Threats for the detergents category - Bead-based washing machine could put market in a spin

And just when we thought that detergent innovation was about faster, cheaper, cleaner, along comes a solution from outside the box...

The Xeros washing machine looks like a standard machine, but washes clothes with reusable plastic beads that absorb dirt, resulting in an environmentally friendly wash that uses far less water and detergent.

Sheffield-based Xeros has announced plans for a potential £100m stock market listing that could bring its pioneering technology to the mass market. Developed by Stephen Burkinshaw, a chemist at Leeds University, the appliance is aimed at commercial laundries, but the company has already developed a prototype for domestic use and is looking to sign a deal with a major manufacturer.

As evidence of its serious intent, the group has filed 27 patents for a range of reusable polymer beads to clean textiles, synthetic fibres, plastics, leather, metal, glass, paper, cardboard and wood.

Cost reductions:
Cost Factor                            Conventional Washing Xeros Cleaning Saving
Water (litres per kg washload)                 20.0                         5.6           72%
Heat (KwH per kg of wash load                0.17                        0.09         47%
Detergent (g/kg of wash load)                  16.0                          8.0           50%
Source: Xeros site

Whilst category management usually rewards enhanced focus within the category, the Xeros innovation provides a reminder that substitution or even replacement of the category might prove more rewarding...

Are you making sufficient use of your competition?

A real pity that Youtube have taken the original clip down, but we have found an amended version, a very funny video showing how DHL sent large packages for delivery by their competitors, with the slogan 'DHL delivers faster' prominently displayed on each package, which they filmed on delivery...

Sainsbury's lower profit margins - the negative in the legacy...

Those of you with access to The Interactive Investor will find a useful article analysing and comparing Sainsbury's, Tesco's and Morrisons profit margins:

Supermarket   Gross Margin   Operating Margin
Tesco                       7.4%                 4.9%
Morrisons                  6.8%                 5.4%
Sainsbury's                5.5%                3.86%

Source: The Interactive Investor via Company reports 2012/13 averaging margins for 2012 & 2013

However, whilst the Gross Margins as quoted are fine and fit with the P&L definitions in the accounts, as you know, we have always tried to distinguish between the P&L Gross Margin, and the Bought-in Gross Margin.

In other words, most major supermarkets have approximate bought-in average gross margins of 25%, i.e. they buy for 75  and sell for 100, net of VAT. They then add some internal direct costs - each retailer is different - to arrive at the Gross Margin that they put in the P&L, hence the lower Gross Margins quoted in the article.

This approach makes it difficult to make direct like-with-like comparisons between the companies based on P&L Gross Margins. However, it is valid to compare like-with-like comparisons based on Net Profit Before Tax, and as you know these show Sainsbury's to have been making lower Net Margins over the years.

In our opinion, the real issue for NAMs is the fact that the global financial crisis has severely impacted the Big 4 UK operators, reducing their ROCE performances to between 8% and 11%, far lower than the 10-15% being produced before the crisis...(the only exception being Walmart, who continue to produce ROCE 19%+...!!, proving it can be done...)

This means that their share prices are under pressure, a pressure that will be transferred to suppliers, inevitably...

Bayer, Novartis, others eye Merck's consumer health unit - but secondary sell-off more important...?

On a macro level, the anticipated $10bn to $12bn sale of Merck's consumer health unit will obviously change the balance of market influence, and no doubt add to the purchaser's selling muscle, especially in the UK. Whilst this big picture will be of significant interest to the major players - and the competition authorities - the inevitable brand fall-out will have more impact on the NAM day-job....

This secondary market, as the purchaser moves to sell off those brands judged to be in conflict with competition legislation when combined with their product portfolio, will inevitably yield useful insights as the sales proceed.

Ideally, Merck would have wished to sell off individual brands separately to optimise shareholder value, but setting appropriate prices with multiple purchasers would have been more distracting in the long term, compared with making a clean all-in-one sale and getting on with focusing on the core non-consumer business.

Now, apart from assessing the insights revealed in the major sale process, NAMs in appropriate categories should focus on the potential impact of brands such as Coppertone sunscreen, Claritin allergy treatment, Dr. Scholl's foot care and other consumer products, not quite fitting the purchaser's needs and being sold to other players...

In other words, NAMs can now anticipate the secondary sale impact by conducting Buying Mix Analyses for each of the Merck brands on their categories to plan appropriate moves in what will become a fast-moving exchange of category components...

Getting it wrong in writing...

pic: Andrew Sullivan

Poundland getting serious, a new challenge in NAMland?

pic: City AM

News that the Pound shop leader plans to float in March, on the back of a new line-up of retail talent in the boardroom, and probably raising £700m in the process, means new resourcing issues for suppliers...  In other words, it is time to take the single-price discounters seriously.

Traditionally, whilst our marketing colleagues have little trouble assigning their best and most energetic talent to launching new brands, the allocation of our best NAMs tended to be on the basis of sales turnover, or in a few instances, net profit... Even more seriously, this allocation to the Big Four is often determined by career-minded NAMs that are unwilling to besmirch their CVs with anything less...

After all, 'looking after the poundshops' does not carry quite the same cachet as 'Technically I managed Sainsbury's in the afternoons, but my real job was opening up our top-secret UK multi-channel strategy' in job interviews...

The 17% CAGR of Poundland, and the 26% CAGR of Amazon are equivalent to Walmart's 40-years 25% Compound Annual Growth Rate that produced today's global No.1 player, and are not only setting new standards in new retail, but are also presenting a new basis for allocating account responsibilities of our best NAMs.

All things being equal, why not consider early growth rate as a way of identifying embryo major accounts, acknowledging if the formula is right, that profitability and scale will follow...

Whilst we are not quite suggesting that "suppliers should ditch 'no growth' supermarkets, in favour of high growth areas of the food market like online and discounters" (Booker's Charles Wilson, City Food Lecture), perhaps a fundamental shift in NAM responsibilities would help to keep several balls in the air?

The Super Shopper dominates multichannels for 70% of retail sales...

A new study by eBay and Deloitte detailed in Internet Retailing, defines the Super Shopper as a user of smartphones and tablets to access all multichannels, with retailers needing to target these people to boost their sales in all routes to consumer.

While most of the population are now buying in shops and online, Super Shoppers are more likely to add to this by browsing across different mobile devices and making use of on-to-offline services like Click & Collect.

These 18% of people who shop frequently account for 70% of total UK retail sales (equivalent to over £200bn in 2013).

Super Shoppers are also highly savvy, finds eBay. They are 30% more likely to do their research online before visiting a store.

Meanwhile, comparison-services like Which? are making it easier for shoppers to objectively assess the merits of traditional retailers. The latest Which? report shows that Aldi has edged out Waitrose as the UK's favourite supermarket based on its pricing, quality of fresh food, its range of products and how easy it is to find items (Yes, Aldi!).

In fact, Aldi polled 76% in the survey, with Waitrose reaching 75%, and The Co-operative coming last at 50%, according to The Daily Mail. The Mail also quoted a new report by Rowan, a specialist discount wholesaler, showing that 63% of UK consumers now shop in places such as Poundland or 99p Stores.

And pound shops are certainly not the preserve of those on lower incomes. In fact, 49% of those in households earning £50,000 or more shop in fixed price stores.

All told, we are witnessing the emergence of super-savvy shoppers, willing and able - via augmented comparison services - to shop around, at high speed and via every available channel.

They are radically changing retailing in the process...

Patently, retailers and brand owners not only have to ensure that consistent multichannel messages and positioning statements are available to all shoppers, but it seems crucial that all such dialogue be transparent and defensible on the assumption that all shoppers are now super-savvy, with the kit to match....

Moreover, most shoppers now have the means to implement the 10x tell-a-friend multiplier...  In other words, shoppers that like a product/retailer tell 1 friend, those who dislike 'what was in the tin' complain to 10 friends...  

A new route to market - The no-middlemen group in Greece

According to the New York Times, the feisty owner of a small family business that makes detergents in Northern Greece, struggling to keep his business afloat under the weight of unpaid invoices and constant demands for bribes, started selling his products directly to consumers for cash at fixed prices through a non-profit collective – the no-middlemen group – instead of through shops and traders as he had always done.

In their search for solutions to the economic crisis, the Greeks are tinkering with a new type of economy with little precedent in Europe. The movement seeks to cut out wholesalers, shop managers, state officials and anyone else between producers and consumers, and who once took a share of profits and added to the costs of goods.

The group runs a website that takes orders for goods that are then distributed at car-park markets for a fixed price paid in cash. Staffed by volunteers, the group takes a small cut to cover expenses.

Trade investment:

• The owner of the detergent company says that traditionally the purchasing managers of supermarkets, whether local or foreign owned, demanded bribes for agreeing to a meeting where he presented his products!
• They also asked for money to ensure an attractive display for his products!
• The price varied according to shelf height!
• On average he paid $1,300 a transaction plus gifts at Christmas and other holidays…!

The key issue is not the fact that in the face of increasing demands, the worm finally turned, but that the elimination of all intermediaries and incentives has been so comprehensive, and it appears to be working……

Tax collection via the consumer-shopper...

Whilst it could never happen here (?), in the State of Sao Paulo in Brazil, customers who ask for a receipt can give their social security number to the cashier. Businesses have to submit their copy of those receipts - with or without social security numbers - to the tax authority. The authority creates an account for every social security number entered into the system and reports to customers which receipts have been entered with their social security number and how much they are for. Customers receive a rebate worth about 30% of their share of sales taxes paid through the business each month, and for every $50 of receipts they are entered into a lottery with a maximum pay-out of $500,000. They can complain online if they think receipts are missing or have the wrong price.

Details of the experiment are available here, but the key point is that by ‘crowd-enlisting’ in a creative manner, it is possible to approach old problems in a new way, to everyone’s benefit...

Founders Of Morrisons Considering Buyout: what this means for suppliers

Essentially, Morrisons appear to want to step back from short-term accountability to the stockmarket, and run the business with a longer-term perspective without having to explain and justify each move to outsiders.

However, unless the family – a 10% shareholding - can raise between the £5bn to £7bn it would take to buy-back the company, using a combination of own resources and personal contacts/bank borrowing, it will be necessary for them to make the move via a private equity partner.

Given that Morrisons own 80% of their estate currently valued at £9bn vs. £5.5bn market capitalisation, a private equity partner would want them to spin off much of the estate to release the ‘hidden value’ therein, going against the family’s wish to be independent of landlords etc.

For this to go Morrisons way, they would need to acknowledge the redundancy of large space retail. This means finding other business-uses for ‘spare’ space to justify their retention, or sell off the property portfolio.

Either way, it seems obvious that Morrisons will need to focus on financial measurement and ROI justification on every aspect of the business, going forward.

An obvious consequence is that any supplier wanting to accommodate Morrisons new approach will need to speak the same financial language, fast….

Dumb Starbucks' shop opened In Los Angeles by local comedian…

 pic: Jonathan Alcorn/Reuters

According to The Guardian, the comedian Nathan Fielder has outed himself as the man behind a parody coffee shop called Dumb Starbucks that appeared to throw down a gauntlet to the real Starbucks, a TV stunt rather than an art installation or business start-up…

Long lines formed as word spread on the street and social media, prompting debate over whether it was Banksy-style pop-up art or an entrepreneur’s audacious attempt to simultaneously mock and purloin the Starbucks brand.

A fact sheet posted inside the shop claimed that by adding the word “dumb” it was technically making fun of Starbucks and so could use their trademarks under a law known as fair use.

It remains to be seen whether Starbucks get the joke and hopefully the coffee tastes as good as the real thing, but meanwhile some food for thought for others hoping to grow at the expense of the competition, in these flat-line times?

Thx Richard

Asda playing instore...?

Given increased supply-chain efficiencies, coupled with shopper reluctance to drive out-of-town, resulting in increasing redundancy of large-space retailing, Asda appears to be following Tesco’s lead in seeking to buy businesses that might complement their retail offering whilst absorbing overheads.

The Daily Express reports that Asda is rumoured to want to buy out the Early Learning Centre, given Mothercare’s struggles…

Apart from a good purchase price, the ELC would be a natural fit in terms of family offering, but could also add to instore theatre and enrich the shopping experience whilst keeping the kids amused.

Great news for toy suppliers, but a possible threat for NAMs in less exciting categories…? However, surely this presents an opportunity for extra creativity that might also be rolled out elsewhere?

Friday What-if: Why CVS Is Quitting Tobacco and the UK/EU implications

CVS Caremark Corp is a $123bn American retailer and health care company that has announced it will stop selling tobacco in October 2014, and focus on healthcare provision.

Respondents to Andrew Sullivan's blog add some interesting insights:

• CVS own Caremark RX, a huge pharmacy benefits manager (PBM), managing the prescription drug components of Medicare and other public and private insurance programs
• Pharmacy chains have been providing the care that more traditional medical practices cannot, with CVS clinics rising from 800 to 1,500 by 2015...
• CVS has between 30 and 40 partnerships with healthcare systems across the US
• CVS shares the retail-clinic space with Walgreens, Target and Walmart, and the CVS tobacco move could cause these three players to make similar moves re. tobacco, alcohol and even shotguns..
• Junk food and drinks have to come under the same spotlight as the healthcare market expands...
• The $2bn lost in tobacco sales will need replacing...

So, apart from some fundamental changes in US retailing, the key issue for UK/EU NAMs has to be the impact of McKesson and Walgreens expansion into Europe on CVS.

What-if CVS decide to copy the McKesson move and acquire some healthcare wholesalers, say Phoenix for starters?

To give you some idea of the scale of the issue and the money involved, some 2012 sales figures:

CVS Caremark                    €90.5bn
McKesson-Celesio              €115.3bn
Alliance Boots-Walgreens    €80.7bn
A.S. Watson                       €14.2bn

Apart from pushing Alliance Boots-Walgreens down into third place, with the right acquisitions, CVS could even take the No.1 slot...

Watch this space... 

London's first pay-per-minute café facing closure?

Ziferblat is a social network in real life! At 388 Old Street, Shoreditch, London, EC1V 9LT, the café opens from 1000 to midnight, and charges 3p per minute.

For NAMs willing to try, you pick up an alarm clock on arrival, note the time, and check out on completion. Complementary snacks and coffee are available 'on tap' and even bespoke coffee if required.

However, rather than being inundated with 'smash & grab' free-loaders making it uneconomical, Ziferblat, the country’s first pay-per-minute café, is facing closure less than three months after opening because of a lease dispute. According to The Standard, Ziferblat’s role as a café where customers make their own coffee and food, but pay by the minute, means it falls into a legal grey area between being classed as a “shared workspace” and a venue “selling food and drink”.

Hopefully, ways can be found to live with the bureaucracy, avoid biting the dust, and allow the emergence of a new approach to food service...

Rebuilding consumer confidence - the brand role

Nielsen's latest Global Survey of Consumer Confidence reveals that in Q4 2013, 60% of Britons are seeking to reduce their electricity bills, 58% have cut back on expanding their wardrobes, 57% have cut out takeaways and 55% are switching to cheaper brands in the supermarket.

As reported in The Guardian, the poll of 30,000 people has uncovered the first dip in consumers' confidence since 2011. Chris Morley, managing director of Nielsen UK and Ireland, said: "British consumers are increasingly recognising improvements in the economy, but they are still cautious and likely to continue to modify their buying and consumption habits to save money"

It is obviously impossible and inappropriate for brands to attempt to shift the mood of the entire population, that being a job for the politicians (!). Better for brand owners to focus on that pool of loyal users, the ones that have remained loyal despite the pressures and blows to credibility (horsemeat etc), the consumers that continue to believe in your brand, albeit at reduced consumption levels.

Working from what you know works, it can be easier to encourage existing users to consume more, rather than trying to attract new users to the brand.

• A key first step is to reassess latest consumer needs vs. brand attributes
• ...and checking that the brand delivers more than it says on the tin, every time....
• Check post-consumption delight -who needs satisfaction...?
• Optimise consumption levels by ensuring 100% onshelf and multichannel availability 24/7 - why take a chance on preventing any potential consumer from accessing your greatest asset?
• Share with consumers other uses of the brand revealed by regular users
• Then begin to encourage existing users of your current brand to try another brand in your portfolio, capitalising on your mutual knowledge and emerging confidence in the relationship

When loyal consumers have experienced and have confidence in your offering on these two levels - existing and new products - it is time to build on the ability of satisfied, savvy consumers to tell their friends....

A slow approach?
Then how about taking a chance on delivery vs. promise, and allowing the other half of the 'tell a friend' mechanism to kick-in, whereby a delighted consumer tells one friend, whereas a complaining consumer tells ten eager listeners, via every medium available...much, much faster!