The Londis, Budgens, Premier Combo - a new kid on the block?

Representing approximately £830m in incremental sales, taking them to 9.4% of the UK convenience sector, and building on their supply chain efficiencies, Booker’s acquisition of Londis and Budgens has to represent a quantum leap for the Group.

The strategic link with Musgraves also offers two-way synergies, whilst the increased buying power ‘can’t hurt’ on Booker's side of negotiation table.

The issue for suppliers has to be the speed with which they can review their trading strategies, terms and conditions (prices & terms disparities) and negotiate some compromises in the small window afforded by the inevitable competition issues resolution…

In terms of re-negotiation, suppliers need to re-assess their relative competitive appeal to Booker, given the new combo above.

From a shopper perspective, it might also be worth re-mapping the relative competitive appeal of Londis, Budgens and Premier from the perspective of the consumer-shopper.  To accelerate the process, see our Buying Mix Analysis tool

That then leaves preparation of a settlement point that reflects your perceived pulling power with the 'new Booker', and goes some way towards closing any prices/terms gap, before Booker does it on your behalf...

For a free HIM infographic re shopper insights see here

Methinks, in these unprecedented times, we need to question too much….

                                                                                                                         pic: Jonathan Streeton

Asda's 3.9% fall in like-for-likes - why Walmart won't go over the top...

News of Asda’s Q1 results might cause suppliers - and rival retailers – to expect a ‘decisive’ price-cut response financed by Walmart, in these times of unprecedented moves by the mults.

However, joining a couple of extra dots could indicate otherwise.

For instance, comparing relative financials of Walmart and Asda could provide some clarity:

Walmart (2015) Results 
Net Sales               $482bn +1.9% YOY
Net Income             $24bn
Net margin              5.1%
ROCE                   17.9%

Asda (2013, latest results available at Companies House)
Net Margin              3.9%
ROCE                   12.1%

Neither of these companies want to increase Walmart-Asda profit differentials...

Also, Walmart – and Asda – don’t do knee-jerk, so the response to the Q1 shortfall will be a price drop sufficient to 'restore order', but sustainable in the long term, and probably financed by the UK operation, meaning it will not be an over-the-top initiative.

That being the case, coupled with yesterday’s economic news of -0.1% ‘negative inflation’, could mean that we are in for a calm period of sustained flat-line demand…

…where growth will come at the expense of less-alert competition..

'Docking' the long tail, a product-cull too far?

Given that the UK’s largest retailers appear to differ re the need to cull 30% of Tesco’s range (Sainsbury: “…customers tell us they can buy things in our shops that they can’t buy elsewhere.” vs. Tesco: “…20% of SKU's in an Extra store are only selling 1 pack per store per week”.), and as Dave Lewis is the one currently wielding the docking-knife, it is perhaps more important for NAMs to anticipate a 30% reduction in SKUs and plan accordingly…

• The issue for suppliers is where the end of the long tail starts…
• Combining this idea with the 80/20 rule, suppose 18,000 of Tesco’s 90,000 SKUs account for 80% of their in-store turnover, then 30,000 SKU de-lists may not be sufficient...

Action: At the very least, major retailers should check at what point in the tail, weekly off-take does not justify the space allocated…

• …and given that the cost of retail space online is irrelevant, the remaining SKU’s could be added to the online portfolio, or de-listed…Perhaps a final compromise for de-listed NAMs?

Finally, if Tesco manage to gain a competitive edge via product-culling, how long before others follow, or sacrifice share?

(BTW, NAMs that have enjoyed a less sheltered childhood will be aware that docking a working dog’s tail was a fairly common practice in the old days, the actual method being the only ‘bone of contention’, whilst adding a whole new meaning to ‘cross-docking’….) 

The NAM-Suitsy - A pyjama onesie when 24/7 is not enough...

                                                                                         pic: Greg Ferenstein, The Ferenstein Wire

Joining the commercial income dots: moving to full disclosure?

Given the latest news of Asda slashing prices to maintain/increase its position of 5% less than the other mults, knowing that any growth in flatline has to come at the expense of direct competition, coupled with Tesco’s ending of their 32 year relationship with auditors PwC, itself a reminder that the SFO are at work investigating how Tesco’s £263m profit overstatement was caused in part by how retailers book trade investment, all adds up to a need for retailers to disclose the contribution made by commercial income to their final results.

Indeed the recent criticism of Sainsbury’s for not following Tesco and Morrisons lead in making these disclosures, with little sympathy for protestations of ‘commercial sensitivity’, means that the SFO will probably conclude that disclosure will be mandatory...

However, better if all retailers anticipate legal developments and make these disclosures on a voluntary basis.

This leaves Asda, which, being US-owned, and ultimately subject to a changing tax regime where issues of global taxation will drive more open reporting at local level, will inevitably conform re disclosure of commercial income in the UK.

The rest of the trade will probably fall in line to avoid possible raising of their profile at the SFO…

Auditing will become more precise, in terms of accounting for, and booking of, such revenues.

This means that stakeholders will need to anticipate that all CI ‘buckets’ will be defined more precisely, have clearer objectives, appropriate KPIs and will be measured with more precision. In other words, we are headed towards payment in arrears, based on actual boxes sold…

Time for suppliers and retailers to anticipate the obvious and start accounting now…

Post-election promises?

Tesco Soft Drinks Supply Aggregation - another type of Cull?

Refresco Gerber’s recent deal with Tesco to produce all of its own label Soft Drinks could be an effective way to rationalise Tesco’s part of the  carbonated and non-carbonated Soft Drinks category.

It could also be a new approach to Tesco's management of some categories...

With little or no axe to grind, this move to a single producer will simplify the elimination of product overlap and products with peripheral advantages, in one stroke….

All products could be produced in harmony, reflect scale economies and allow new product introductions that will fit with a co-ordinated optimisation of the ENTIRE category, an ideal blend of brand and private label, tailored to the needs of Tesco shoppers - the ultimate in category management?

In which case, could it be time for suppliers in other categories to consider the extent to which all/most of the Tesco own label products in their category could be similarly aggregated under one branded/own label supplier?

If so, might it not be an opportunity for a brand-only supplier to dilute their principles and actually pitch for the Tesco own label business in their category?

...and if you don’t, who will?