Aldi staff in recent months.

Using the Aldi Shop&Go app, customers can enter the store, pick up their items, and then walk out when they have completed their shop. Once the customer leaves the store, they will then be automatically charged for their shopping via their selected payment method and a receipt will appear in the app.

NamNews Implications:

• The tech is already here…
• …along with the cost-saving on personal checkout operators.
• (to say nothing of all that shopper data…)
• So think ahead to an inevitable life of fully automated checkout process, everywhere…
• Whilst Aldi maintain the same price-differential…
• …and discounter advantage.

#AutomatedShop #FrictionlessShopping #AldiCompetitiveAdvantage