‘The arrival of Tesco has forced us to reinvent ourselves’

When the original planning application for a Tesco supermarket in Scotland’s first Food Town, Castle Douglas, became public in 2004, there was a flood of angst-ridden comment from residents and local politicians alike, fearing that the town's unique designation would be shattered, and its tourist trade along with it.
However, pro-active local retailers that focused on adapting their business to the competition from Tesco have thrived as a result.On the face of it, the one-street town is still thriving: there are four butchers, two bakers, one greengrocer, three delicatessens, a sweetie shop and several cafes dotted down the historic thoroughfare of King Street. Every Tuesday and Friday, there is Wyllie McCulloch’s fresh fish stall Ferry Fish, which has been in the same spot for 25 years selling wild sea bass, North Sea haddock and west coast scallops, lobster and monkfish straight from the boats fishing the waters off Whithorn.

By accident or design, the successful retailers have applied Ken Stone's classic principles in competing with major multiples that have opened nearby:

Competing with the multiples locally

• Businesses that sell goods or services other than those sold by the multiples, tend to experience higher sales because of the spillover effect. The additional traffic attracted by the multiple will shop at these stores. (i.e. Aldi in US)
• Businesses that sell the same goods as the multiples tend to experience reductions in sales after a multiple branch opens locally
• Be prepared to make changes (re-invent yourself)
• Take proactive action, anticipate a period of declining sales and prepare both a short- and long-term business plan
• Identify market niches that aren't currently filled
• Improve level of customer service
• Carefully evaluate ability to compete on price and avoid trying ‘head-on’

Not rocket-science, but then good shopkeeping is simply about doing basic things very, very well.....ask Tesco!

Walmart has 'reconstructed' its group relationship with Asda by 'selling' it to its Leeds-based investment vehicle called Corinth Services Limited.

In an article in The Telegraph, a Walmart spokesman was quoted as saying that it had been done "for good financial management" reasons. He declined to comment on whether the move was tax driven, but said that all the companies were registered in the UK.

In the absence of further details from Walmart, the real issues for suppliers are why, and why now….?

Bearing in mind
- Asda has been underperforming profitwise vs Walmart global (Net Margin 2.8% vs 5.3%)
- Difficulties in scaling up in the UK because of competition legislation preventing Asda from acquiring a major UK player, and planning legislation preventing significant organic growth
- Major opportunities for Walmart elsewhere

Possibilities:
- Could be a way of isolating Asda financial performance from Walmart global?
- Could be easier to sell Adsa as a 'stand alone' company to management + Private Equity?, Sovereign Wealth Funds, or to a major foreign player (India, China, Russia) seeking a UK presence?

Worth a 'what if' on the impact upon your trade strategies?
1 Bear in mind the radically different cultures resulting from acquisition by Private Equity (i.e. 4-year exit strategy, focus on financial ratios to optimise value via reflotation) vs Sovereign Wealth Funding (longer term, more involvement of current management, focus on longer term, steadier, but profitable development of the business.)
2 Acquisition by a major foreign player (India, China, Russia) would probably be a friendly rather than a hostile bid, working with the existing team to feel their way forward in the UK environment…but global implications for major suppliers ref prices and terms disparities…

A Mad KAM is Better?

New research* indicates that bad moods can actually be good for you, and that being unhappy makes people less gullible, improves their ability to judge others and also boosts memory. The study, authored by psychology professor Joseph Forgas at the University of New South Wales, showed that people in a negative mood were more critical of, and paid more attention to, their surroundings than happier people, who were more likely to believe anything they were told. People in negative mood are less prone to judgmental errors, are more resistant to eyewitness distortions and are better at producing high-quality, effective persuasive messages.
The research suggests that sadness ... promotes information processing strategies best suited to dealing with more demanding situations.

So perhaps the aggressive buyer is doing us a favour after all?

However, as the research also indicates that a positive mood seems to promote creativity, flexibility, cooperation, and reliance on mental shortcuts, maybe the ability to swing (or act?) from happy to sad marks the truly professional KAM in the final act...?

Have a theatrical weekend, from the Namnews Team !

Vin de Pays de scouse?

To make vino more accessible Spar is using local dialects on its wine labels.

Somerset version: "Alright my luvver, eers one helluva Merlot. Be stinkin hummin a sivvies thar be bleddy ansome wi yaw croust or oggy. Purfect ta share wi yaw pardy as i' aiin ta eavy. Mygar be a purdy wine! Churs!"

Liverpool version: "A totally boss bottle of Merlot which smells o' blackberry, choccie, a brew and toffees. Juicy and complex like, this bevey is top wi most scran 'specially me ma's scouse. Tellin ye, this is deffo a bevey that will leave youz and youz mates made up over yez Sayers pastie."

Newcastle wine has "legs leik a thoroughbred", while in Scotland the label describes "a youngane's colour wi cherries an black fruit on the nose"

N.B. Namnews would like to categorically state that there is no truth in the rumour that the Spar Wine Controller is now sporting a black eye, arising from the less than enthusiastic reaction of some focus groups during the research…whilst the government cannot yet decide on its possible racist implications, due to translation difficulties…

BOGOF: A fair share of the losses?

Persuading your customer to forego their retail margin on the free item can help, but you both lose money!

This example shows where a retailer and a supplier decide to jointly fund the BOGOF promotion. This means the supplier will supply the free item ‘free of charge’ to the retailer, who in turn offers ‘buy one, get one free’ to the shopper for £10. The supplier makes a normal gross margin of 50% (in other words they can manufacture the product for 50% of the price to the trade). The supplier also makes a normal net profit of 10% on normal sales.

Meanwhile, the retailer makes a normal trade margin of 25% of shelf prices, ex VAT, has handling costs 0f 10% and overheads of 10%, leaving 5% net profit. As you know, state-of-art retailers normally have a net profit of 5% of sales, ex VAT.

In this example, where the retailer gives up his gross margin on the free item, and the supplier provides the free item free-of-charge to the retailer, it can be seen that the retailer loses £0.75 per item, or £1.50 per BOGOF and the supplier loses £1.50 per item, or £3 per BOGOF sold.

Obviously, this means that both parties will lose money on every BOGOF promotion!

Fairshare negotiation can help…

See yesterday's post below for when the retailer refuses to forego the retail margin!

BOGOF losers?

A BOGOF sold for £10, with a supplier Gross Margin of 50% and Net Margin of 10%, refunding the retailer's margin, can lose the supplier £5.50 per BOGOF !

See example above, where the supplier has agreed to replace the retailer’s margin on the free item in a BOGOF.

Here it can be seen that the retailer continues to make his normal margin (say 25% Gross, 5% Net) on the free item.
However, because the supplier has to refund the retail margin, it can be seen that the supplier loses £2.75 on every item, or £5.50 on every BOGOF sold on promotion.
Sure, the promotion will create excitement in store, but will not only damage brand equity, it will also lose money…

P.S. If you want to discuss the BOGOF application to your trading termstion, drop me a line on bmoore@namnews.com

...but I don't need Authority!

Powerless President job-interview (divine inspiration)

Pic: Reuters/ Jason Reed

Walmart - The ultimate destination-category?

News that Walmart are attempting to complete the cradle-to-grave loop by becoming a category-killer via the provision of coffins and other funeral requisites is bound to cause grave concern to the traditional trade, who will apparently rely upon 'the personal touch' (seems like a stable-door job, given the state of the user?) to bridge the price-gap between their services and the Walmart Way....

Have a lively weekend, from the Namnews Team!