PepsiCo Planning Price Increases

PepsiCo, along with Coca-Cola, Nestlé, P&G, and Kimberly-Clark, have issued similar warnings in recent months due to a host of factors, including disruptions in global supply chains and rising demand that has pushed up raw-material prices.

The move to raise prices will also be used to offset higher advertising and marketing costs, which rose 30% in the period as the company looked to take advantage of a reopening of the US economy.

NamNews Implications:

• Despite government reassurances, anyone in supply and retail knowns that significant costs increases have been building within supply chains.
• These cannot be absorbed and so will result in shelf price increases...
• ...and strong brands will be able to sustain demand.
• In terms of sizes of price increases, this will depend on moves by significant players in each category.
• We would anticipate double-figure rather than single figure % increases...

#priceIncreases #PoundInPocketInflation

Secret Visa Talks Taking Place To End Lorry Driver Shortage Crisis

A shortfall of up to 100,000 lorry drivers in the UK has partly been caused by an exodus of EU workers in the wake of Brexit and the pandemic. Covid-19 restrictions have also impacted the training and tests of new drivers, whilst costs are rising due to changes to taxation rules for self-employed drivers.

One person with knowledge of the discussions told the newspaper: “Everyone involved is sworn to secrecy as the Home Office is taking a very hard line. The Home Office has the final decision on this and the DfT knows it has a very tough sell, so need the very best evidence.”

NamNews Implications:

• Very practical advice from the government: ‘invest in local driving talent’
• (in retrospect?)
• Post chaos: ‘we were only following procedure’

#SupplyChain #LorryDriverShortage

Amazon Hires Tesco Veteran To Run Bricks & Mortar Stores

Tony Hoggett started his career at Tesco as a 16-year-old trolley boy. Over three decades he rose to become CEO Asia and then Group Chief Operating Officer, before starting his latest role in April this year as Group Chief Strategy & Innovation Officer.

NamNews Implications:

• Amazon can afford to populate their retail operation with best in class…
•  …and this is but one example.
• With a Morrisons takeover merely a dip into petty cash…
• Best conduct a what-if re Hoggett running an Amazon-Morrisons combo...
• ...and check how that fits your current trade strategies...

#AmazonMorrisons #GroceryTradeDisruption

Superdrug Takes Big Hit From Pandemic

Over the 12 months to 26 December 2020, revenues at the health and beauty retailer slid 14.8% to £1.11bn, with the group blaming the big drop in footfall on high streets around the UK.

NamNews Implications:

• Key with recognition of the importance of online is the fact that many rivals reached this conclusion a year ago.
• And know that online fulfilment cost reduces overall margin.
• Retail recovery will involve breaking the grocery ‘single trip’ habit * i.e. shoppers combining their ‘chemist’ trip with grocery trip for convenience…

#LockdownHealthBeauty

Tesco Hikes Transport Costs For Suppliers

According to trade publication The Grocer, the extra charges will apply to Tesco’s primary distribution rates, a service run by the retailer that brokers third-party hauliers to collect goods from supplier depots and transport them to its distribution centres.

Tesco is reported to have told suppliers that it will apply an additional 14% surcharge on primary distribution rates from next month until the end of the year.

NamNews Implications:

• Puts official inflation figures of 2-4% in perspective…
• We need to think ‘pound-in-your-pocket' inflation.
• i.e. suppliers and retailers now need to factor real supply chain cost-increases into pricing.
• Negotiation will simply determine who takes the hit first…

#Inflation #PriceIncreases #LockdownConsequences

Sales Growth Slows At Sainsbury’s; CEO Focused On Strategy Amid Takeover Activity

Including both the Sainsbury’s and Argos chains, the group’s like-for-like sales (excl. fuel) rose only 1.6% in the 16 weeks to 26 June compared to a rise of 11.3% in the previous quarter. However, the figure was better than analyst’s forecast of a 1.7% fall. This prompted Sainsbury’s to raise its annual underlying profit guidance from £620m to “at least £660m”, up from £356m last year when the business faced significant costs related to operating during the pandemic.

NamNews Implications:

• Sales growth slowing, yet up on 2019.
• But is it fast enough to remain independent?
• Bound to be a distraction for management…
• Especially with Asda under new ownership, Morrisons under takeover-scrutiny.
• Best for suppliers to anticipate takeover, by harmonising any major Prices & Terms at disparities, at least…More: https://lnkd.in/ePK6gGN

#PricesTermsDifferences #Takeover

Morrisons Facing Bidding War After Accepting Fortress-Led Offer Worth £6.3bn

Another private equity group, Apollo Global Management, is among the potential counter-bidders circling Morrisons.

NamNews Implications:

• Despite promises re future action…
• …a bidding war will result in a higher takeover price.
• Meaning that the purchaser will need to cover the additional cost.
• (and justify the level of investment…)
• It can be assumed that Morrisons are running a very tight operation (i.e. little scope for internal cost reduction)
• Therefore remaining options will then be:
• Sale & leaseback of the 85% owned retail estate (resulting in lower net margins because of having to pay rent for stores).
• Downward pressure on supplier prices.
• Or a mix of both…?

Government Holds Emergency Talks To Avoid Gaps On Supermarket Shelves

Officials from the Department for Environment, Food and Rural Affairs (Defra) are reported to have discussed potential solutions, including relaxing restrictions on drivers’ working hours and a temporary suspension of overnight delivery curfews, whilst increasing HGV training capacity for local drivers.

NamNews Implications:

• When the public sense shortages, stock-piling will follow.
• An emergency temporary stopgap would be to allow more EU drivers into the UK.
• Hopefully it will not take the government too long to recognise the obvious?

#LorryDrivers #FoodShortages #StockPiling

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...

The Importance of your Net Margin, when a customer goes bust...

Given that 75 Food Suppliers in the latest OC&C Top 150 Index 2019 (see The Grocer 21-9-2019) have Net Operating Margins of 3% or less, it is worth exploring the consequences of one of their customers going bust, owing them £150k...

On a 3% Net Operating Margin, the supplier needs £150k/3 x 100 = £5m incremental sales to recover the loss...

On a 1.5% Net Operating Margin, incremental sales of £10m!!

Just one of 33 calculator tools in the latest version of NamCalc

Tesco Trade investment: How to demonstrate your value to the buyer

Buyer: "Surely Tesco are worth more than a £10k investment, especially for a company your size?"

NAM: "Given your business model and latest net margin (2019 Tesco Annual Report) of 2.7%, our ‘mere’ £10k is equivalent to incremental sales of £370k for Tesco…."

As you know, apart from cutting costs, the only way a retailer can generate net profit is via incremental sales.

In practice, for a retail business on a net margin of 2.7% before tax, a net margin of £10k = 2.7% of sales.

So, £10k/2.7 x 100 = £370k, the incremental sales required to generate net profits of £10k.

Now, which would you prefer, my little £10k trade investment or having to generate extra sales of £370k in your category….?”

[Note for NAMs: If your company generates net profits of say 4.5%, the £10k trade investment in Tesco is equivalent to incremental sales of £222k. In other words, you need potential incremental sales of £222k to even begin the conversation…]

Source: NamCalc, a 34 calculation financial tool-kit for NAMs

Sainsbury’s Links Up With Euro Garages Again

According to The Grocer, Sainsbury’s recently began supplying its own brand sandwiches and salads, as well as ‘food for tonight’ items like ready meals, to a “small number” of Euro Garages sites. [more]

• Every little helps...
• ...and if a presence in a few Euro garages prove worthwhile...
• …then a full roll-out is inevitable...
• ...along with other possible routes to consumer.
• Time for suppliers in these and allied categories to capitalise on Sainsbury’s willingness to experiment…

Sainsbury’s And WH Smith End Food-To-Go Trial

Nine months after the trial began, a report by The Grocer revealed at the end of last week that Sainsbury’s-branded products were no longer stocked in the trial stores. In some cases, the supermarket’s food-to-go lines had been replaced by the Greencore’s ‘Munch’ range. [More]

• A good quality in retail is the ability to fail fast.
• Trying different initiatives also helps…
• …with the added benefit for retailers that footfall determines success/failure, ‘instantly’…
• NAMs that take this all on board, and propose initiatives accordingly…
• ...cannot go far wrong.

Asda Offers ‘Free Alcohol’ To Welsh Shoppers

A sign in the Asda supermarket in Cwmbran was meant to guide shoppers to ‘alcohol-free’ beer. However, it had been wrongly translated in Welsh to ‘alcohol am ddim’, which means ‘free alcohol’. The correct Welsh translation for alcohol-free is ‘di-alcohol’. [more]

• Well, so much for my Easter weekend in Cwmbran…
• BTW, our Gaelic word Crack was changed to Craic in 1990 – a need to differentiate good, clean fun from a dangerous new form of cocaine – and led to this spelling gaining popularity among those in search of compulsive but less addictive recreation…
• NAM insight: Best stick to plain English for promotional purposes, methinks!

GCA Finds The Co-op Breached GSCOP

The GCA has found the supermarket group had breached the Groceries Supply Code of Practice (GSCOP) on two counts. The retailer failed to provide reasonable notice to suppliers of decisions to de-list products and varied supply agreements unilaterally and without reasonable notice in the way it applied two specific charges. The Co-op Group has been ordered to introduce “major changes to its governance, systems and processes” [more]

• Problem identified, analysed and corrected…
• …with the promise of post-correction monitoring…
• …making it easier for suppliers to partner with the Co-op.
• A valued and important route to consumer…
• (coupled with a willingness by supplier-partners to report any future breach…
• …for the benefit of all stakeholders)