A Brief Encounter with priorities in a London hotel…

Arriving in London too early for an appointment in the West End yesterday, I decided to kill an hour by slipping into the lobby of a prestigious Mayfair hotel for a £10 latte and to informally check out how the global financial crisis was impacting other layers of society….

Flipping open my laptop to develop an idea for KamBlog, I was interrupted by a concierge who discretely whispered that working on laptops was not permitted in the lobby, ‘…causing possible offence to other guests busy negotiating multimillion pound arms deals at nearby tables etc, etc’

This gave me time to take in more of my surroundings…especially the higher than normal temperature, causing me to remove my jacket and drape it elegantly over a nearby chair.
Again I was approached by the concierge to let me know that gentlemen were not permitted to remove jackets in the lobby…

As I slipped back into my jacket, I reached for my mobile to check a real-world news update, when the concierge approached yet again.

This time I interrupted him, and summoning up my best version of a Dublin 4 accent, asked him to please speak up, as I was having difficulty hearing him over the sound of the wh*res’ high-heels as they click-clacked across the tiled floor on their way to client meetings upstairs….

As I left the hotel I began to mull over the issue of priorities in these unprecedented times…

Better than sell-by dates - Edible RFID tags to monitor your food?

Andrew Sullivan’s blog pointed us at the idea of edible RFIDs. Pasted onto eggs, stamped onto fruit or floating in milk, they can warn you when your fruit is ripe, or when your milk has gone sour.

Scientists at Tufts University have now engineered silk into fully chewable food sensors.

The flexible sensors are made of gold antennae embedded in a purified silk film support. The gold bits are as thin as gold leaf found on some extra-fancy desserts, and can pick up the chemical changes of decomposition or ripening. The silk substrate--made of pure protein--is easily digestible. The whole sensor is flexible, and can curve according to the shape of the fruit.

The working principles behind the sensors are based on existing RFID technology--the difference here is that the sensors aren’t hard electronics, they’re flexible, edible stickers.

Applications

Apart from being able to track, monitor and accept/reject individual items throughout the supply-chain, the edibility factor means there is no risk to either health or the freshness-image of the store. Cross-contamination of other food will be eliminated, thus removing one part of the shrinkage issue for retailers, leaving more time to concentrate on reducing the numbers of shoppers who regard food stores as personal larders, a source of free food… 

Creativitywise, the real advantages of edible/flexible RFIDs have to be potential applications in other categories.

Ideas, anyone? 

NB. For starters, how about this Healthcare application?

Last year the team collaborated in publishing a paper in Science magazine showing how flexible electronics in the form of an "electronic skin" could stick to the skin and wirelessly track vital health signs.....now was it worth reading?

Unilever And GSK use of NFC: key potential pay-offs for enabled-stakeholders

Starting with 325 six-sheet digital poster sites in Reading, the key potential lies in the simplicity and scalability of NFC.

With over 130,000 poster sites in the UK, each offering an incremental route-to-consumer as each poster site becomes a new retail outlet, with advertisers gaining access to additional consumers data (name of NFC-enabled users, location, and shopping history) at ‘point-of-purchase’.
Advertising gains  

For advertisers, the combination of the low ‘chipping-cost’ of each poster with the ability to offer instant gratification gives a whole new meaning to impulse purchasing.

Moreover, the user-feedback data can be used to build ‘super-local’ highly accountable promotional campaigns using media-rich, high quality content that can only serve to drive store-level assortment for those retailers (and their suppliers) that want to stay in the game.

(For those unwilling to wait, yet needing some relative response details, some recent US data on the combined use of Bluetooth, WiFi, QR Codes and NFC to promote hotel room booking may help).

All told, it would appear that this new potential will only be limited by the availability of NFC-enabled phones and a possible privacy backlash if not handled carefully..
Raising the competition bar

For traditional retailers and brand owners providing only a token response to the savvy consumer’s need for individual attention via localised offerings, there is a real danger that their NFC early-adopter competitors may take NFC as the new ‘normal’, while traditional players insist on using up those bulk-buy mountains of  old posters and leaflets that seemed such a bargain only yesterday…

A Scandinavian Scotland – simply an export-opp for other major mults?

                                                                                                               map: The Copenhagen Post

To be or not to be Scandinavian, that might be the question soon enough for Scotland, if it decides to become independent. In which case, JS, Asda, Morrisons and the Co-op would join Tesco in having to factor in a balance of UK and overseas presence into their business strategies.

What they have in common
Scotland and its northern neighbours have geographic proximity, shared access to the same body of water, and the resultant multitude of historical links between Scotland on the one side, and Iceland, Norway and Denmark on the other. (More on social,political & religious similarities)

Advantages for Scotland

One final, crucial advantage of a Scandinavian over a British Scotland: it would no longer be in the Far North of the UK, but in the Southwest of the Scandinavia. The place would not have to move an inch, not even a centimetre, but it would sound less cold, dark and at the end of everything. Scotland’s new orientation could finally allow it to ditch some of the negative stereotypes that have been dogging it for far too long. It would no longer be colder, emptier and darker than England.

Key learnings for UK mults
Indeed, this new perspective might then begin to influence the multiples’ approach to the UK consumer-shopper. Think of all the ethnic food and non-food enjoying a new appeal down south… The multiples’ management would surely benefit from a foreign tour of duty, with no disruption of the family, competing with Tesco from a totally new geographical perspective. Management would no longer have to fight for recognition of local need in UK policy, and store-based assortment would surely become a natural output of the new thinking…

Supplier benefits
Meanwhile, UK NAMs, apart from adding ‘foreign’ experience to their CVs, would surely benefit from having to conduct periodic store visits to deal with their newly vocal ‘scandinavian’ customers, until eventually their companies see the wisdom of appointing a dedicated team to operate at local level…

Buyer's birthday coming up, and short of ideas?

An app for the FT’s ‘How to spend it’ magazine (the Argos catalogue for the hedge fund classes, according to Atticus, The Sunday Times) is now available from the iTunes store. The free app helps you access a Gift Guide: 700 inspirational ideas via searchable content of 75 issues.

Alternatively, given these austere times perhaps a link to the free app might suffice?   

Sofa King Silly?

After nine years and one police investigation cheeky Northampton retailer The Sofa King has been told by the advertising watchdog that it must ditch its catchphrase "Where the Prices are Sofa King Low!"

In banning the advert, the ASA have fallen foul of the Law of Unintended Consequences, in that the Internet is now awash with references to the initiative (Google Sofa King and see the 24m results for yourself) In fact I hope that Northampton traffic authorities are ‘Sofa King well prepared’ that this weekend’s inevitable shopper invasion will not pose a problem…

This all puts me in mind of schooldays in Ireland when ‘rude’ books were guaranteed massive sales boosts as soon as they were banned by the authorities…

In fact, Ronnie Drew of The Dubliners folk group used to say that instead of making the Irish language compulsory in schools, the government should ban it, thus ensuring its enthusiastic application 24/7…

Have a couch-bound weekend, from the Namnews Team!

Making Settlement Discount Work

With the major multiples collectively owing UK suppliers approx. £10bn at any time and paying on average in 43 days, this free credit represents both cost and risk. With banks unwilling to lend, retailers can be a source of finance. As cash-machines that happen to sell groceries, retailers can even be willing to pay on delivery, if the price is right

Money-saving tips from America … road-tested by penny-pinching UK consumers

Ranging from eating beans rather than meat to filling up the car early in the morning when the air is cool, and the gas is dense, the Guardian Team give twenty tips a reality-check by running the numbers and evaluating any real saving…

Impact on the consumer

Whilst not all money-saving tips will yield real savings, in practice the act of re-evaluating all expenditure coupled with comparison-shopping is bound to heighten consumer appreciation of value-for-money and cause them to reduce/postpone their ‘excessive’ purchases.

How the Buyer will react

In the same way, buyers being consumers are likely to apply the same disciplines in the day-job. Whilst it is tempting for suppliers to react via defensive mode, realistically pro-active NAMs can benefit by being able to calculate and demonstrate the financial impact of their support package on the retailer’s P&L.

Calculating the cost and value of their free trade credit can be a useful first step….  

The death of games retail, a pointer for other 'directable' FMCG categories?

Last year, according to Digital Spy, the UK games industry saw a 7% year-on-year decline in the sales of physical software in 2011, and this slump is said to have deepened by a further 25% this year. Major retailer GAME saw a whopping 90% wiped off its share price last year after a string of troubles, and this week the firm announced plans to close 35 UK stores and shut down gameplay.co.uk.

Rise of networked gaming

According to Tiga, 71% of games start-ups launched between 2008 and 2011 in Britain were focused exclusively on networked gaming over digital, mobile, online and social channels, while just 10% intended to work on both network and retail titles. Overall, 67% of the UK games development sector is working either exclusively or in part on network gaming. Tiga quote: "A lot of (games developer) start-ups are focusing entirely on digital distribution and networked gaming. There is only around 20% that are focused on retail, which really shows that the tide has turned quite dramatically in distribution."

Initially driven by the advantage of eliminating ‘packaging’ the developers are obviously seeing financial advantages in going direct…

Application to FMCG

In terms of other non-digital categories, whilst the potential for going direct may not be as great as in gaming, the fact remains that a new generation of consumers are becoming accustomed to dealing direct with suppliers, and the delivery infrastructure is falling in place to facilitate the process cost-effectively.

All that remains is attitude, and perhaps a generation gap, or two…

Action for suppliers

Perhaps the time is now right to reconsider adding a little more facilitation to the firm’s web site, incorporate micro-payments, blend in all of those one-off social-networking initiatives , dust down the ‘consumer-advice’  department and use some of that retail margin to integrate the lot, rather like those ‘amateurs’ in home entertainment that have stumbled upon the most obvious approach to monetising a one-to-one dialogue with some of the most demanding and savvy consumers around..

Or instead, perhaps upping last year’s trade spend might be more effective? 

Optimising the Value of Trade Credit

How to calculate cost to you and value to the customer, of free trade credit
Make trade credit an integral part of the negotiation process, and not just another trade term...

Store of the future: 80:20 towards 20:80 in store-level assortment?

Last week’s article on the IGD-Coca Cola research into the store of the future was the item most passed on to friends and colleagues by NamNews readers.

Key findings:

The report raised a number of issues in terms of the convergence of different trends such as shopper demand for more personalisation, with communication, promotions and deals tailored to their individual values and needs, pre-purchase advice from social media and online forums, in-store use of smartphones and ‘intelligent trolleys’, fully transparent supply chains in  terms of provenance and traceability, and environmental and social impact, with all of this information communicated on-shelf, on-pack and online through smartphones. The report also predicts that online generally will grow in prominence not only because it will continue to grow faster than the consumer goods market as a whole, but it will also form part of the wider store experience with some shoppers purchasing online and picking up in store..

Store-level assortment, the ultimate need

Essentially, we see all of this resulting in increased use of store-level assortment to satisfy savvy consumers unwilling to compromise on demonstrable value-for-money, with important knock-on impacts for suppliers and retailers.

If we assume that large stores currently offer a range comprising say 80% must-stock brands available nationally, and 20% available locally in response to historical demand, this one-size-fits-all approach will become increasingly out-of-step with market need as the above trends develop. 

How retailers will adapt their buying approach

Pragmatic retailers will want to restore the consumer-appeal of their large stores by stocking products more in tune with local need, to avoid shoppers voting with their feet in the search for satisfaction.

Superstores (say sales of £150m p.a., 450 employees with a CEO and organigram to match) will demand more autonomy, becoming increasingly unwilling to simply accept head-office response to a demand demonstrated daily in their stores by live shoppers, speaking with local accents…. They will want to optimise  increased buying expertise at branch level. 

How suppliers will have to re-organise...
In practice this means that suppliers will no longer see national distribution as a prerequisite for success in the launching of new brands, while their focus on existing  brands will concentrate on those parts of the country where brand-appeal is worth the effort. 

Equally, when successful retailers inevitably find ways of devolving increased decision-making power to local level, suppliers will need to extend their influence to branch level or risk being left out of local assortment. This does not mean a return to the days of large scale national salesforces, but rather what is required are small teams of high grade but possibly junior NAMs/KAMs operating at regional/local level, each capable of distilling corporate trade strategies, category management and marketing /promotional initiatives to local level…while their senior NAM colleagues fight for inclusion in the national 20% at retailer's head office...

For those of you taken with the idea, think one KAM business-managing 25 superstores, working 24/7, and work up the numbers…on in-house vs.outsourcing...   

Unless we all change locally in response to new local insight provided by increasingly articulate and demanding consumers, we are bound to sacrifice share to those who are already working in a ‘20:80  assortment’ mind-set, capitalising on local-niche brands, already comfortable with a mere 20% of brands having profitable national distribution

Tesco Dark Stores – a boost to their reality-store business?

With 48% share of the UK online grocery market, Tesco’s critical mass allows it to increase efficiencies via a pivotal distribution centre just opened in North London.   

The 115,000 square foot facility in Enfield is not only Tesco's fourth so-called customer-free "dark store", but is also its most automated to date, which enables staff to pick twice as many products an hour as the existing three virtual stores.

The latest site in Enfield provides a much higher level of automation, with conveyor belts dispatching trays to pickers, who have handheld devices strapped to their arms, to fulfil orders from 178 stations. In the other dark stores, pickers move around with a trolley.

Full assortment

Another difference is that the Enfield facility delivers all of Tesco's 26,000 groceries, as well as a full range of prepared foods, such as sliced cheese and meat, from its deli counters.

Less well-known is that the dark stores, such as the one at Enfield, also help to increase sales in the big stores in surrounding areas, as customers prefer less staff picking in the aisles.

Issues for suppliers?

However the new 'dark stores' raise a couple of issues for suppliers:

1. POS (Tesco spokesman: '…not the same point-of-sale advertising…' This means there could be some other form of product-prompts in the aisle, (in cases of Out-Of-Stocks?) and how might it differ from normal store POS? One idea might be to colour code shelf-edge price labels to reflect (darkness permitting!) gross margin or favoured suppliers…?

2. Role of Brand: if the brand is meant to attract the customer into the store, there to be confronted by the private label equivalent (better/cheaper than brand) and the possibility of a switch-sale, the supplier's use of shopper-marketing in the aisle can help to reduce the odds on losing a sale to a private label. The dark-store environment removes that facility…

This suggests that suppliers need to find a way of opening a 'dark-store dialogue' with Tesco in order to attempt to maintain the status quo as the business shifts online... 
This means gathering evidence via store visits.

One way might be to sneak into the store under cover of darkness?

Deductions, an Opportunity for All?

Yesterday’s NamNews report of Tesco and Waitrose allegedly charging suppliers for missed or late deliveries raises a number of issues, especially the ‘ownership’ of risk in business.

Retailers achieve average stockturns of 20-25 time a year by integrating supplier-retailer logistics systems, utilising smaller, more frequent deliveries to produce predictable on-shelf availability performances at minimal instore stock-levels. Partnership at this level is dependent upon contractual agreements (really think GSCOP had gone away?) between the parties that have built-in KPIs and penalties for non-compliance. This allows deduction-parameters and penalties to be negotiated upfront thus preventing ‘surprises’ later.
It can also facilitate a fair-share apportionment of risk in the relationship.

Why bother? 

Given that deductions can represent 7-10% of a supplier’s sales, and as net margins continue to fall, then any improvement in deductions management will not only have a significant impact upon cashflow and profitability, but will also have a major impact upon the equivalent incremental sales-profit relationship.

The numbers count

As always, adding the numbers will help to communicate the issues, internally and externally. 

For instance, for a supplier making 6% net profit before tax, on a sales turnover of £50m, reducing deductions by £1m will impact the bottom line with the equivalent of an incremental sales increase of over £16m…a 32% uplift in sales!

Why deductions occur

Essentially, the management of deductions is complicated by the lack of direct ownership, in that departments such as sales, marketing, logistics, category management and finance all have an influence in terms of cause and effect upon the level of deductions made by customers. Despite the fact that many deductions are preventable, deduction resolution is still regarded as a low status, ‘negative’ activity and in a time of cut-backs, tends to be under-resourced in terms of people, systems-support and relevant information.

Reducing preventable deductions

Leaving aside unauthorised and authorised deductions, suppliers have most to gain by focusing upon reducing preventable deductions, and given that these are mainly caused by the supplier’s ability to adhere to the retailer’s compliance process, the solution lies in the supplier’s willingness and ability to tailor their systems ‘front-end’ to the customer’s requirements, a given with invest-level trade partners committed to joint value creation. Also, given their overall responsibility for the entire multilevel-multifunctional supplier-customer relationship, it is obvious that the NAMs should be regarded as a key driver in fusing the often disparate parts of the interface.

Removing incompatibilities and 'disconnects' 

Essentially, this means leading the search for incompatibilities that cause ‘disconnects’ between the two companies’ systems, selling the solutions in terms of compliance KPIs internally and externally, and incorporating these within overall trade strategies and annual negotiated settlements between the parties.

Payoff

A key payoff resulting from faster deduction resolution for the NAM will be the ability to set promotion strategies based upon real-time performance feedback. As a result, all departments will benefit from better integration within realistic trade strategies that use supply-side and demand-side joint KPIs to move the business forward with greater degrees of transparency and defensibility. 

Board-level involvement

At a higher level, there is a need for board members of supplier and retailer organisations to drive compliance standards across the trade and facilitate the communication and acknowledgement of customer compliance requirements within their companies.

Finally, given that most deductions queries are cleared in favour of the customer, it is hopefully obvious that deductions also represent a major opportunity for retailers to ensure supplier compliance and grow their bottom line at the expense of less organised suppliers distracted by other, more exciting priorities….

For a free copy of our KamTips checklist on Deduction Reduction email me on bmoore@namnews.com

Working around 'bankrupt' customers

With the news that high street shop closure rate hit 14 a day in 2011, merely confirming the evidence of our own eyes, pragmatic account managers need to leave re-invention of redundant business models to politicians and the taxpayer, and instead focus upon how to work around customers’ on the brink of insolvency, whilst attempting to maintain their own solvency…

If your customer goes bust

Bearing in mind that if a customer owing £150k to a supplier on a 5% net margin goes bust, then the supplier needs incremental sales of £3m to recover the loss, it is obviously in NAMs’ interest to improve their ability to recognise the signs of a customer in financial distress and take adequate precautions. How to spot the signs

Stress-auditing your customer-portfolio

In practice, this means assessing the financial health of the customer portfolio and conducting ‘what-ifs’ on possible casualties.  If replacement sales cannot be found via the stronger players or alternative channels, then the company will need to reduce forecasts and make appropriate budget adjustments.

For realistic NAMs, this unprecedented environment whilst painful, is simply another market scenario, and business is about being able to perform as well as, or better than competitors operating in the same market conditions.

Need for an 'opportunity-attitude'

Despite the fact that confronting ‘doom and gloom’ may be seen as demotivating, we sincerely believe that in the current climate, the NAM role in 2012 is about being able to face up to and optimise reality, failing which someone will do it on their behalf.  It is about being able to perform as well as, or better than, equivalent companies in the marketplace, whatever the circumstances…

As always, business survival and success is about achieving a balance of risk and reward, measured in terms of achieving an adequate profit on the money put at risk in a business.  In other words, being able to achieve at least 15% return on capital employed.  This is driven by net margin and rate of capital turn.  As you know, businesses are either high margin coupled with relatively slow stockturn (cosmetics) or narrow margin and fast stockturn (dairy products), and the key for NAMs is to understand their business model and drive it appropriately.  Incidentally, comparisons with equivalent companies in supply and retail can be made via Companies House or other open domain data.

Working realistically with business reality 

Either way, it is crucial that suppliers find ways of working around the problem of dealing with companies on the brink of liquidation.  The resultant mind-focus will make NAMs very decisive in terms of realistic assessment of customer risk, more sparing in their application of trade funding, more conscious of the incremental sales required to recover investment in their customers and ruthless in their demands for demonstrable compliance in a fair-share partnership.

In other words, if you can make it in this environment, nothing, repeat nothing, will ever be more challenging….or satisfying

Pound Shop Innovation - Moves to the Mainstream?

Given that Marks & Spencer started as a ‘pound shop’ (Penny Bazaar, 1894) and Woolworths followed as a ‘sixpenny store’, it is perhaps valuable to seek signs of innovative pound shop retailing as a pointer for the future, and perhaps move this emerging sector closer to our core trade strategies?   

Key pound shop moves include:

-       Pound shop launches door-to-door home deliveries for a pound a trip

-       Mobile Pound shop sets up stall at local events, offering to recycle ‘your old £10 + £20 notes for something you can use’! Also have a flourishing online pound site 

-       Pound shop van travelling to outlying villages (see pic above)

-       Around A Pound (Newry, N.I.) have a pound shop on eBay and sponsor motorcycle racing

-       East Hull Community transport offering transport at £1 a trip   

-       Amazon offering Super Saver Delivery Filler Items (around a pound)   

Time for someone to ignore the numbers, try a BOGOF and really stop the whole process in its tracks?

For a detailed treatment of the rise of pound shops see Kamcity Library   

Incidentally, we found a number of independent pound shops branding themselves as ‘Around A Pound’. Branding experts will foresee some issues here in that the label will either become generic, or may lead to possible passing-off charges being levelled at rivals.

In which case, this may cause some enterprising legal firms to combat ‘Tesco law’ by offering cut-price legal advice at a pound-a-pop?

Have a legal pig-flying weekend, from the NamNews Team!