Co-operating with the Co-op - the challenge for suppliers

Given several years of producing results like a ‘normal’ retail multiple in terms of net margin, stockturn and ROCE, and suppliers having responded by upgrading their Co-op NAMs to pro-active business managers of the account, and factoring increasing market share into trade strategies aimed at long term collaboration, yesterday’s developments on top of a catastrophic loss of Co-op banking credibility, means that the clock has been set back twenty years…minimum.

The co-operative model works well in other countries, all based on the Rochdale pioneers approach. However, the UK Co-op is a business with deep problems, a long history of under-performance, an outdated board structure and far too much debt. This latest crisis may have convinced those in charge that Sutherland’s resignation should be "a catalyst for the real and necessary change which the group must go through"…

The problem for suppliers in these unprecedented times is that they cannot afford to wait for the evolution of a new Co-op model that reflects the competitive, consumer-savvy, ROI and fast pace of retailing today.

Also, suppliers cannot hope to change to Co-op, and instead have to revert to short-term transactional management, dumbing down the supplier-retailer relationship, minimising service level, reducing exposure, and deploying talent elsewhere.

If the Co-op survives this challenge, muddles through and begins to show signs of improvement, then suppliers will begin to cautiously re-invest, using performance-based reward, and insisting on 100% compliance…

That is the price the Co-op must pay for 2014’s mis-steps….

New competition of biblical proportions in the wine category, as Miracle Machine Turns Water To Wine

Discovery News reports the invention of an urn-like device can reportedly turn water, grape concentrate, yeast and a finishing powder (for barrel-aged flavour) into wine in three days. The table top appliance @ $499 is also controlled by a mobile app that guides users through the process and helps them distinguish the correct wine for their palate.

                                                                                                 pic: Discovery News
According to FAQs on the Miracle Machine site, answers to top-of-mind questions are as follows:

Q1. Sourcing Ingredients
You'll be able to buy the grape concentrate, yeast, and the final sachet of ingredients through our website, and Amazon, once we launch. Each kit will make a different type of wine. We plan on creating a low cost monthly "wine" club, where for under $10 per month you receive several kits, enough to make a bottle of wine a week.

Q2. Cost?
The costs equate to $2 dollars to make a bottle of wine that we would expect to pay $20+ for, at minimum.

Q3. Types of wine
Initially we have sourced 6 wine types that The Miracle Machine and its app will help you make. These are a full-bodied Cabernet Sauvignon and rich Chardonnay from Napa Valley, a cool climate Pinot Noir from Oregon, an aged Tuscan blend from Italy, Sauvignon Blanc from Sonoma, and a delicate red and a steely white from Burgundy. We expect to add 5-10 more over the next 3 months

Patently an advance on converted dust-bins and ant-tracks across the kitchen floor in these austere times, but the Miracle Worker is probably worth a couple of what-ifs, and at $499, a punt?

Safeway-Albertsons merger as a way back to the UK?

Last night’s NamNews of a merger resulting from demand issues in the US economy could impact UK and EU markets...

The merger continues the consolidation that has changed the US landscape for traditional supermarket operators amid greater competition from upscale chains such as Whole Foods Market, warehouse club operators like Costco and retail giant Walmart.

Apart from the classic understatement by Albertsons chief executive Bob Miller to the effect that the ($60bn) size of the new outfit would improve its bargaining position with suppliers, the real issue is how long it takes for Safeway-Albertsons to seek growth abroad, to compensate for flat-line demand at home?

In which case they would join a trend begun by Walmart-Asda, continuing with Walgreens-Boots, followed by McKesson-Celesio, and who knows, CVS-A.S. Watson in a UK-centric move to Europe…?

And given that Safeway have  been here already, might it be worth considering a Safeway-Albertsons-Morrisons move for starters…?

Amazon signs UK deal with Mexican food company, a Morrisons opportunty?

News that Amazon UK have a deal to supply Mexican foods to the UK market, begs the obvious question as to how soon they will want to establish a Bricks & Mortar presence?

Mexgrocer.co.uk will sell 100 products, such as margarita mix and chilli sauce, on Amazon.co.uk, adding to thousands of dried foods on the Amazon site.

The online retailer has been expanding its Amazon Fresh service, which delivers fresh groceries to customers’ doors, across the US in the past year, and is believed to be considering bringing it across the Atlantic.

And, given the issues Morrisons are dealing with, coupled with the Ocado link and a market capitalisation of £5.48bn, would an acquisition be totally out of the question?

Amazon tests physical retail with ‘Kindle Kiosk’ vending machines

                                                                                                                   pic: Geekwire

Geekwire recently reported* that Amazon is experimenting with standalone, automated 'Kindle Kiosk' vending machines in selected airports and shopping malls in the US.

Whilst the machines sell everything from the $379 Kindle Fire HDX to a $20 Kindle PowerFast adapter, in addition to Kindle e-readers and covers.

The experiment signals the company’s desire to expand beyond online sales and third-party retail stores, directly selling its hardware and accessories in physical locations. It’s also notable in the context of past predictions that Amazon might want to buy Coinstar and Redbox parent Outerwall, the automated vending machine company based in Bellevue. That was pure speculation, but such a move would significantly increase Amazon’s physical footprint.

Amazon - with its low margins and love for automation - would prefer a vending machine to a brick & mortar outlet, at this stage, but as far as the UK is concerned, the current issues at Morrisons might make the grocer a useful acquisition to power Amazon's next move towards the consumer....

As far as vending assortment is concerned, whilst it’s not clear how many people will feel comfortable purchasing something as expensive as a $379 tablet from a vending machine, at $69, the standard Kindle e-reader could be an impulse buy for someone preparing for a long flight.

However, the real pay-off for Amazon has to be the subsequent sale of ebooks for new users, and obviously other impulse/distress possibilities from the rest of their portfolio...

* See 21 additional pics here

Late payment: Why three weeks free credit is too much...

The whole issue is about big vs. small, i.e. Power and it's abuse..., rather than simply supermarkets using supplier credit to supplement their cash flow. However, as current supplier payment periods are 'justified' by the fact that 'other retailers do it', and suppliers in turn try to pass the cost of credit back up the supply chain via demands for equivalent credit periods from their suppliers, it is perhaps an idea to try to correct the problem by compelling retailers to pay within an appropriate period, related to rate of sale.

Given that most food retailers turn their goods over 20 times per annum on average, and credit is meant to bridge the cash gap between delivery of goods & services to a reseller, and payment by a shopper, then it could be said that payment should be made in 2.5 weeks.... i.e. a lot shorter than current levels of 40+ days in the UK.

In practical terms, products should by grouped in bands related to rate of sale: say twice weekly, weekly, 2.5 weeks, and monthly (a product moving at less than 12 times per year, perhaps should be in another channel...).

This would then allow revised terms to cascade back up the supply chain, and thus allow at least one 'concession' to be removed from the negotiation table.....

Call me naive, but... How Tesco could rebuild trust in UK retail

Latest comments from Tesco and Sainsbury's stress the need for restoration of trust and clarity in retail, albeit at some cost to the bottom line.

Taking these at face value, it seems that the following steps might help:

• Price clarity: A major opportunity lies in wait for those retailers that strip offerings back to the basics of letting consumers know what they get for their money. Apart from an obvious emphasis on unit pricing combined with a little education ref. prices per g/ml, it means eliminating all ‘letter & spirit’ legal issues regarding promotional offers, and replacing them with genuine, transparent and defensible offerings that can be compared accurately with competitors’ alternatives, like-for-like, but also meet and even exceed consumer expectation
• Product delivery:  When a consumer opens a tin, its contents should match or even exceed the expectation created by the lid…a fundamental of branding based in part on the fact that the cost of making the first sale to a consumer is so high that profit is only possible on return visits without having to be re-sold
• Demand forecasting: As ‘experts’ in consumption, suppliers can be in a position to help refine demand calculations and the combination of this insight with a retailer’s instore on-time fully-shared expertise has to be a way of ensuring 100% zero-defect shelf availability, at minimal cost for all parties
• Trade credit: Credit was always meant to cover the gap between delivery of goods to a reseller and payment by shoppers, and was never intended as a means of generating interest on 40-day deposits. As such, given average retailer stockturns of 20 times per annum, this means paying supplier invoices within 2.5 weeks of delivery. There is even a case for paying faster for items delivered on a daily basis
• Trade investment: Post-audit recovery came about because of a combination of inadequate ‘paper trails’ of promotional agreements by suppliers, and the ability of financial programmes to search and claim for unpaid funds for six years previously.  Despite the strict letter of the law supporting this process, a retailer could show some goodwill and pragmatism by limiting such searches to a maximum of two years…
• Trade Deductions: Should not be regarded and treated a source of income, but should reflect genuine failure to meet reasonable standards agreed in advance as a condition of purchase, with perhaps some element of reciprocation for failures of on-shelf compliance...
• Organisational compliance: The above changes need to be understood and communicated at all levels within both supplier and retailer organisations, thereby eliminating the possibility of 'rogue-buyer' defenses at higher levels of management…

Tesco, with 30% market share and a need to regain custom, is in a unique position to be in the vanguard of this change..

And if it results in a temporary loss of margin, so what… In time, as shoppers - and suppliers - begin to relax into the feeling that in a Tesco store, ‘what you see is what you get’ and even more, then the result will drop into the bottom line as repeat sales come in at less cost, like with all good brands…. 

A Blink as good as a Nod in finding products instore?

                                                                                           pic: Lighting

Philips' app-based system determines the shopper's location via the flickering of the overhead LED lights

The system incorporates LED bulbs that are installed in the existing overhead fixtures. Depending on the specific fixture in which it's placed, each of those bulbs will flicker at a different distinct rate. Although that flickering is too rapid to be detected by the human eye, it can be detected by the camera of a phone running the app.

When a shopper wants to find a product, the app starts by ascertaining the person's location within the store, based on the flickering "signature" of the fixture immediately overhead. It then accesses a map of the store, and proceeds to guide the user from their current location to that of the item, presenting access to coupons where appropriate.

In fact new research shows that “missing key information used for product identification is the equivalent of being out-of-stock in a physical store”, and being unable to find the goods renders them out-of-stock, in shopper terms. The GS1 UK survey of 2,000 UK adults also revealed shopper beliefs, with 24% saying they didn’t trust online product information as much as they did the information they were given in store..

As the mobile shopper in the aisle is obviously online-instore, then accessing further product details, and being satisfied with the answers, helps the shopper to complete the purchase from a retailer they trust….

Availability, credibility, defensibility and value-for-money in a seamless, consistent multi-channel environment, is all it takes, as we anticipate a price-war to end all price-wars…

Ever hanker after the old days?