Today's KAMtip: Size of Deal on Table?

Trying to plan and manage a negotiation session without a clear idea of context for the deal can be like being out on the ice, in the dark, with little idea of the depth of the water.
Calculating the following deal ingredients will help to establish the scope for concessions on each side
Size of Deal on the Table
• Customer’s share of the category?
• The customer’s share of our business (£, %)
• Our share of their business (£, %)
• Our share of their category (£, %)
• Size of the deal for them (Sales, Gross Profit)
• Size of the deal for us (Sales, Gross Profit)

The size of the deal for the customer in terms of gross profit on the amount sold will indicate the 'pool' of money from which they can make concessions.
Similarly. the supplier's sales and gross margin on the deal shows the potential size of concessions that can be made to the customer.

The rest is about matching, trading and fair share negotiation…

A Gap in the Banking Category?

“Banks have tended to treat loyalty not as something to be rewarded but essentially as something that can be exploited. They trade on inertia”
"Every business talks about putting customers first, but this really is at the heart of everything Tesco does"

Ex RBS, HBOS and Standard Life Benny Higgins, Head of Tesco Banking, in an article in The Sunday Times, sums up why Tesco and the grocers are going to capture a sector that still thinks banking is about banking. Bankers should reflect on the formerly 'specialist' petrol sector, where the 'shopkeepers' now have a 40% share…anyone still in doubt should check out the French petrol market where over 60% is sold via grocers.

Since buying RBS’s half-share in the Tesco-RBS joint venture in 2008, Tesco has set its sights on creating a fully fledged bank that will generate higher profit margins than its core grocery business. In a short time Tesco has attracted more than 6m financial-services customers, taken 8% of the credit-card market and become the UK’s sixth-biggest motor insurer. It also has more than 2,700 cash machines and says that they provide £1 in every £8 in circulation in the UK. In the past year, savers’ deposits have increased by 28% to about £4.5 billion.

Still small fry, but dangerous for bankers to underestimate Tesco's banking potential. The target market is Tesco’s supermarket customers. The stores get 20m visitors a week and there are 15m people in the UK with a Clubcard loyalty card…..

However, there are cautions here for suppliers in food and non-food categories.

Tesco are now competing with traditional bankers that have never had to compete, in a category that is more profitable and exciting than traditional grocery categories. Tesco's other key focus is upon overseas development.

This means that UK suppliers now need to analyse and demonstrate the financial impact of their brands on retailer profitability, in order to grab and hold a share of Tesco's mind-space…more than ever before, and fast.

GSCOP: Something for the final Weekend of 2009?

With the real 2010 finally kicking off next Monday (snow, etc?) the effect of the most fundamental change-agent in supplier-retailer trading relationships will begin to make an impact.
To help you hit the ground running, we have analysed 3 pages of the new GSCOP and added 3 pages of calculation pointers to help show that the parts dealing with Prices & Payments, Promotions and Other Duties can have a positive outcome, given the right tools…

Make the most of your last real reflective opportunity to put the GSCOP onto the 2010 Agenda, by downloading a personal copy of our free analysis

Have a reflective Weekend, from the Namnews Team!

A question of scale, or sale?

In an article in The Guardian
- Wal-Mart, as China's seventh largest trading partner, outranks the UK, spending more than $18bn annually on Chinese goods
- The best-selling wine in the whole of Japan is an own-label Asda Bordeaux
- "It's important for us to be in one of the top three positions," says Wan Ling Martello, chief financial officer of Wal-Mart's international operation. "We have to have scale – otherwise it doesn't quite make sense."

At what stage will Asda's limited growth potential become too much of a liability, and yield more via disposal?

World’s Leading Retailers Grow Despite Recession, But Profits Take A Hit….

2010 Global Powers of Retailing, from Deloitte Touche Tohmatsu, shows that the global recession affected retailers' profitability at the largest 250 retailers in the world fell from 3.7% in fiscal 2007 to 2.4% in 2008.
Threat 1: Anyone managing these major customers knows that they don't do 'reduced profitability'.

The Report said, "2008 has been a tumultuous year for the global retail industry. Sales growth slowed and profitability fell, sharply for some. Many retailers 'bought' sales with heavy promotions which hit the bottom line hard. However, we are already seeing evidence that as economic recovery takes hold around the world retailers should be able to return to a path of improving profitability."
Threat 2: Retailers don't always 'buy' sales via their own pockets
Threat 3: Retailers don't always await economic recovery to improve profitability

The composition of the Top 10 retailers in the world remained the same this year. This group now accounts for over 30% of the total retail sales of the Top 250 retailers. Wal-Mart Stores remained the world's largest retailer, ahead of Carrefour. Despite Tesco’s better sales growth rate, relative currency strength against the US dollar enabled Metro to climb above Tesco, back into third place.
Threat 4: Tesco did not get where they are today, to meekly surrender global third place to Metro

Add to these four threats the implementation of the Groceries Supply Code Of Practice due on 4th February 2010 where UK retailers will need to recoup losses on payments no longer allowed…
Threat 5: This means that concessions on margins, credit periods, settlement discounts, rebates, promotional support, trade funding will be probably be re-negotiated to replace any retailer losses on payments no longer allowed (such as shrinkage allowances, space-costs, retros, etc.)

Now ask yourself if it is likely that it will be 'negotiation as normal' over the coming months?

Action:

1. Revisit the Cost & Value of every aspect of your trading relationship with major customers
2. Re-assess your team's ability to calculate and demonstrate the financial impact of your brand offering on the customer's profitability
3. Prepare for your toughest negotiations ever…
4. If in any doubt, please re-read Threats 1-5 above…
5. Find some short-cuts via NamCalc

Nigel's BOGOF: Something for the weekend?

Nigel's BOGOF?
Given the inclement weather throughout the UK and Ireland, possibly causing many of you to be confined to home for the weekend, and realising that our normal Namnews fare may be insufficient to occupy you for the next two days, we offer you something slightly different, based upon our mutual interest in shops and shopping behaviour….
Welcome to the cautionary tale of BOGOF-Nigel, a gentle man who simply tried to play by the retail rules..
Have a slightly different weekend, from the Namnews Team!

New Groceries Supply Code Of Practice (GSCOP) due for implementation on 4th Feb 2010

Given that the New Ombudsman has yet to be appointed, and with a Government focused upon more important matters like getting re-elected, it means that suppliers will be on their own until after May 2010, minimum….
This means that suppliers are headed for some of the toughest negotiations ever on every aspect of the supplier-customer relationship.

Think about it: Even better, check out the original document on the CC website, factor in the lack-of-readiness on both sides, the usual emphasis on consumer-first, strongest players allowed to win, add a normal dose of cynicism, and capture the result in terms of negative impact on supplier profitability…

In other words, the major multiples have a window in which new ‘norms’ can be established, before a test-case sets realistic and more practical ground rules. This means that concessions on margins, credit periods, settlement discounts, rebates, promotional support, trade funding will be probably be re-negotiated to replace any retailer losses on payments no longer allowed ( such as shrinkage allowances, space-costs, retros, etc)

Add in the costs (and risks!) of putting everything in writing, together with the need for new retailer Code Compliance Officers to report regularly on retailer compliance with the GSCOP, and you begin to see the inevitability of a legally enforceable contract between suppliers and retailers. For guidelines on trade contracts, check with your colleagues in France handling the Carrefour Account.

All of this adds up to a need to quantify every aspect of the supplier-retailer business relationship, counting every penny before, rather than after the negotiation session.
See Namcalc for 34 different ways of calculating cost to you and value to the retailer
Drop me a note on bmoore@namnews to discuss implications for you

Some Christmas KPIs?

A man named John received a parrot as a gift. The parrot had a bad
attitude and an even worse vocabulary. Every word out of the bird's'
mouth was rude, obnoxious and laced with profanity. John tried and tried
to change the bird's attitude by consistently saying only polite words,
playing soft music and anything else he could think of to "clean up" the
bird's vocabulary

Finally, John was fed up and he yelled at the parrot. The parrot yelled
back. John shook the parrot and the parrot got angrier and even ruder.
John, in desperation, threw up his hand, grabbed the bird and put him in
the freezer. For a few minutes the parrot squawked and kicked and
screamed. Then suddenly there was total quiet. Not a peep was heard for
over a minute.

Fearing that he'd hurt the parrot, John quickly opened the door to the
freezer. The parrot calmly stepped out onto John's outstretched arms and
said "I believe I may have offended you with my rude language and
actions.
I'm sincerely remorseful for my inappropriate transgressions and I fully
intend to do everything I can to correct my rude and unforgivable
behavior."

John was stunned at the change in the bird's attitude. As he was about
to ask the parrot what had made such a dramatic change in his behavior, the
bird continued, "May I ask what the turkey did?"


Have a terrific Christmas from the Namnews Team!