Retailers aiming to pass on pain down the chain?

News in yesterday's FT that Retailers are aiming to pass on pain down the chain, should not be news to UK suppliers.
Most members of a supply chain will try to pass risk and cost back to the previous member of the supply chain.
If they feel they are being over-charged or carry unfair risk, they are entitled to seek alternative suppliers…
The way forward for suppliers is to ensure that their selling prices are competitive (EMR-Buying Mix Analysis) on a genuinely like-with-like comparison with available competition. Any perceived 'unique advantage' will obviously work, at least until the customer sources a reasonable substitute, so even a slight market advantage has to be played carefully and realistically…
The big difference is that 6 months of recession have raised the game significantly, changed all of the supplier-retailer relationship-ingredients, and retailers are taking no prisoners.
We still have to live together, but we need a fair basis for implementing the partnership…

Find out how on our next Namnews webinar.

The value of rumours…

News that Sainsburys latest improvements in like-for-like sales may have prompted renewed attention from the Qataris, and possibly causing JS to re-consider a merger with M&S, raises the question of the value of rumours in supplier-retailer relationships…

Essentially, JS have undoubtely done a good job in improving like-for-likes by 6.5% and gained share from Waitrose, M&S and Tesco. However, this has been achieved at the expense of the bottom line. They need to improve Net Margin from its current 2.7% to something like double that figure in order to improve ROCE, and drive the share price to a level that will make them too expensive to buy, thereby giving them autonomy. Meanwhile, merging with a weakened M&S might be an option… (More)

Whilst the rumours are obviously distracting for the players concerned, such rumours can be valuable in forcing suppliers to seriously consider various 'what ifs', run the numbers and make decisions in advance of press announcements of a takeover that morning… Even if the rumours prove groundless, the exercise can help the company to re-consider its options, from a fresh perspective, and possible rationalise customer and product portfolios in the process, making for a better fit with market need…

Meanwhile, it is obvious that JS is undervalued in terms of market capitalisation (you could buy it for £6.5bn in the open market) so a merger with M&S is one way of delaying a full takeover by Qatari. This would mean gaining scale economies in private label food and some brands, but would entail coming to grips with the upper end of the rag-trade, where Stuart Rose has discovered, M&S shoppers' appetite for frocks is different…

Prompt business payment can benefit the buyer as well as the supplier?

A recent letter to the Telegraph by Institute of Directors, Forum of Private Business, Confederation of British Industry, British Chambers of Commerce, the Institute of Credit Management, and the Federation of Small Businesses, lists possible financial benefits throughout the supply chain in making prompt business payments.
'Prompt payment helps establish the best customer-supplier relationships, and enables customers to negotiate better deals and avoid late-payment interest charges. Prompt payment gives a signal to the market of confidence and financial wellbeing that in turn promotes further business opportunities and growth'.
Unfortunately, we believe that the letter misses the point, especially within the retail sector.
In our opinion payment terms are about power and need. Power comes from relative sizes of supplier and customer. In other words given the size of a major customer, accounting for 5% or more of a supplier's business, a supplier has no alternative but to await payment in an agreed period, and succumb if a retailer decides to to extend that period, or forgoe the business. Given that trade credit is an interest-free loan given to the customer, and a status quo has been established (say 30 days) then a retailer is unlikely to pay earlier without a concession of equivalent value in exchange.
Essentially, a retailer has three choices: invest money in a new store, deposit it in a bank or pay a supplier. The supplier simply has to demonstrate that their offer of an early payment discount exceeds the retailer's other two alternatives in order to secure earlier payment.
The only other possible approach is for the supplier to represent a niche market via a product that the retailer 'needs' to an extent that the retailer is prepared to compromise on their normal trading terms… Even then the supplier has to be watchful that competitors are not attracted into their niche area, thus weakening their 'solus' advantage… (Use our Buying Mix Analysis tool to assess the risk)
Unfortunately, awaiting help via government intervention requires a degree of lung-capacity beyond the capacity of most real-world suppliers…

Speciality Coffee-break…?

Those of us upping our coffee intake due to market pressures may be interested to know that a sometimes instinctive reaction, even in upmarket establishments, that the coffee 'tastes like gnat's* p...' may be closer to the truth than was thought…..
Kopi Luwak or Civet coffee is coffee made from coffee berries which have been eaten by and passed through the digestive tract of the Asian Palm Civet (Paradoxurus hermaphroditus, a cat-sized mammal). The civets eat the berries, but the beans inside pass through their system undigested. This process takes place on the islands of Sumatra, Java, in Indonesia, and was featured in the movie The Bucket List. (More on Kopi Luwak?)
* My thanks to 'anonymous' for pointing out typo (I was using 'knat' instead of 'gnat'), and sincere apologies to 'knats' everywhere...... see comments below

Transfer pricing and you (all multinational companies)

Yesterday it emerged (see full FT article) that the Special Commissioners - a tribunal that hears appeals against Revenue decisions - ruled last month that DSG did not properly account for the contracts as they were moved between a series of subsidiaries. This was the first time it had handed down a decision on transfer pricing arrangements, and is a land-mark ruling as far as other multinational companies are concerned. i.e. the Revenue Commissioners will use the ruling to re-open negotiations with other multinational companies, as part of government moves to increase tax recovery following yesterday's budget.
As you know Transfer pricing refers to the pricing of contributions (assets, tangible and intangible, services, and funds) transferred within an organization. It can be advantageous to arbitrarily select prices such that, in terms of book-keeping, most of the profit is made in a country with low taxes, thus shifting the profits to reduce overall taxes paid by a multinational group.
Obviously governments have made attempts to recover taxes on sales of products made within their juristriction by 're-pricing' transfer-prices. When you consider the number of ways in which prices can be 're-priced' (i.e. The OECD Guidelines refer to the following methods as 'traditional transaction method': Comparable Uncontrolled Price method (CUP); Resale Price Method (RPM); and Cost Plus Method (CP method or C+); and these are different from the tranactional profit methods such as Profit split method; and Transactional Net Margin Method (TNMM).) You can appreciate that this is going to become more distracting as the government pursues this approach....
This is worth passing on within your company
We shall keep you informed of further implications as the issue develops….

Budget action for NAMs & KAMs

Yesterday's budget side-stepped the real issues, the need to radically cut public spending and public sector employment…
Whilst the electorate will eventually take appropriate steps via the polls, NAMs & KAMs need to focus day-job activities on the here & now.

In other words really go back to basics.
Whilst the cliches abound, i.e. cut every cost (we have to assume everything possible has been cut), it is preferable to focus on making every £1 count…this means that if yours is a 10% net profit company, then every £10k spent on the customer needs incremental sales of £100k to justify the expense.
More importantly, it is crucial that your marketing colleagues re-assess your brand's pulling power with the consumer vs other brands and own label alternatives (try our Buying Mix Analysis tool for speed and consistency) and cut out the resulting 'me-toos' and passengers in the product portfolio.
Then apply the same technique to your customer portfolio to re-assess your appeal to each customer, using their latest financials..and form new trade partnerships.

These are radical moves, but yesterday the Chancellor proved that the problems are even more so.
Opportunities abound while others try to recover from shell-shock!!

Need to out-Tesco Tesco?

Tesco latest results indicate that apart from some local share slippage, their profit performance (Op profit margin of 6.2% in the one of the worst recessions in recorded history) indicate that they continue to provide a template for retail everywhere.

Essentially, they are simply good shopkeepers, doing simple things very well, while others are maintaining like-for-likes at a cost to the bottom line.

The options for suppliers include investing for growth with Tesco, and encouraging initiatives by other retailers that apply 'Tesco' principles such as meeting consumer-shopper fact-based need, space & supplychain optimisation, strong trade partnerships and effective use of money. (see how) for Namnews subscribers.

Sure, this will make Tesco an even greater, more powerful part of of your customer portfolio, and tougher to deal with, but the resulting skills are transferable, if you agree that the 'Tesco-template' is right for you. It also makes it easier to recognise the same qualities in other customers.
Find out how on our new webinars (H&B) & (Grocery+Nonfood )

Alternatively, why not short-change Tesco and invest the savings in 'weaker' customers, and see where that leaves you….

P.S.
Good video analysis of Tesco results on Financial Times

See Sky 3.5 min interview with Terry Leahy including suppliers, Value &
Discount ranges etc. on YouTube

Arrival of another Nokia moment?

Nokia, a manufacturer of rubber wellington boots, looked for a category that was such an early stage of development that every supplier was a beginner and began to make mobile phones i.e. Long established telecoms suppliers had no real advantage over new entrants.

It seems to me that we have now arrived at another 'Nokia moment' - a time when everything is changed, changed utterly, a time when the rules of the business game have so changed that all suppliers are at square one, demand is new, money has a new value, the consumer is more discerning, competitive set is different......

Opportunities abound for suppliers who treat this as a new market, re-identify consumer need, re-assess offering vs. available competition, re-evaluate routes to consumer, and especially trade partnerships i.e. time to re-evaluate product portfolio, customer portfolio and market match both brands and customers vs. latest consumer need.....