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)

Latest Podcast from Hospitality Mavericks: Retail, Hospitality & Delivering Value to Savvy Consumers with Brian Moore

Michael Tingsager and Brian share key trade insights re Amazon, the Discounters, Shrinkflation/brand equity preservation, as they affect the past, present and future states of retail and hospitality. With many crossovers to be found between the two sectors, Brian provides in-depth advice for businesses looking to succeed in a world of corporate giants and savvy consumers.

  Click here for other Podcast sources

Hospitality Mavericks is a growing community of past and present business owners, franchisees, senior managers and experienced professionals with a love and passion for the hospitality industry - find out more here

For more insights from Brian, take a trial subscription to NamNews or
download a FREE copy of the latest monthly newsletter.

M&S Deal Could Cost Ocado A Large Chunk Of Customers

A survey of 250 Ocado customers carried out by analysts at HSBC found that 22% would no longer shop with Ocado if it did not sell Waitrose products, while 17% stated they would not use it if the Waitrose products were replaced by M&S lines.

David McCarthy, head of consumer retail research at HSBC, described the findings as “worrying” for the new Ocado and M&S joint venture. “A meaningful proportion of customers said that their loyalty is to Waitrose and that M&S is not an adequate replacement,” he wrote in a research note. [more for NamNews readers]

• Its called brand loyalty, folks…
• …whether it be supplier or retailer.
• Hopefully Ocado will have factored this into the equation in advance…
• …and can live profitably with the difference.
• Watch this space…

Fair-Share Trade Relationships: How to optimise via equal compromise...

NAMs that manage to achieve fair share realationships with buyers can keep it so by focusing on the following 'rules':

Keeping the Deal in Place…

An ongoing Trade partnership requires that both parties respect the basic deal. In other words, over time they have reached a balance of risk and reward that satisfies the needs of each party. All further moves will take place on a reciprocal basis whereby a demand by one will be matched by a gain of equivalent value by the trade partner. Otherwise, the relationship becomes so one-sided that the partnership breaks down and each side loses. Systematic use of financial measures can help in optimising trade partnerships and provide a more reliable balance of risk and reward.

Corporate Customer Portfolio Role

Essentially, the process starts with establishing the customer’s role within the corporate customer portfolio, in terms of current and target Sales and Profit, lifecycle profile, and investment classification (invest, maintain or divest). The main focus can then be on achieving target sales and profit, only referring back to corporate performance when target sales and profit performance s deviate from that target.

‘Deal on the Table’ a constant benchmark

Here the customer and supplier are placed in market context, reflecting relative power in the relationship.

• Customer’s share of the supplier’s business (£ sales, %)
• Supplier’s share of the customer’s business (£ sales, %)
• Customer’s share of the category in total market: their appeal to the supplier’s competition and importance to the supplier
• Supplier’s share of Customer’s version of the category
• Size of deal for supplier (£, %) in this case current and annual target sales and profit (Gross and Net), reflecting scale and risk of loss of the business within supplier’s customer portfolio
• Size of deal for Customer (£, %) current annual and target sales and gross profit, reflecting Customer’s level of dependency on supplier

Current Terms and Conditions in the relationship

The supplier, operating on the premise that everything can be reduced to a financial cost and value, calculates the cost of each element of the relationship and the incremental sales it represents for each party. This includes credit period, settlement discount, stock levels, promotional support and all other parts of the supplier’s total offer package. The same terms and conditions should be translated into customer’s sales equivalents, using the customer’s published net margin as a multiplier. This will help to establish and demonstrate the value of the supplier to the customer. 

Maintaining the ‘status quo’

This total offer package represents the basic working relationship in terms of relative risk and reward between the two parties. If both parties seriously value and want to maintain the relationship, then any additional request or change in the deal by one party, will require a reciprocal move of equivalent value in order to maintain the equity of the business relationship, in other words, the ‘status quo’.

In practice this means that however the circumstances of either party may change, any such change and the resulting demands should be costed, valued and the results factored into the total offer package in order to ensure that parities have been maintained, and the supplier will continue to invest in the relationship.

Specifically, the implications of any new, ‘incremental’ or arbitrary demand or breach in compliance should be explored fully in terms of its impact upon the rest of the deal, and agreement reached on appropriate adjustments to the total offer package. Any reluctance to explore such options on the part of the buyer should be treated as an attempt to achieve an incremental gain at the expense of the supplier, and resisted.

Finally, it is obvious that this level of trade relationship relies heavily upon mutual trust and willing compliance. It is a deal between two organisations equal in respect for one another, if not in scale, and by definition has to operate on a multilevel and multifunctional basis, capable of surviving regular buyer-churn and fundamental changes in the market.

Otherwise, we are all in more trouble than we realise….

Feedback: ‘everything in a supplier-retailer relationship can be reduced to a financial cost and value’ We welcome any feedback quoting exceptions and will try to illustrate way and means of calculating cost and value. Please contact me with your exceptions and comments via Linkedin, or at bmoore@namnews.com

Booker And Tesco Ramping Up Benefits Of Merger

Speaking at an event this week, hosted by trade magazine The Grocer, Booker’s Chief Executive Charles Wilson revealed that significant benefits would be rolled out in three phases during 2019.

Phase one began last month with retail and catering customers being offered lower prices and better margins. The second phase is due to launch in the spring and will involve improving the quality of produce by switching to Tesco suppliers and specifications. A last phase in autumn will see the roll out of various Tesco services. [more for NamNews readers]

• All depends on how these offers and terms compare to those available from other wholesalers…
• …and if greater, inevitable switching of allegiance will follow.
• Meanwhile, NAMs need to reassess their wholesale customer classification in terms of Invest, Maintain or Divest…
• Watch this space.

Pressure Mounting On Sainsbury’s Management As Performance Weakens

Industry data released by Kantar Worldpanel yesterday showed the chain was continuing to struggle up against its revived main rivals and the discounters. Sainsbury’s sales fell by 1% year-on-year over the 12-week period to 24 February with its market share slipping 0.5 percentage points to 15.7%. This marks an acceleration from the 0.3% fall in sales that the chain suffered in the previous period. [more details for NamNews subscribers]

• Time for Sainsbury’s (and their NAMs) to forget the CMA, and get back to the day-job…
• …in readiness for the inevitable takeover bid, given the falls in share price.
• As you know, share price recovery is driven by improved ROCE, in turn driven by margin and capital rotation…
• …Simples!

Making Sense of the Savvy Consumer in Flatline….

Given ten years of market confusion, consumers are now beginning to make some sense of the financial turmoil, are developing increasing confidence in their common sense when making purchasing decisions, and those who still have jobs are working longer and harder, and possibly for less money.

As a result, they are relating every £1 of ‘discretionary’ expenditure to their current and future earnings, assessing the opportunity-cost in terms of alternative uses of the money, like never before…

They are raising their own performance standards, and using them as a measure against which to evaluate every product and service offering, refusing ever to outsource their decision-making to marketers and retailers again.

In addition, mobile-isation of market-comparison has made it easier for the savvy consumer-shopper to evaluate alternative offerings objectively and accurately, and is guiding their expectations of performance in the process.

The New Savvy Consumers

Welcome to the new savvy consumers, the professional shoppers, discerning buyers who are simply seeking to obtain satisfaction of their needs in an open market, at a price that compares well with alternatives available, based upon simple common sense, and trust in no one....

As the newly emerging primary driver of demand, the savvy consumers have to be persuaded that their needs are being met, for a fair price, and that their purchases deliver more than expected in practice. In other words, this new consumer, if willing to spend, is unwilling to accept anything short of good value for money.

The destruction of consumer-trust

Consumer-trust, having been severely undermined by the bankers and politicians, is now at an all time low, in that consumers realise that they have been betrayed by the ‘pillars of society’, and they are no longer prepared to ignore the learnings….

As a result, they now believe that in the final analysis, they can no longer afford to risk outsourcing purchasing decisions to marketers and sellers of goods and services. In other words, the consumer is now using basic common sense to evaluate what they get for their money and is rejecting second-best….

A real opportunity for the good guys

If this is seems like more doom and gloom, then we are simply not expressing it properly…

In fact, we believe that the emergence of the savvy consumer is the most positive and exciting social development of the current cash crisis. We are now living through the evolution of a commonsense approach to buying goods and services by increasingly informed consumers, who are prepared to vote with their feet. This is a development that will obviously challenge traditional marketing and selling practices, but will provide significant opportunities for those suppliers and retailers that are prepared go back to basics, factor this new reality into their product offerings, and always strive to exceed consumer expectation…

In practice, this means that the consumer is providing an entirely new basis for suppliers to re-evaluate every SKU in their portfolios against available alternatives, and ruthlessly eliminate anything that does not clearly demonstrate a total match with latest consumer need, made available in a way that shoppers want to buy, better than the competition. It follows that the customer portfolio has to be re-assessed from the same point-of-view, again with the aim of identifying and cultivating trading partners that are capable of expressing the brand offering in a way that can meet consumer-shopper needs at point-of-sale, profitably.

This elimination of consumer-brand mismatch and product overlap from supplier portfolios will reduce supplier costs, allowing liberated resources to be invested in winner brands with increased emphasis upon consumer satisfaction, thereby selling more to current savvy consumers, and making it easier to sell new products to those increasingly trusting and loyal users.

In the same way, building trade partnerships with like-minded retailers has to present joint-opportunities to optimise common-sense market need, while others await a return to ‘normal’…

So What's in a Brand Name?

Today's emphasis on Big Data as a must-have in brand marketing reminds me of my early ventures in giving business advice to a Danish dairy company re the fact that their UK butter offering might prove confusing to UK shoppers because of its 'haphazard' changes in colour from yellow to white and back again during the year.

Despite my farming and Mom 'n Pop store upbringing in less politically-correct times, I persisted in recommending a purist marketing approach to this farmers' cooperative in that a consumer-test was essential in establishing whether white or yellow was the preferred colour. This insight would then determine whether the product should be bleached or coloured yellow to match consumer need...

The client politely pointed out that theirs was a natural product whose colour reflected the cow's seasonal diet, and told me they did not think much of my reservations re the brand name either...

I often wonder what ever became of Lurpak over the years...

Private Equity Giant KKR Mulling Bid For Asda

According to The Sunday Times, the US private equity giant, whose past investments include Alliance Boots, is working with former Asda boss Tony De Nunzio on a possible approach. He is now a senior adviser to KKR and the report suggested he would become Chairman of Asda in the event of an acquisition. [more for NamNews readers]

• From a NAMs-eye-view, the issue is the probability of new private equity-based majority ownership of Asda…
• …meaning sale & leaseback of outlets.
• …P&L by outlet…
• …all adding up to finance-based buying…
• …quite apart from an Amazon wanting to buy an inexpensive Sainsbury’s via the petty-cash box…

What if: a restaurant was run like a supermarket?

Suppose a major multiple decided to apply state-of-art retail principles to the HoReCa sector, using expertise in space management, offering optimisation, efficient service-level and money management to bring something extra to the food service industry… (i.e. not simply adding on a restaurant to absorb redundant space, but actually treating every aspect of the restaurant offering as if from a supermarket and coming back from that point to a practical application)

Space management:
Calculation of sales and profits per sq. ft. means converting annual sales into table footprint like a supermarket gondola, with spaces between tables treated as aisles. In other words, the total sq.ft measure of all tables divided into annual sales would give sales per sq.ft. of ‘selling area’.

Reducing the space between tables would increase selling intensity, with customer comfort and relative privacy a trade-off against increased productivity…

The offering:
Diners would need the equivalent of ‘shopping the aisle’ via a more interactive menu. In other words, it would be apparent that flowery descriptions of menu-ingredients, albeit in franglais, would then seem inadequate, as currently conveyed. However, the temporary provision of an ipad for each guest, listing available dishes, complete with provenance, attractive illustrations pitched at levels that would manage expectations, updated ‘live’ to match kitchen availability, would help in meeting diner need. Unforeseen demand-spikes would obviously trigger emergency deliveries from just-in-time suppliers. The addition of ‘ideal world ‘ needs and other personal details would aid the addition of award points and service improvements, thus providing a basis for follow-up marketing to satisfied guests.

Service level:
The iPad would also help in minimising waiter numbers (virtual self-service?) by allowing guests to place orders directly with the kitchen, with ‘are we there yet?’ queries answered regularly via text updates…(with a suitable app designed to delete/replace expletives, as necessary...).

Meanwhile, live video coverage of the kitchen would facilitate on-going observation/monitoring of the cooking process where so required by anxious guests…Discretionary on/off soundtrack would protect sensitive guests in the event of sudden outbursts of ‘over-excitement’ by the chef/s…

The money:
In terms of pricing, the ipad would provide full details on pricing, by ingredient/unit, per chair, and full table, with a running total monitoring impulse bottles of wine and other add-ons. This ongoing build-up of the 'shopping basket’ would provide invaluable insight to restaurant management, enabling lighting and heating levels to be related to rate-of-sale and adjusted accordingly.

Tables could be priced according to popularity, size, position, degree of privacy and of course discounted via advance-booking… At the end of the meal, payment could be made in a check-out area, thereby freeing up the table so much faster for the next party.

Finally, a discrete scanner would then ensure that the number of guests attempting to take home the 'menu' as a souvenir, would be minimised...

Impossible, or food for thought?

Optimising the NAM's business lunch?

In the bygone era of the free 3-hour ‘business lunch’, in effect a high-powered 'non-business' meeting that appeared to have no fixed agenda, a new NAM tended to be thrown in unprepared, with no training on the basics…

Some precautionary pointers may help

In one of my first business lunches, my Dutch MD rescued me from the confusion of the French menu by suggesting I might like Tournedos Rossini, which until that moment I had taken to be part of the restaurant’s musical accompaniment… The resulting combination of rare filet mignon with warm foie gras on a bed of wet toast proved very satisfactory and apart from raising the bar on expenses, from that moment I have found an assured request for ‘Tornado Rossini’ was always a safe bet when confronted with a ‘foreign language’ menu.

Unfortunately, I have been less successful with my choice of a standard starter in Pate Maison, finding it tasted different in every restaurant…

For these reasons, I found it useful to conduct a dry run on a new venue in preparation for really important lunches. It obviously raises the cost, but pays off in terms of ability to focus on the hidden agenda in real time…

Following the menu-choice lead of the main guest can aid the bonding, but can also have its pitfalls…

I still blush in recollection of an introductory meal with a newly promoted buyer where I pre-warned the team to follow his lead regardless..

This appeared to work well with his choice of starters, a generous portion of fresh Dublin Bay prawns, dutifully followed by the rest of us. However, when he proceeded to eat them complete with shells, I sensed some loss of my personal franchise as the team crunched their way through their portions… Looking back, I now realise that he was one of the best leg-pullers I have ever met… beware the hidden agenda

When it comes to wine, it pays to keep it simple and stick with what you know. To this day, nothing beats the embarrassment I experienced having sent back a bottle of ‘corked’ Hirondelle, without realising it was one of the first plastic-capped wines in the UK…

Excessive alcohol consumption can also have its downside in terms stage-management of the occasion. A long-standing MD pal with a hard-earned reputation for being able to hold his drink tended to give himself away by leaning forward towards the end of a lunch and whispering ‘ I would like to give you some infidential confirmation..’ This was always a signal for his NAM to announce some emergency ‘at the office’ that only his MD could handle…

In other words, high quality and moderation, with a silent-mobile primed to divert when all else fails…

All other egg-sucking precautions can probably be handled very adequately by well-intentioned grandchildren….

Amazon Secures First Sites For UK Launch Of ‘Go’ Format

According to property sources quoted by The Grocer, the online giant has now secured sites of around 5,000 sq. ft. in “key” locations across central London. Whilst the stores are said to be in high-footfall areas, they are not the “obvious highest rent prime pitches.” [more]

• Patently a serious move in the UK’s most densely populated area…
• …and better for NAMs to be on board, than not…
• …with direct access to evidence of progress…
• …rather than having to rely upon second-hand feedback.
• i.e. a no brainer.

Ground down by the price of your £2.50 Patisserie Valerie and other high street cappuccinos?

Issues both financial, and now legal at at Patisserie Valerie (see Finance Chief arrested) highlight the value of examining one of the fundamentals of on-premise provision of food and drink...

Given that the humble £2.50 cappuccino has fallen out of favour, coffee connoisseurs apparently demand more than a standard caffeine fix to help them through the day, at a price!

The Daily Mail has listed sources like The Connaught in Mayfair (£7.50 for any cup of coffee) and Claridge’s (up to £20 for a filter coffee for two people), apart from the ultimate deep-pocket source like The Wellesley hotel in Knightsbridge serving Wild Kopi Luwak coffee, at £45 a cup.

In other words, connoisseurs trying DIY @ 9p/cup vs Wild Kopi Luwak coffee, at £45 a cup, can appreciate the threat to food service... 

But the real issue has to be the contrast between High Street coffee at £2.50 a cup compared with home filtered at 9p a cup.

In other words, far from seeing up market varieties as a threat, consumers adopting a DIY approach might be more dangerous…

In fact, with street coffee priced at upwards of £2.50 a cup, I have reverted to grinding and filtering best quality French coffee beans, purchased from Waitrose at £2.60 per 227g bag. Each bag yields 5 x 6 cups, effectively costing me 9p a cup. If I could buy wholesale, the price would be no more than £2/bag...

OK, the ambience is worth something, but 30x 'domestic rates'...?

In fact, when you think about it, apart from the bill, most people's memory of a great restaurant meal is coloured by the final course, a cup of coffee. Yet, even at these mark-ups, some restaurants risk diner alienation by skimping on the coffee, thereby triggering the manual 'tell a friend' mechanism' whereby, if you please a customer, they tell one friend, disappoint them and they tell ten. Add social networking muscle, and the reach is infinitesimal.....

Incidentally, for those NAMs that prefer tea, how about one tailored to cope with the pressures of the NAM day-job...  (Thanks Gerry)

A NAM insight from NamNews

Lidl Launches Pop-Up Gin Bar

Visitors to the bar will be offered samples of Lidl’s Hortus Gin range. Guests will begin their experience in the Pink Gin Liqueur Lounge, where Hortus Gin Liqueurs including Raspberry, Rhubarb & Ginger and Rose & Pomegranate will be offered. (more)

• Please remember to pinch yourself as a reminder…
• …that this is one of those ‘down market, common and ‘foreign’ discounters…
• …that could never succeed in the sophisticated UK retail environment…

New Branding Unveiled For Waitrose And John Lewis

The John Lewis Partnership has today relaunched its two retail brands as ‘Waitrose & Partners’ and ‘John Lewis & Partners’ with a new visual identity and their first ever joint marketing campaign. [details]

• Profit-sharing is still a large part of the partnership package for staff….
• …so any reduction in profits can negatively impact the aisle…
• Also scope for other retailers to replicate the staff part of the model by introducing a profit-share element…
• A little more business-fixing yet to be done, methinks…

Toys 'R' Us sets up $156m fund for trade claims - too little too late...!

The 'vendor reserve fund' will be carved out of a broader budget meant to cover some expenses as the retailer winds down its business in the largest-ever U.S. retail liquidation, Toys ‘R’ Us lawyer Joshua Sussberg said at a hearing at U.S. Bankruptcy Court in Richmond, Virginia.

However, the amount fails to cover total trade claims worth roughly $760m, lawyers who represent trade vendors said at the hearing.

Many vendors believed that payment for shipments after the Sept. 18 Chapter 11 filing would be covered by a $3.1bn bankruptcy loan, but that loan gives priority to lenders and other expenses such as legal fees, lawyers said on Tuesday. [more]

• This highlights the fact that when a customer goes bust, suppliers come last for payment in a list that includes government agencies/tax, secured lenders, and staff...
• For this reason, it is vital that NAMs & KAMs constantly monitor their financial exposure to all customers, given that they are in fact unsecured lenders at zero interest rate...
• Apart from watching for signals from the market that credit insurers are refusing to offer cover (i.e. too late!), a supplier should divide their annual sales to the customer by their (the supplier's) net margin before tax, and multiply by 100.
• This gives the incremental sales required by the supplier in order to replace the profit lost via a customer going bust...

FedEx launches a Returns Technology service for ecommerce

Given the fact that Amazon set a gold standard in making returns as easy as 1-Click ordering and factored in the costs from the beginning, traditional and online retailers that stumbled into online without appreciating the cost implications are now suffering the consequences.

Moreover, Amazon customers have become accustomed to 'ordering three dresses, choosing 'the 'best fit' and returning two, 'as easy as 1-Click ordering'.

In fact, other online retailers now face “Returns Tsunami” As Try-Before-You-Buy Trend Intensifies...(more)

As a result, this week has seen the launch of FedEx Returns Technology. It’s new service billed as a comprehensive solution for returns management which aims to give high-volume merchants and ecommerce retailers the ability to quickly and easily improve their customer experience by helping them take returns (more).

It is now clear that returns have rapidly evolved into a critical factor, second only to cost, in satisfying today’s e-commerce customers.

This FedEx initiative may help....

Breaking News: Booker Shareholders Approve Tesco Deal

                                                                                           
83% of Booker’s investors are reported to have voted in favour of the transaction despite recent calls by shareholder advisory groups to reject Tesco’s cash-and-shares offer [more]

• With 83% of Booker’s investors in favour of the transaction, despite recent calls by shareholder advisory groups for an improved Tesco cash-and-shares offer...
• …this has to mean that shareholders believe that there is a greater long term value in the deal…
• It also indicates that most Tesco-Booker initiatives will be supported...
• Only issue will be what happens if the company cannot improve its bottom line in the process...

US: Details Emerge Of Amazon’s Exclusive OTC Range

CNBC has said that the ‘Basic Care’ brand was launched without an announcement back in August 2017. The range, produced by private label manufacturer Perrigo, offers 60 products that include painkillers and hair treatment. While Amazon already offers OTC products from select manufacturers, this range is exclusive to the online retailer, giving it a greater say in pricing. [more]

• Anyone in the business knows that this is serious…
• Given Jeff Bezos mantra: ‘your margin is my opportunity’…
• …means some sleepless nights ahead for all stakeholders, at least!
• Time for brands and private label OTC to anticipate full roll-out by Amazon…
• …and explore what-ifs on what is left…

NB. Take another look at the impact of the Amazon-Berkshire Hathaway-JP Morgan tie-up (see NamNews 31/01/2018)

Tesco £4bn Equal Pay Claim - an opportunity for robots?

Tesco is facing an equal pay claim from female store staff that could end up costing the retailer as much as £4bn.

Law firm Leigh Day is reported to have launched legal action on behalf of nearly 100 female shop workers amid claims they earn as much as £3 an hour less than male warehouse staff despite the value of the work being comparable.

If the legal challenge demanding parity is successful, thousands of shopfloor staff could receive back pay of up to £20,000 each.

Paula Lee, a Leigh Day lawyer who is representing the Tesco women, said: “We believe an inherent bias has allowed store workers to be underpaid over many years. There might be lifting and carrying in the distribution centre but there is also lifting and carrying in shops as well as dealing with customers asking questions and handling money.”

Leigh Day said the underpayment could apply to 200,000 of Tesco’s workers, the majority of them women. It has lodged initial claims with the conciliation service, ACAS – the first stage in what is likely to be a protracted legal process through the employment tribunal system which could last several years.

Reports said that even if a small proportion of the women are successful, the cost to Tesco would be significant.

The retailer stated that it has yet to receive details of any claim, with a spokesperson saying: “Tesco has always been a place for people to get on in their career, regardless of their gender, background or education, and we work hard to make sure all our colleagues are paid fairly and equally for the jobs they do.”

NAM Implications:

• This has to add to the financial appeal of robots in both warehouse and retail shop-floor roles…
• …and thereby accelerate their adoption in Tesco and in other mults…
• …for starters.

Meanwhile, for context, £4bn represents approx. 8% of Tesco’s sales…

Redefining the Supplier-Retailer Relationship - the Independent Retailer as an advertising medium for the Brand

Given the fact that global pressures on supplier and retailer profitability, especially since 2008, caused by a combination of Amazonian online, and discounting in a flat-line environment, suppliers are having to re-consider the emphasis traditionally assigned to multiple retailers in customer portfolios. These developments coupled with the increasing need for suppliers to optimise every channel to the consumer, are causing brand owners to fundamentally re-assess the role of different customer-types in their portfolios.

In other words, the traditional view of major customers taking more than 50% of supplier resources has been overtaken by events...

Essentially, suppliers now need to view customers’ outlets as selling points, advertising media and fulfilment centres (in terms of optimising the retail space as distribution and Click & Collect points).

Whilst the customer’s role as sales agent has been well documented elsewhere, and their role as fulfilment centres is evolving pragmatically as means of traffic–building and covering distribution costs, their role as advertising media may be worth exploring…

As they struggle with large space redundancy, and with long-tail ranges increasing their need to cherry-pick within categories, the mults cannot afford to offer a full representation of the suppliers’ range at point- of-sale, let alone provide hands-on experience of the brand within the store.

Add to this the fact that in a zero-sum game the additional trade support required by the major multiples means that there are even less supplier resources available for maintenance and development of the independent trade.

Current market pressures in terms of limited growth potential of the mults, a need to match Amazon online standards in going direct to the consumer, and increasing risks of being unable to find ways of working with Aldi and Lidl as they deliver 15%+ rates of growth, makes it vital that suppliers try to make more use of the independent trade as a route to consumer.

In fact, it could be said that Independent retailers are becoming more important to suppliers as consumers shop smaller, faster, closer and more frequently. They are also in need of NAM-quality consultancy advice.

This, coupled with the fact that the revenue stream from a good independent retailer cannot cover the costs of regular calling by a salesforce, means that the opportunities represented by the independent trade will continue to represent unfulfilled potential, unless suppliers take a radically different approach to investment in the channel.

Historically, suppliers have regarded the independent trade as a sales outlet, needing to at least break even on the cost of visit vs. size of order in order required to justify the cost of calling. This approach has obviously limited the number of direct-call accounts that are economically viable, resulting in increases in trade concentration, as the strong get stronger. Fortunately, the evolution of alternative channels such as online and discounting has halted the progress of the mults…

In many categories such as toys, books, houseware and home entertainment, the independent specialist retailer can fulfill an important ‘educational’ role on behalf of the supplier. Here the retailer helps to bring the consumers closer to the brand, allowing them to interact and bond with the product. They will also benefit from advice and shop staff expertise.

Properly supported with appropriate training and sales-support material, the independent retail outlet can also function as a ‘living billboard’ for the brand, communicating with the consumer in a way not easily achieved via the multiples. Unfortunately, given the economics of running an independent retail store, it is not easy for the retailer to match competitor’s prices. This inevitably results in their shoppers taking the advice and experience of the brand, and buying the product elsewhere. The increasing appeal of online retailing simply adds to the dilemma of ‘lost sales opportunities’ for a specialist retailer.

However, if the supplier shifts the role of the independent retailer from a sales to a marketing function, seeing the outlet as an interactive advertising medium, then it becomes easier for the supplier to classify at least some of the cost of independent calling as ‘advertising’. In fact, given the increasing fragmentation of traditional above-the-line media, it could be said that a well-motivated and supported specialist retailer could have more brand impact on the consumer than traditional media. The same could be said of trade investment with mults that can no longer justify traditional levels of trade spend as they struggle to exceed flat-line sales performance.

With this change in stance, it becomes easier to justify the allocation of say 50% of the cost of independent coverage to a combination of the brand’s advertising budget and trade spend.
It may even be more cost-effective…

Making the Numbers Count at the 2018 Interface…

Given the nine year austerity fall-out from the 2008 global credit-squeeze and the pre-Christmas slowdown in UK retail, 2018 will have to be played very close to the financial edge…  This makes it is crucial that suppliers quantify and demonstrate key aspects of the risk-reward relationship at the supplier-retailer interface. Creative use of numbers can help.

However, whilst robust calculating methods can often reveal usable insights (see NamCalc), the confidence and ability to lead a reluctant buyer to ‘obvious’ financial conclusions requires a little more… Working confidently at the financial-edge requires a constant willingness to reduce issues and situations to numbers, to the point that the resulting moves seem instinctive. This means building up a repertoire of calculating-tools that can be adapted to most aspects of a trading relationship, and by continuous application, internally and with the customer, a level of confidence and credibility is built up over time. 

Essentially, optimising the supplier-retailer relationship is about working towards and maintaining a fair balance of relative risk and reward between trade partners. It is crucial to understand both supplier and retailer business models in the current climate in terms of how money works within each organisation, using open domain accounts as a basis for comparison.

This means isolating every type of financial transaction with the customer, calculating its cost to the supplier, and then its value to the customer based on respective business models, and net margins. In other words, a supplier making a net profit of 9% (remember when?) has to achieve incremental sales of £11,1k for every £1k ‘invested’ with the customer. Realistically, suppliers nowadays are lucky to make half that, so in practice a supplier has to generate £22k for every £1k investment.

Meanwhile, a retailer making a net profit of 3.5% has to generate incremental sales of £28.6k to generate that same £1k received from the supplier. In other words, suppliers and retailers have more in common in this low margin environment. However, in case you have not looked lately, retail net margins have collapsed in the past nine years…

Taking latest accounts, it can be seen that a £1k investment by supplier is ‘less valuable’ to Sainsbury’s (net profit 1.9%, £1k = incremental sales of £52k) than to Tesco, with its net profit of 0.1% (£1k = incremental sales £1m!). BTW, are you getting a feel for the real pressures on the guys in Cheshunt…?). Seeing business life in terms of incremental sales thereby requires differing levels of emphasis and support in negotiation.

In this way it is possible to use incremental sales as a measure of the value of trade investment to the retailer, thereby impacting two important buyer KPIs, margin and sales growth. In practice, the buyer is measured on gross margin, but is increasingly affected by the resulting net margin as a driver of ROCE and ultimately share price. 

Apart from helping in day-to-day negotiation, working the numbers at the supplier-retailer interface is really about identifying relative risk in the total pipeline, and allocating rewards appropriately to all members of the demand-supply chain. Because of a reluctance or inability on the part of the NAM to factor in different parts of the relative remuneration package over the past nine years, the risk-reward balance has become tilted in favour of the retailer.

In spite of this advantage, the continuing price wars have diluted net margins in retail, as a result of which retailers are now heavily dependent on their excessive terms packages to maintain profitability… As a consequence, for instance, current credit periods in no way reflect improvements in delivery frequency over the past nine years.

This additional insight added to average payment periods of over 20 days, coupled with daily delivery, means that eventually, an indefensible and politically damaging position will emerge, as more suppliers go to the wall…

The resulting ‘exposure’ will probably cause more damage to retailers’ share prices than the cost to the major multiples of voluntarily reducing retail net margins to say 2.5% and payment periods to say 5 days, before being forced to make these ‘obvious’ moves by government and especially public opinion.

Retail prices could also be reduced slightly to satisfy the public, and the margin savings passed back to suppliers on a fair-share basis, thereby increasing their margins without a massive distorting of the market.

Counting the numbers could help in spreading the pain… 

Christmas wishes from the NamNews Team!

When every little disguise helps on a store visit... (Liu Bolin, Camouflage artist)

Like your Burger well-done, really well-done?

Pic: Insidefmcg.com

According to Insidefmcg.com, supermarket giant Coles has released the new Coles Finest Charcoal Brioche Burger Buns. Those with sensitive palates may be relieved to learn that the buns were created using activated charcoal from coconut husks...

The result is a soft, rich buttery bun with a unique texture, colour and flavour.

BTW, if you really want to make dieting easier try googling 'charcoal buns' and select 'images'.

Minimum unit pricing - the effect on your favourite tipple...

A Food-To-Go Opportunity for Brands?

 Source: IGD, Gavin Rothwell

The 250 delegates at the IGD's recent food-to-go session had a first-hand opportunity to experience some of the creativity driving CAGRs of up to 8.4% in this sector over the next five years.

Whilst healthy eating was a key theme, it emerged that provided suppliers tailored to consumer need, there is an opportunity for appropriate branded suppliers to move beyond the 'butter portion' approach to food service. Instead, food-to go represents a growth opportunity for brands that can re-package to fit within the creative offerings being made by Coffee Specialists, FTG Specialists and other FTG routes to market.

If any of your colleagues need persuading, why not pass them a copy of the above slide (and check with IGD for additional research), and ask them to compare with the uncertainties of your current routes to market.

The Pound shop opportunity took us by surprise until brands realised that brand-packs could be viable in smaller sizes.

A pity to miss a similar opportunity with food-to-go..... 

Tesco Boss Gives Evidence At Fraud Trial

The trial of the three former Tesco executives accused of being involved in the retailer’s profit overstatement in 2014 continued yesterday, with the group’s current Chief Executive Dave Lewis taking the witness stand. (More)

• The key issue is that newly appointed Lewis acted comprehensively with appropriate haste to correct the situation…
• …and as long as this point is accepted by the consumer-shopper, the harm in their eyes will be minimised.
• With the benefit to suppliers that trade investment has been put into the national spotlight, and is being booked accordingly, by all…

CMA Delays Revealing Provisional Decision On Tesco’s Proposed Takeover Of Booker

Having originally said it would publish details by the end of October, the CMA yesterday altered its administrative timetable to say the provisional findings would be available ‘early/mid November’. (More)

• Continued uncertainty means suppliers to Booker revert to short-term mode in terms of dealings with Booker…
• …and the rest of the wholesale sector.
• Whilst at the same time anticipating further consolidation in UK wholesale.
• i.e. reducing the possibility of prices and terms discrepancies…
• But if the deal goes ahead, be prepared to offer Tesco-Booker terms to all wholesalers.

The unintended consequences of an unprecedented merger:

• This issue is not about increased Tesco buying power (Booker would add 10% to Tesco purchases)
• The real issue is that Booker will be able to avail of Tesco buying terms, resulting in unmatchable competition for wholesalers not so privileged…
• Time for suppliers to conduct what-ifs on supplying all wholesalers on Tesco terms?
• Or watching Tesco-Booker grow at the expense of other wholesalers - same difference?
• Or other wholesalers being taken over by other mults? - almost same difference?