Tesco shares have collapsed by 43%, Morrisons is down 33% and Sainsbury’s share price has fallen by 30% during the past 12 months, as anyone that matters, knows...
Given that most key executives are remunerated in part with share options, it follows that optimising the share price has to be high on the agenda in the mults. This means that understanding share price drivers can add another dimension to a NAM's insight, and negotiating repertoire...
First, the professionals want to ensure that the value of all the cash, stock and property owned by the company is worth more than the current share price, i.e. Market capitalisation.
Second, they try to get an estimate of future earnings, in order to judge the likelihood of getting some part of what remains after the other creditors have been paid.
All of this can be driven by the retailer's ROCE, the ultimate measure of profitability, a KPI that can be directly driven by the NAM's bag of brands...
Still feeling that the share-dimension pits you against the experts overmuch?
If so, it should be kept in mind that most shareholders and their advisers study open domain data in arriving at their perception of what a share is worth. Their experience of retailers as businesses is usually confined to shopping in the aisle, whereas NAMs actually work in the engine room, negotiating with the guys that drive the business. This means that a stock market-literate NAM can possess a level of insight that far exceeds that of a NAM limited to ‘the five selling-points that make our brand unique’.
Incidentally, one way of adding some immediacy to a NAM’s share-price sensitivity is for a supplier to authorise the purchase of £100 of shares in the NAM’s retail account, on expenses. Nothing beats owning a piece of the customer to add focus…
However, the NAM should be forbidden from owning much more than £100 worth, to avoid any temptation to use Trade Investment or improved credit terms to add value to the share price (!)
Thursday 13 November 2014
Wednesday 12 November 2014
Sainsbury's results - welcome to the real world of UK retail
Today’s interims reveal no surprises, and together with the Tesco, Morrisons and Co-op revelations, and given the relative transparency of Asda’s results and dialogue with the stockmarket (via Walmart), it can be assumed that everything is now out in the open, with the major players acknowledging that 'The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more’.
True, the Tesco SFO investigation may eventually yield some additional output, but in the main this will be limited to more precise definitions of the elements of Commercial Income along with some amendments to accounting process and a switch to results-based reward that major retailers will ignore at their peril.
The UK version of capitalism is generally very forgiving, provided stakeholders can rely on the truth of what they are shown, and there is no reason to second-guess via the share price. Therefore a line will be drawn and all will move forward.
In other words both Coupe and Lewis are openly clearing the decks and making ready to do battle with the discounters and other retailers, on the premise that in a flat-line market, any growth comes at the expense of the competition…
Share prices will inevitably follow…
From suppliers’ points of view, we are into a new era of transparency and demonstrable value-for-money, real-time.
Retailers are now into cost-cutting mode with aggressive sell-off of non-productive assets (and suppliers?) a key feature of the programme.
In future, everything will be measured, with a heavy emphasis on assessment in terms of demonstrable impact upon ROCE - the driver of share price.
This means that NAMs will need to re-calculate the cost of every element of the trade offering, especially Trade Investment, and will be expected to demonstrate the benefits of compliance via the impact on a retailer’s P&L and Balance Sheet.
In turn, given the challenges faced by the multiples, and their overt need for help, suppliers are in a once-only position to demand fair-share dealings in return.
For those that hesitate to grasp this unprecedented opportunity, this could well be the last trick they will miss…
True, the Tesco SFO investigation may eventually yield some additional output, but in the main this will be limited to more precise definitions of the elements of Commercial Income along with some amendments to accounting process and a switch to results-based reward that major retailers will ignore at their peril.
The UK version of capitalism is generally very forgiving, provided stakeholders can rely on the truth of what they are shown, and there is no reason to second-guess via the share price. Therefore a line will be drawn and all will move forward.
In other words both Coupe and Lewis are openly clearing the decks and making ready to do battle with the discounters and other retailers, on the premise that in a flat-line market, any growth comes at the expense of the competition…
Share prices will inevitably follow…
From suppliers’ points of view, we are into a new era of transparency and demonstrable value-for-money, real-time.
Retailers are now into cost-cutting mode with aggressive sell-off of non-productive assets (and suppliers?) a key feature of the programme.
In future, everything will be measured, with a heavy emphasis on assessment in terms of demonstrable impact upon ROCE - the driver of share price.
This means that NAMs will need to re-calculate the cost of every element of the trade offering, especially Trade Investment, and will be expected to demonstrate the benefits of compliance via the impact on a retailer’s P&L and Balance Sheet.
In turn, given the challenges faced by the multiples, and their overt need for help, suppliers are in a once-only position to demand fair-share dealings in return.
For those that hesitate to grasp this unprecedented opportunity, this could well be the last trick they will miss…
Tuesday 11 November 2014
The ultimate in H&B convenience, or another pharmacist missing an open goal…?
Think about the effort required to punch through an apathy-inducing media-flood, successfully engage with a consumer suffering from a minor ailment, unwilling to ‘trouble the doctor’, but still wanting medical advice, prepared to make a journey to a pharmacy, with little or no instore guidance on where to ask, suffer the potential embarrassment of describing symptoms to a ‘stranger’, and willing to accept advice that, in the circumstances, over-rides the normal price obstacle, and if successful, is more than likely to tell a friend….
In these unprecedented times, a consumer self-presenting in this manner at point-of-purchase and being ignored, eventually has to represent an opportunity for multiple retailers...
The resulting move from opportunity to threat is a real pity, especially when independent pharmacists have had at least thirty years to get it right…
Friday 7 November 2014
Dark-net lessons for Light-net suppliers?
According to a fascinating article in The Economist, business is thriving on the anonymous internet, despite the efforts of law enforcers.
In fact, following last year’s closing down of Silk Road, a drug-dealing site on the “dark net”, dozens of dark-net Amazons and eBays (also known as crypto-markets) have sprung up to fill the void. They are not only proving remarkably resilient but expanding their offerings and growing more sophisticated.
Major players include Agora (weed, powders, pills and guns), whilst Evolution sells stolen credit-card, debit-card and medical information, guns and fake IDs and university diplomas...
These players operate in a different league to ‘normal’ in-house scammers such as those rogue employees of legitimate online providers that substitute rocks for high-end products ordered online.
According to the article, the dark retailers are into consumer satisfaction and repeat-purchase, in that narcotics product quality is higher than street trades, largely thanks to an Amazon-like five-star customer-review system (!). In a den of thieves, high ratings are sellers’ lifeblood. Reputation is crucial when clients know they cannot fall back on small-claims courts or arbitration….
According to James Martin, author of “Drugs on the Dark Net”, the big markets’ customer service and marketing strategies increasingly resemble those of legitimate retailers. They are quick to apologise for technical glitches. Two-for-one specials, loyalty discounts and promotional campaigns are common (on Smoke Weed Day, say). Other methods borrowed from the corporate world include mission statements, terms and conditions, and money-back guarantees..
The key issue for legitimate suppliers has to be the fact that when even the crooks are raising the standards in consumer-satisfaction, how vital it is that Light-net providers adopt a zero-tolerance approach to their own online offering…
HT to Anette Rahbek for pointer to the Economist article
In fact, following last year’s closing down of Silk Road, a drug-dealing site on the “dark net”, dozens of dark-net Amazons and eBays (also known as crypto-markets) have sprung up to fill the void. They are not only proving remarkably resilient but expanding their offerings and growing more sophisticated.
Major players include Agora (weed, powders, pills and guns), whilst Evolution sells stolen credit-card, debit-card and medical information, guns and fake IDs and university diplomas...
These players operate in a different league to ‘normal’ in-house scammers such as those rogue employees of legitimate online providers that substitute rocks for high-end products ordered online.
According to the article, the dark retailers are into consumer satisfaction and repeat-purchase, in that narcotics product quality is higher than street trades, largely thanks to an Amazon-like five-star customer-review system (!). In a den of thieves, high ratings are sellers’ lifeblood. Reputation is crucial when clients know they cannot fall back on small-claims courts or arbitration….
According to James Martin, author of “Drugs on the Dark Net”, the big markets’ customer service and marketing strategies increasingly resemble those of legitimate retailers. They are quick to apologise for technical glitches. Two-for-one specials, loyalty discounts and promotional campaigns are common (on Smoke Weed Day, say). Other methods borrowed from the corporate world include mission statements, terms and conditions, and money-back guarantees..
The key issue for legitimate suppliers has to be the fact that when even the crooks are raising the standards in consumer-satisfaction, how vital it is that Light-net providers adopt a zero-tolerance approach to their own online offering…
HT to Anette Rahbek for pointer to the Economist article
Thursday 6 November 2014
Phone- box conversions to mini-shops and cafes
A Brighton-based charitable trust, Thinking Outside the Box supports homeless projects by giving a percentage of its earnings from the retail uses of converted phone boxes, according to the Bradford Telegraph and Argus.
It has the support of Miles Broe Architecture: "The K2 and K6 red phone boxes are iconic pieces of both engineering and architecture. The aim of this proposal is to redefine their usage to suit modern day needs and requirements without compromising their external appearance on the street scene."
The application is part of a scheme to convert a number of disused BT kiosks into small retail outlets, selling products such as ice cream and coffee.
Mr Broe said: "The formula is simple and Miles Broe Architecture brings their planning experience to bear on rolling out these proposals nationwide.
"Working with the charity Thinking Outside the Box, British Telecom and registered charities to safeguard many dilapidated and misused listed phone kiosks, the charity will provide training for jobs within the programme."
Projects were granted planning permission by Brighton and Hove City Council in September last year (see pic) followed by Plymouth and Nottingham, with planning permission currently awaiting approval in Bradford..
A possible sponsorship opportunity for the mults?
Wednesday 5 November 2014
Your customer needs you, specifically...
Driven by the savvy consumer’s demand for personal attention, expressed in shopping behaviour, the retailer completes the consumer-shopper-retailer need-set in wanting 1:1 treatment.
Even if the retailer forgets, suppliers have to remember that their offer, tailored to the retailer’s business needs, has to have inbuilt characteristics designed specifically to meet shopping and consumption requirements.
A supplier cannot even get close, without starting with a deep understanding of what makes this, not any, consumer special.
In the ‘old days’ i.e. before 2008, we used to study the needs of the consumer with the aim of segregating ‘our’ consumer-base into six manageable consumer segments, in turn driving some token tailor-making of our consumer-offering. This we adapted to produce an acceptable bundle for ‘our’ retailer, leaving the retailer to look after the needs of ‘their shopper’, in the aisle, an area increasingly off-limits for suppliers.., often by a combination of desire and design…
As you know, this has all changed… (if you don’t think so, give me a call…)
The savvy consumer now wants real-time, demonstrable value-for-money, and as a shopper in the aisle, uses mobile-access to comparisons at all levels in order to ensure they are not missing a better-tailored trick available elsewhere, and votes with their feet.
A successful retailer, despite unprecedented distractions, recognises this consumer-shopper as the real starting point for developing an offer-request that reflects the combined needs of consumer-shopper-retailer. Suppliers neglect this new appetite at their peril, obviously ensuring at the same time that this highly specific treatment of the retailer meets the financial needs of the supplier’s business.
Thus the supplier has to tailor the offering on three levels, per consumer, and find ways of making it work financially.
Unfortunately, at the last count, statistics indicate the UK’s population currently stands at 63.7m people, your new KPI for tailor-making…
Tuesday 4 November 2014
Can hugging products make you feel like buying them?
As more of us shop online, new research by Saïd Business School, University of Oxford University, underlines the importance of physical interaction with products and shows how making an affectionate gesture towards a product can increase our attachment for it, and our propensity to purchase.
The authors suggest that the mere execution of an affectionate gesture towards an object can generate an emotional attachment. This attachment is most clearly seen for those products with humanlike characteristics and is strongest in those people who feel lonely....
Some product manufacturers and marketers are already putting some of these ideas into practice, to encourage a greater emotional and sensory connection with their products and services. For example Nokia has developed technology in its mobile phones that allow users to squeeze the phone to send ‘virtual hugs’, increasing the user’s bond with the product each time they do this. Even those smart phones which encourage swiping rather than tapping are building valuable bonds between the consumer and product.
Application for enhancement of the buyer-seller relationship
For those NAMs that like to build on good marketing ideas, and given the humanlike characteristics of most buyers, we have researched how the same hug-approach might be applied to improving buyer-seller relationships.
A recent article in The Observer points out that the male-on-male embrace is becoming increasingly common among politicians, and men in general. But for many it’s tricky to get right. The article gives intimate detail ref political applications but we felt that this hugger’s list might best suit our readership:
A hugger’s guide for NAMs
1. The classic
Clearly signposted, mutual, pleasant. The hug of a friend you’ve just winched from a crevasse, or someone you met six pints ago who has laughed at your jokes.
2. Touching distance
Half-consensual, the archetypal political clinch. It says: ‘I’m fine with this in principle, but let’s be clear that nothing surprising’s going to happen after pudding.’
3. Red-carpet bromance
‘Love does not consist in gazing at each other, but in looking outward in the same direction,’ according to Antoine de Saint-Exupéry.
4. ‘Wassup bro’
With legs well set you vertically clasp hands and lean in for a manly rub. Warmly informal without being too intimate, but not one for grandfathers.
5. ‘Oh, right’
Innocuous handshake develops into an unwonted yank ’n’ pat. The most likely to occur in a buyer-seller environment, yet also the most likely to turn into a kiss.
Given this last reference to kissing, and wishing to generalise this kamtip in terms of gender, our additional research revealed the hidden complexities involved in kissing the buyer
Kissing the buyer: X, XXX or XXXXX?
Given the increasingly cross-cultural mix, even in buying offices, it is obviously important to try to comply with local ‘norms’ when deciding to add ‘puckering-up’ to your selling repertoire.
A great article in the Economist gives the detail (and 91 hilarious comments). For instance, at this stage it might be wise to avoid all invitations to transfer to your French affiliate given that social kissing in France is a cultural labyrinth.
This map, created by Radical Cartography, on the Jaunted website, shows how many times French people in different regions typically kiss one another when they greet.
When it comes to buying and selling, offering a cheek can become most fraught with danger.
Some rules of engagement are obvious: one would never peck on first introduction, for example, no matter where in the world you were. But it is also best not to appear too stuffy or aloof. So with continental contacts, you can probably relax into the informal greeting pretty quickly. On the other hand, Americans, apparently, would much prefer to go unkissed.
British buyers and sellers, as ever, straddle the awkward transatlantic space, probably only think of kissing once they had been to lunch a few times, and then only if they had managed to talk about something other than work…
All in all, the Americans probably have the right idea. Everyone knows where they stand with a firm handshake, or even a hug?
Hat-tip to Anette R. for the pointer to The Economist
The authors suggest that the mere execution of an affectionate gesture towards an object can generate an emotional attachment. This attachment is most clearly seen for those products with humanlike characteristics and is strongest in those people who feel lonely....
Some product manufacturers and marketers are already putting some of these ideas into practice, to encourage a greater emotional and sensory connection with their products and services. For example Nokia has developed technology in its mobile phones that allow users to squeeze the phone to send ‘virtual hugs’, increasing the user’s bond with the product each time they do this. Even those smart phones which encourage swiping rather than tapping are building valuable bonds between the consumer and product.
Application for enhancement of the buyer-seller relationship
For those NAMs that like to build on good marketing ideas, and given the humanlike characteristics of most buyers, we have researched how the same hug-approach might be applied to improving buyer-seller relationships.
A recent article in The Observer points out that the male-on-male embrace is becoming increasingly common among politicians, and men in general. But for many it’s tricky to get right. The article gives intimate detail ref political applications but we felt that this hugger’s list might best suit our readership:
A hugger’s guide for NAMs
1. The classic
Clearly signposted, mutual, pleasant. The hug of a friend you’ve just winched from a crevasse, or someone you met six pints ago who has laughed at your jokes.
2. Touching distance
Half-consensual, the archetypal political clinch. It says: ‘I’m fine with this in principle, but let’s be clear that nothing surprising’s going to happen after pudding.’
3. Red-carpet bromance
‘Love does not consist in gazing at each other, but in looking outward in the same direction,’ according to Antoine de Saint-Exupéry.
4. ‘Wassup bro’
With legs well set you vertically clasp hands and lean in for a manly rub. Warmly informal without being too intimate, but not one for grandfathers.
5. ‘Oh, right’
Innocuous handshake develops into an unwonted yank ’n’ pat. The most likely to occur in a buyer-seller environment, yet also the most likely to turn into a kiss.
Given this last reference to kissing, and wishing to generalise this kamtip in terms of gender, our additional research revealed the hidden complexities involved in kissing the buyer
Kissing the buyer: X, XXX or XXXXX?
Given the increasingly cross-cultural mix, even in buying offices, it is obviously important to try to comply with local ‘norms’ when deciding to add ‘puckering-up’ to your selling repertoire.
A great article in the Economist gives the detail (and 91 hilarious comments). For instance, at this stage it might be wise to avoid all invitations to transfer to your French affiliate given that social kissing in France is a cultural labyrinth.
This map, created by Radical Cartography, on the Jaunted website, shows how many times French people in different regions typically kiss one another when they greet.
When it comes to buying and selling, offering a cheek can become most fraught with danger.
Some rules of engagement are obvious: one would never peck on first introduction, for example, no matter where in the world you were. But it is also best not to appear too stuffy or aloof. So with continental contacts, you can probably relax into the informal greeting pretty quickly. On the other hand, Americans, apparently, would much prefer to go unkissed.
British buyers and sellers, as ever, straddle the awkward transatlantic space, probably only think of kissing once they had been to lunch a few times, and then only if they had managed to talk about something other than work…
All in all, the Americans probably have the right idea. Everyone knows where they stand with a firm handshake, or even a hug?
Hat-tip to Anette R. for the pointer to The Economist
Sunday 2 November 2014
Lidl’s giant step for UK discounting?
According to the Liverpool Echo, Lidl are to take over Liverpool's historic Lewis's Building, once one of the city’s landmark stores.
But having been empty for several years, it is now in line for a makeover by the chain. The ground floor will be taken up by Lidl, but much of the rest of it is still being developed as part of the Central Village apartments complex.
If Lidl are truly planning a move to large-space retailing, the issue will be whether a full-range offering, complete with overheads, will allow the discounter to operate the same low-cost business model, or will it have to compromise its pricing advantage over major mults?
(or is this the first move in opening a Kaufland Hypermarket in the UK by Lidl's sister company?)
Watch this space, literally…
Friday 31 October 2014
Halloween Pepsi-can dressed up as Coke went viral
Last year a Halloween themed Pepsi ad created by Advertising Agency Buzz in a Box, Brussels posted on Ads of the World's Facebook page went viral reaching over 300,000 people on Facebook alone in just a few hours. It also generated lots of retweets on Twitter and Google+ besides Ads of the World itself
A great illustration of how a gentle poke at a competitor can optimise social media.
However, the alleged response by Coca Cola was swift, equally humourous and must have amplified the initial impact, at least via Linkedin.
But the real genius of each advert lies in the ambiguity of the message, each advert causing readers to ponder on their possible meanings, with their combination adding to the 'confusion', thus stimulating the urge to share...
The result being that the category received much more reader attention, and pass-on value than more conventional adverts for such familiar brands might otherwise have achieved.
Incidentally, even if Coca Cola did not produce the response, perhaps they should have...
A heroically scary weekend, from the NamNews team!
Thursday 30 October 2014
Tesco are not 'serious fraudsters'
Tesco is simply a train that moved too fast, causing some of the wheels to fall off.....
The real issue is the opportunity this high-profile case provides for the SFO to attempt to restore a reputation that has been tarnished by a series of high profile failures in recent years. This relatively clean case of naive manipulation by amateurs, gives the SFO the means of demonstrating its ability to investigate and penalise corporate wrongdoing, secure in the knowledge that Tesco, or its management, are unlikely to retaliate in the case of possible over-enthusiastic application of the letter-of-the-fraud investigation process, unlike a recent SFO investigation....
The disruptive impact on the day-to-day conduct of the Tesco business should not be underestimated, given that the recent Deloitte investigation, albeit a far less comprehensive project, allegedly involved more than six million documents with 18,000 invoices reviewed and 700 scruitinised in detail....
Apart from the inevitable parallel but internal reviews by other multiples, 'just-in-case', many suppliers are already conducting internal reviews to assess any possible impact on the integrity of their trade investment process. However, it has to be said that in the main, these reviews will hopefully be in private, the only issue being relationships with internal audit-control, with NAMs having to explain how sums were authorised and paid in advance, possibly 'on a nod' in terms of promises of a promotion in the following year, all with the benefit of 20/20 hindsight...
Regrettably, whilst the consumer ultimately benefits from lower shelf-prices, the SFO investigation output will also result in a media-fest pointing out the 59 ways in which brand-owners incentivise retailers to persuade the shopper to buy more...
Finally, unfortunately for Tesco, this is not just a UK issue. Some Tesco shareholders live in the US, a country where people that feel they have been wronged, litigate, and Tesco shareholders will be no exception. Their approach will be in contrast with the UK, where in such cases it has been customary for the authorities to issue a reprimand, draw a line, and move on...
Any output from the SFO investigation will probably be used as a basis for shareholder class action in the US, in a search for compensation. In turn, any such result in the US courts will probably roll onto the UK stage, encouraging UK shareholders to seek similar compensation.
Overall there will be a change in supplier-retailer relationships, as all parties move to numbers-based assessment of cost and value, and the savvy consumer's demand for demonstrable value-for-money rolls back up the supply-chain.
Suppliers are now in a position to make or break Tesco, but it is imperative that any help given should not be unconditional...
In other words, Tesco and the SFO are presenting an unprecedented opportunity for suppliers to elevate the NAM-Customer relationship to a new level based upon fair-share dealings, where numbers count, and KPI achievement becomes the ultimate basis for retrospective performance-based reward...
All else is detail...
The real issue is the opportunity this high-profile case provides for the SFO to attempt to restore a reputation that has been tarnished by a series of high profile failures in recent years. This relatively clean case of naive manipulation by amateurs, gives the SFO the means of demonstrating its ability to investigate and penalise corporate wrongdoing, secure in the knowledge that Tesco, or its management, are unlikely to retaliate in the case of possible over-enthusiastic application of the letter-of-the-fraud investigation process, unlike a recent SFO investigation....
The disruptive impact on the day-to-day conduct of the Tesco business should not be underestimated, given that the recent Deloitte investigation, albeit a far less comprehensive project, allegedly involved more than six million documents with 18,000 invoices reviewed and 700 scruitinised in detail....
Apart from the inevitable parallel but internal reviews by other multiples, 'just-in-case', many suppliers are already conducting internal reviews to assess any possible impact on the integrity of their trade investment process. However, it has to be said that in the main, these reviews will hopefully be in private, the only issue being relationships with internal audit-control, with NAMs having to explain how sums were authorised and paid in advance, possibly 'on a nod' in terms of promises of a promotion in the following year, all with the benefit of 20/20 hindsight...
Regrettably, whilst the consumer ultimately benefits from lower shelf-prices, the SFO investigation output will also result in a media-fest pointing out the 59 ways in which brand-owners incentivise retailers to persuade the shopper to buy more...
Finally, unfortunately for Tesco, this is not just a UK issue. Some Tesco shareholders live in the US, a country where people that feel they have been wronged, litigate, and Tesco shareholders will be no exception. Their approach will be in contrast with the UK, where in such cases it has been customary for the authorities to issue a reprimand, draw a line, and move on...
Any output from the SFO investigation will probably be used as a basis for shareholder class action in the US, in a search for compensation. In turn, any such result in the US courts will probably roll onto the UK stage, encouraging UK shareholders to seek similar compensation.
Overall there will be a change in supplier-retailer relationships, as all parties move to numbers-based assessment of cost and value, and the savvy consumer's demand for demonstrable value-for-money rolls back up the supply-chain.
Suppliers are now in a position to make or break Tesco, but it is imperative that any help given should not be unconditional...
In other words, Tesco and the SFO are presenting an unprecedented opportunity for suppliers to elevate the NAM-Customer relationship to a new level based upon fair-share dealings, where numbers count, and KPI achievement becomes the ultimate basis for retrospective performance-based reward...
All else is detail...
Wednesday 29 October 2014
Aldi Ireland: joining the profit-dots in Aldi's UK latest Accounts
A recent article in The Irish Times indicates a possible approach to estimating the profitability of Aldi Stores in the Irish Republic.
Checking the latest accounts filed by Aldi Stores Ltd. at Companies House, it would appear that they include the UK & Ireland business of Aldi for the year ended 31st December 2013.
On Note 7, page 21 of the Aldi Stores Ltd. accounts, details are given of the tax charge for 2013:
- UK Corporation Tax at 23% £51.7m
- Overseas tax £10.2m, (say €12.9m at current rates)
We have taken the corporation tax assumption that ‘Overseas Tax‘ refers to the Irish Republic, together with an estimate of Aldi Ireland turnover for 2013 and reached the following conclusions:
- Given Ireland's Corporation Tax rate of 12.5%, this implies a net profit before tax of €103m in 2013 for Aldi Ireland
- Taking €850m as an estimate of Aldi Ireland turnover for 2013, this results in a possible pre-tax net margin = 12.1% i.e. €103m/€850m x 100
If we have joined the right dots correctly, the above guesstimate obviously raises issues ref general retail profit levels in Ireland, in what is deemed to be a highly competitive market.
Moreover, if the Tesco crisis fall-out spills over into Ireland, and combines with US/EU moves re Inverse Taxation, the resulting spotlights on the profitability of businesses operating in Ireland could eventually challenge supplier profitability.
You obviously know your sales and net profit margins on your business in the Irish Republic, and how they compare with the UK business....
The above analysis suggests that perhaps your forward projections re the Irish market contribution to your UK & Ireland business might benefit from a risk re-assessment?
Checking the latest accounts filed by Aldi Stores Ltd. at Companies House, it would appear that they include the UK & Ireland business of Aldi for the year ended 31st December 2013.
On Note 7, page 21 of the Aldi Stores Ltd. accounts, details are given of the tax charge for 2013:
- UK Corporation Tax at 23% £51.7m
- Overseas tax £10.2m, (say €12.9m at current rates)
We have taken the corporation tax assumption that ‘Overseas Tax‘ refers to the Irish Republic, together with an estimate of Aldi Ireland turnover for 2013 and reached the following conclusions:
- Given Ireland's Corporation Tax rate of 12.5%, this implies a net profit before tax of €103m in 2013 for Aldi Ireland
- Taking €850m as an estimate of Aldi Ireland turnover for 2013, this results in a possible pre-tax net margin = 12.1% i.e. €103m/€850m x 100
If we have joined the right dots correctly, the above guesstimate obviously raises issues ref general retail profit levels in Ireland, in what is deemed to be a highly competitive market.
Moreover, if the Tesco crisis fall-out spills over into Ireland, and combines with US/EU moves re Inverse Taxation, the resulting spotlights on the profitability of businesses operating in Ireland could eventually challenge supplier profitability.
You obviously know your sales and net profit margins on your business in the Irish Republic, and how they compare with the UK business....
The above analysis suggests that perhaps your forward projections re the Irish market contribution to your UK & Ireland business might benefit from a risk re-assessment?
You always miss 100% of the shots you don't try...
Tuesday 28 October 2014
Tesco's cash appetite: the opportunity for suppliers
Given Tesco’s combination of £14bn debt and £3.4bn net pension deficit, vs. its latest market capitalisation of £13.6bn, it is obvious that Dave Lewis’ priority has to be a sell-off of assets. In which case, a mixed shopping basket containing Dunnhumby, Tesco Bank and Tesco South Korea ‘should do nicely, thank you’ in helping the company in getting back to square one…
The off-limits moves
In this situation, moving the credit period from 40+ days to 90 days, a potential cashflow gain of approx. £5bn would help, but would do little for enhancement of supplier relations... Equally, any attempts to increase supplier trade investment or escalation of deductions would not only attract the attentions of the authorities and media i.e. consumer, but would alienate suppliers, the essential collaborators in any recovery… Given the current scrutiny by the FCA, it seems obvious that Tesco will be unlikely to rely upon increases in credit, trade investment, or deductions as cash generators.
The key options
On balance, it could be deduced that the sell-off of assets will be a key priority, against a background of severe tightening of all expenditure and a squeeze on liquidity on an ongoing basis.
All of the above has to increase Tesco’s sensitivity to the cost and value of supplier trade investment, and their appreciation of the direct impact on Tesco’s P&L.
Opportunities for suppliers
In other words, this combination of need for financially articulate NAMs together with Tesco’s vulnerability can provide suppliers with an unprecedented opportunity to elevate their Tesco relationship to a basis for fair-share dealings, an essential requirement for those that are prepared to help their No. 1 customer out of a black hole…
The off-limits moves
In this situation, moving the credit period from 40+ days to 90 days, a potential cashflow gain of approx. £5bn would help, but would do little for enhancement of supplier relations... Equally, any attempts to increase supplier trade investment or escalation of deductions would not only attract the attentions of the authorities and media i.e. consumer, but would alienate suppliers, the essential collaborators in any recovery… Given the current scrutiny by the FCA, it seems obvious that Tesco will be unlikely to rely upon increases in credit, trade investment, or deductions as cash generators.
The key options
On balance, it could be deduced that the sell-off of assets will be a key priority, against a background of severe tightening of all expenditure and a squeeze on liquidity on an ongoing basis.
All of the above has to increase Tesco’s sensitivity to the cost and value of supplier trade investment, and their appreciation of the direct impact on Tesco’s P&L.
Opportunities for suppliers
In other words, this combination of need for financially articulate NAMs together with Tesco’s vulnerability can provide suppliers with an unprecedented opportunity to elevate their Tesco relationship to a basis for fair-share dealings, an essential requirement for those that are prepared to help their No. 1 customer out of a black hole…
Friday 24 October 2014
Tesco aftermath: The options for other mults' NAMs?
Given yesterday’s surprises, and bearing in mind the degree of fall-out, despite the fact that precise causes still await the revelations of the FCA investigation, it is important that other mults’ NAMs anticipate the obvious and take action now.
Because of Tesco’s Commercial Income issue, compounded by structural changes in the market and how people shop, we are now embarking on an era of retailing simplicity as per the French formula: fewer complex promotions and big price cuts across the board.
For consumers this means lower prices, clearer promotions, demonstrable value for money, with the same transparency for auditors and the authorities, stripping out all non-essentials to reduce complexity and costs...
Back to the future of Commercial Income
This is a situation that 'just growed and growed', where the introduction of a 5% 'discretionary' trade fund gradually morphed into a trade investment budget in excess of 20% of a supplier's sales...yet retains many elements of a 'nodding through' process unsuited to the new post-Tesco climate of 'accountability'...
This all changed as of yesterday
This long-overdue investigation of Commercial Income practices will not stop at Tesco…
From an auditing point-of-view, from now on, think post-audit recovery, on steroids...
In other words, auditors and management of all major retailers will have to move to more focused assessment of all trade investment, examining actual transactions rather than accounting process, in order to satisfy any retrospective re-auditing and possibly legal assessment arising from the FCA examination.
For NAMs, acting now will help optimise new opportunities arising in the market
Action:
Much of Tesco's issues are due to a massive imbalance of supplier-retailer power that has been allowed to build up over the years. The trade now needs and is ready for a seismic shift back to a situation where trading partners understand their roles, relative risk-levels, challenge one another and are ready to accept a reward-split that reflects relative levels of investment in the consumer-brand relationship.
In other words, think savvy consumer buying from savvy retailer, buying from savvy supplier, all based on 'fair is fair'.....
Over-cautious?
Do you really think that any auditing firm will be able to resist this golden opportunity to increase its fee income in the current climate?
A lot of extra work?
Then think about the work involved if left unchecked until your customer drifts to the top of the radar screen....
NB. Tips for Tesco NAMs: Here
Because of Tesco’s Commercial Income issue, compounded by structural changes in the market and how people shop, we are now embarking on an era of retailing simplicity as per the French formula: fewer complex promotions and big price cuts across the board.
For consumers this means lower prices, clearer promotions, demonstrable value for money, with the same transparency for auditors and the authorities, stripping out all non-essentials to reduce complexity and costs...
Back to the future of Commercial Income
This is a situation that 'just growed and growed', where the introduction of a 5% 'discretionary' trade fund gradually morphed into a trade investment budget in excess of 20% of a supplier's sales...yet retains many elements of a 'nodding through' process unsuited to the new post-Tesco climate of 'accountability'...
This all changed as of yesterday
This long-overdue investigation of Commercial Income practices will not stop at Tesco…
From an auditing point-of-view, from now on, think post-audit recovery, on steroids...
In other words, auditors and management of all major retailers will have to move to more focused assessment of all trade investment, examining actual transactions rather than accounting process, in order to satisfy any retrospective re-auditing and possibly legal assessment arising from the FCA examination.
For NAMs, acting now will help optimise new opportunities arising in the market
Action:
- Tighten up Commercial Income practices in anticipation of more aggressive auditing in anticipation of fall-out from the Tesco issue. In practice this means revisiting your definitions and conditions ref Commercial Income and ensure their alignment with the customer and their accounting practices
- Avail of the opportunity to establish clearer and more transparent KPIs for all trade investment
- Push for a move to payment in arrears, based upon results achieved
- Above all, insist on fair share dealings in negotiated agreements - your customer needs you now, like never before...
Much of Tesco's issues are due to a massive imbalance of supplier-retailer power that has been allowed to build up over the years. The trade now needs and is ready for a seismic shift back to a situation where trading partners understand their roles, relative risk-levels, challenge one another and are ready to accept a reward-split that reflects relative levels of investment in the consumer-brand relationship.
In other words, think savvy consumer buying from savvy retailer, buying from savvy supplier, all based on 'fair is fair'.....
Over-cautious?
Do you really think that any auditing firm will be able to resist this golden opportunity to increase its fee income in the current climate?
A lot of extra work?
Then think about the work involved if left unchecked until your customer drifts to the top of the radar screen....
NB. Tips for Tesco NAMs: Here
Thursday 23 October 2014
Tesco: What now?
This morning’s announcement more or less met expectations and will be a continual topic for commentators in the coming months…
Meanwhile, NAMs have to pull together a plan of action, get in the car and drive to Cheshunt...
Essentially, from a NAM’s point of view, there are now effectively three Tescos in play:
Meanwhile, NAMs have to pull together a plan of action, get in the car and drive to Cheshunt...
Essentially, from a NAM’s point of view, there are now effectively three Tescos in play:
- A small business-development task force focused on growing the business, profitably
- A fire-fighting Tesco tasked with ensuring that the ‘here & now’ is optimised, keeping to the regulatory guidelines, ensuring that nothing compromises business growth
- A ‘historical-records’ Tesco whose sole aim is to satisfy all demands for details of past transactions, tidy up record-keeping systems, clarify Commercial Income elements & KPIs, and demand appropriate records from suppliers…
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