Tesco's new trading terms - a fundamental step towards fair-share dealings?

In an issue-packed day where most delegates had cause to re-set their business priorities, and test the limits of their networking skills in a pool of 650+ potential contacts, the IGD’s Big Debate presented a fundamental opportunity to update suppliers’ UK market context with the help of speakers that were prepared to face up to market realities and indicate their ways forward….

Nothing beats hearing it live, but a good second best (apart from a lost networking opportunity) can be achieved via a combination of the IGD’s Events App and reports from a packed press gallery.

Although spoilt for issue-choice, for me a pivotal item was Dave Lewis announcement of Tesco’s new trading terms.

Full details here, but essentially, Tesco has pledged to deliver a simpler and “fairer” business model for suppliers, by standardising their payment terms and settling bills from small and medium-sized firms quicker. 

When you consider that Tesco’s average days credit period is 42 days, which at say 5% cost of money and trade creditors of £5,076m (end Feb 2015), is worth £253m per annum, you will appreciate the pain this represents, given this morning’s announcement of a 55% fall in profits to £354m.

Whilst the new terms represent a major step towards fair-share dealings for Tesco – and a pointer for other retailers? - this is hopefully but the first move in acknowledging that trade credit should not be regarded as a source of working capital, but merely a way of covering a cash-flow gap between supply of a product and receipt of cash from a shopper. 

If that is the case, then Tesco need to budget for an eventual move to approximately 5 days average trade credit…

If this initiative catches the imagination of the public and thereby contributes to Tesco’s recovery, then other retailers will have to follow suit, or suffer loss of share…

However, whilst this will undoubtedly help suppliers, the real consequence will be the public-opinion spotlight then turning on major suppliers’ use of up to 90 days free credit from their ingredients, packaging and services suppliers…

Time for all suppliers to anticipate the obvious and begin their profit re-sets now?

Still think Amazon can add little to fresh retail?

Tesco’s Carlsberg de-list – just another overcrowd inevitability?

Whilst both parties understandably remain silent on the specific reasons for de-listing most of the Carlsberg range, it seems obvious that the brand’s scale and importance required a carefully calculated decision.

We are patently not privy to the specifics, but here on the outside, NAMs need to explore possible rationale/scenarios as a basis for identifying the implications for their brands, and taking evasive action, where necessary...

Consumer need has to be a starting point
Logically, when compared with available alternatives, Carlsberg was deemed to have less relative appeal than other brands and own-label, from the perspective of Tesco shoppers.

In practice, this meant that Tesco shoppers believe that the brand’s combination of Product/performance, Price, Presentation/Promotion, and Place is less appealing than other members of the category.

Whilst the Carlsberg marketing team might beg to differ, the fact remains that their consumer-appeal message is not reaching Tesco, or did not survive the BCG assessment.

Retailer need comes next
Here Tesco must have assessed the brand’s combination of Product/on-shelf performance, Prices & Terms, Presentation (how well the offering is put across, at all levels) and Place/availability, all compared with available alternatives in making a decision based on relative competitive appeal.

Whilst this can be a relatively simple process, it has to be kept in mind that Tesco is changing radically in most aspects of its decision-making-process, with a different balance of traditional and new influencers in the mix, all operating under an intense City spotlight… 

At some stage, Tesco decided that Carlsberg was deficient, and made the de-list move.

Why this matters for NAMs
The issue for NAMs is not only the possibility of their brand becoming a casualty of the Tesco re-set, but also the inevitability of this culling process being applied by other retailers in an overcrowded, insufficiently differentiated market, as they strive to optimise their relative competitive appeal, with no facilities for taking prisoners.

The answer has to lie in making a fundamental assessment of your brand’s real pulling power with the consumer, and integrating this with an effectively communicated trade offering that emphasises your advantages, and eliminates anything that dilutes its appeal, before the buyer does the inevitable…   

Jet.com: the new 'Aldi' of eCommerce?

A new US-only website, launched in July, Jet.com is offering another option for price-sensitive online shoppers: simply visit its site and it will guarantee the lowest prices across some 10 million items.

The site also offers a variety of tricks Jet.com shoppers can use to save even more, including filtering by “smart/cheaper” items, opting for a different form of payment for extra savings, accepting combined packs, slower delivery, or even agreeing not to return an item in exchange for a discount.

In other words, Jet.com are aiming at Amazon's market, but betting that online shoppers will be willing to trade high service levels for lower prices...

The business model works on a combination of a $50/annum membership fee and a real-time trading system that suggests economies such as 'combinable' products, new shipping options and price updates - cheaper! - as the shopper packs the basket, all resulting in lower prices (can you imagine the impact on B&M shopping if this facility could be incorporated into self-scanning in the aisle?).

Incidentally, given that Mr O'Leary plans to make Ryanair the Amazon of travel, aspiring to go the Jet.com route might make a better fit, and represent less of a culture-shock!

More on Techcrunch

Where are the UK Mults headed in your portfolio?

With Mike Coupe reporting better than expected results (1.1% drop in Q2 sales, and profits 19.5% down on the previous year) for Sainsbury's, coupled with Morrisons 2.4% fall in like-for-like Q2 sales, Asda's 4.7% fall in Q1 underlying sales, and fingers crossed for next week's Tesco wheel-tightening, NAMs have to ask themselves where now for their four largest customers...

Having to struggle with a perfect storm of a fundamental shift in buying behaviour - smaller, cheaper, closer, more frequent - coupled with a war on waste, and cash-strapped consumers 'making do', the mults are barely holding their own, as they experience market share drift to the discounters, convenience and online...

However, it is the structural impact of increasingly redundant large space retailing that represents the main threat.

Given their inability to trade out of the problem, the mults will have to address the issue of increasingly excessive space by progressive sell-offs of redundant outlets, fast enough to reduce the capital base (improving ROCE) but slowly enough to avoid a collapse in market values..

Meanwhile, NAMs have to keep in mind that most discounter growth will come at the expense of brands, unless branded suppliers can find ways of optimising the discontinuous relationships required in dealing with Aldi and Lidl.

In addition, those that survive the Tesco product re-sets need to anticipate the inevitable knock-on removal of overlap in other retailers as they also attempt to simplify their offerings and shore up their balance sheets.

All of this means that all stakeholders need to go back to fundamentals, before someone does it on their behalf...

In practice this means stripping your offering down to the bare essentials that satisfy consumer need, make you better than available alternatives, and allow you to demonstrate a positive, but tailored contribution to each retail player, even the mults...

Aldi Online - a contra-move that breaks the discounter-rules?

News that Aldi are going online appears to be a complete break with its traditional platform:
- Limited range
- ‘Bare-bones’ shopping experience and service
- Resulting in no-frills prices that are 15% lower

Going online pits it not against Tesco and the mults, but in direct competition with the high-service, unlimited range standards set by Amazon:
- 1-click ordering
- Returns as easy as 1-click
- And dense local coverage that drives down delivery cost

All of these go against Aldi’s core strengths…

The Dandy Lab - a merging of retail and technology

On your next store-visit to Spitalfields, why not try something really different by dropping into Dandy Lab, a new tech-enabled menswear store that stocks a small and exclusive selection of 'Made in Britain' cult brands?

NAMs will not be fooled by the superficial similarity to an innovative 'mens' outfitters that includes a selection of floppy handkerchiefs and crafted cuff-links appealing to the 'Dandy' elements of our nature.

The 'Lab' is where things get a bit more interesting. There's the 'Story Wall' - an interactive display allowing you to scan a product, which in turn activates a video with information that helps you get inside the tin, revealing details of its provenance, performance capabilities and the craftsman who produced it. The Story Wall, coupled with photographic analysis of your needs, helps you achieve that integrated look. In addition the technology gives you an insight into the story behind the products, the amount of work that went into its production and where your money goes. See more, including slideshow at Timeout

Finally, as you leave the store, you can share the results, including your photograph, with colleagues and buyers via social media, thereby adding to the productivity of your store visit...

Seriously, the Dandy Lab appears to be a genuine attempt to elevate shopping experience to new tech-enabled levels. They have set themselves high hurdle-rates by focusing on our most resistant gender...on the assumption that male-conversion will make the winning over of time-scarce savvy females a push-over...

I wonder...

...a thousand words?

..a journey barely started...