Where next for Sainsbury's-Argos?

News of Steinhoff’s last minute counter-bid for Argos, from a company with a market capitalisation of €19bn vs. Sainsbury’s €6.2bn (£4.9bn), and taking into account Sainsbury’s top limit vs. Steinhoff’s opening bid, it is probable that Sainsbury’s will ask for, and receive, an extension of the bidding process to 18th March to consider their options.

However, given that they are at the limit of a cash & shares combination, it is unlikely that Sainsbury’s will enter, much less beat Steinhoff in a bidding war.

This means that Sainsbury’s NAMs need to factor in a period (until 18th March) of uncertainty and distraction. Barring accidents - some outside development by government or counter bidder - Steinhoff will be successful...

In practice the inevitability of a failure by Sainsbury's to diversify via Argos means either a re-focus on optimising the current operation ‘as is’ or a new search for further diversification opportunities. Making the best of the existing mix means growing at the expense of the other mults, sharpening its competitive edge, with the help of suppliers

NAMs need to drill down to the level of their Sainsbury’s categories in order to best position their offerings within the retailer’s competitive platform, whilst maintaining the harmony of their trading relationships with other mults.

Meanwhile, Argos NAMs need to prepare for a radically different approach to their major customer, under new ownership. This means, treating the 'new' Argos as a new customer, going back to basics and re-profiling the retailer within their customer portfolio....

Exploring how Steinhoff's other UK operations are managed might also help...

Straight croissants? But what about the magic, guys?

News that Tesco have decided to de-list crescent-shaped in favour of the less-messy 'straight' option causes me to think this move could represent another crisis in the making...

Has anybody considered the ceremony associated with the purchase of a warm buttery croissant, the breaking into bite-sized chunks, applying a knob of jam - or even more unruly honey - to each, and all the while dripping flakes and spread onto plate, table and even front of clothing, while taking minimal sips of double-expresso, and conducting a business deal simultaneously...

This display of multi-tasking nearly always impresses business partners, themselves almost resisting the temptation to pinch-up the flakes and mop up the drippings in a final flourish...

On a domestic level, the traditional crescent-shape allows the family to practice the required dexterity - with enthusiastic participation by the toddler recently graduating from a milk-diet - and the added benefit of being able to recover all 'spillings' without a hint of social embarrassment. Somehow, a straight version does not have the same appeal...

Deep down, consumers, whilst conforming on perceived value-for-money, can be diverse in their needs re other aspects of a retail offering...
Personally, I struggle with the idea of tubular hard-boiled eggs..., while patiently waiting for wonky vegetables to outsell the 'straight' variety..

All of which reminds me of my early ventures in giving business advice to a Danish dairy company re the fact that their UK butter offering might prove confusing to UK shoppers because of its 'haphazard' changes in colour from yellow to white and back again during the year.

Despite my farming and Mom 'n Pop store upbringing in less politically-correct times, I persisted in recommending a purist marketing approach to this farmers' cooperative in that a consumer-test was essential in establishing whether white or yellow was the preferred colour. This insight would then determine whether the product should be bleached or coloured yellow to match consumer need...

The client politely pointed out that theirs was a natural product whose colour reflected the cow's seasonal diet, and told me they did not think much of my reservations re the brand name either...

I often wonder what ever became of Lurpak over the years....

Need for more transparency? Moi?….

Competitive forces, increasing trade pressures and endless price reductions are combining to make relative power a key issue in unprecedented times…

Because running a business, supply or retail, means achieving and managing a delicate balance of the conflicting interests of shareholders, lenders, customers, workers, management, government and perhaps even the consumer-shopper, knowing the inevitability of compromise diluting profitability, and being measured via 20/20 hindsight, it is understandable that those ‘in charge’ are often tempted to respond more readily to the most powerful demands.

In a trading relationship, it is relatively easy to shift from assertion to aggression in dealing with an up-the-line partner when attempting to meet the demands of the more powerful of the internal stakeholders. Acknowledging that consumer power is the key driver, then logically this means the system only works if power diminishes as one moves back up the supply chain…

Starting with consumer-shoppers’ ability to vote with their feet, or their ability to command the help of government if their needs/rights are being ignored, the real power resides on the shop floor (or rather the floor of the shop), and cannot be ignored…

Given retailers’ ability to aggregate and apply buying muscle, they can appear to have more focused and usable power, which they then apply further up the supply chain. The finished goods supplier by definition has more power than the ingredients supplier and proceeds/needs to apply that power in driving down costs…

Governments come on board when they perceive that a shift in the power balance could result in votes being lost as they struggle with their compromises… Hence their interference when the farmers are under pressure, retailers are ‘over consolidating’, or a detrimental change in the health of the consumer-shopper is in danger of driving up healthcare costs…

Suppliers and retailers need to anticipate these inevitabilities, plan for appropriate change and prepare plausible explanations for the lead-times required.

Transparency can help.

With so many of the company’s systems/models designed for internal consumption and to meet internal needs, then accidental or forced exposure to outside eyes reveals their ‘bias’ and renders them indefensible…

The question of whether one should have to explain is not the issue (i.e. whilst refusal to explain can be interpreted an attempt at concealment, willingness to explain does not necessarily imply weakness).

It is perhaps better to accept the inevitability of total transparency, and design policies, systems and process that are fully defensible, internally and externally. Only then can we have the courage to be transparent.

In the process of attempting to fully understand partners’ views as we strive towards greater transparency from their perspective, our position can become more defensible, and result in our ability to build and use expert power, to the disadvantage of less transparent competitors…

As more transparent key influencers accumulate more power in the market, then this wish for a less opaque trading environment may even become self-fulfilling…..

'Smell-by' dates adding to the usable-life of food?

Essentially, as uncertainty continues to be the norm for many families, resulting in consumers limiting spending to essential items, it is perhaps useful to consider the impact of financially-stretched consumers attempting to extend the usable life of food in these uncertain times.

When smaller, closer, faster, more convenient shopping becomes the norm, consumers are in a better position to monitor fridge contents, will rotate stocks more effectively, and thereby waste less via 'on-time' usage.

If we couple this with major multiples attempts to limit instore food wastage, and political pressures to donate surplus produce to charities, then it becomes obvious that significant demand is being taken out of the market.

However, if consumers are also beginning to revert to Granny’s method of judging food quality by its smell, they will in effect add even more to a product’s usable life, thus taking more demand from the market.

The result will be flat-line demand for fresh produce, at best, with any growth coming at the expense of available competition, based on a savvy assessment of Product, Price, Presentation and Place….

NB. NAMs closer to the fresh food sector will immediately appreciate that increased use of ‘smell-by’ dating may result in unintended consequences based on irradiation of foodstuffs, whereby media attention will be re-directed at food processing in a search for clarity…

Winning In FMCG - How Brands Can Win in the Age of the Discounters

Guest blog by Richard Nall, The Brand Garden

Pop over to Germany and drop into a Real or V-Markt and you’ll glimpse a possible future: stores that feel more like B&Q with the typical superstore range we take for granted tacked on at the side.  On a more forensic examination, you might note a seemingly odd allocation of space for FMCG categories and brands (just how do Milka or Tempo deserve all that space?) with few promotions.  You realise that this might be more about survival than coherent FMCG retailing in the sense we have known it.  You might also note something about those brands that are flourishing...  

In short they must have done, and continue to do, the basics very well.  It’s the only explanation in a world of limited differentiation and marginal gains.  Their consumer segmentation and clarity on the leading category/brand insights will be sorted.  Brand and architecture models will be powerfully crystalised and executed ‘through-the-line’ with a long-term view of innovation requirements.  They will align this to a flexible approach to promotions and tactical SKUs within a pragmatically commercial framework.  In negotiations, they recognise the value they bring their customers’ as distinctive brands & category builders.  

This is the key.  

Through building distinctive, relevant brands, these brand owners help rescue these retailers.  They support the rationale for shoppers to return rather than head for Aldi and Lidl.  And herein lies the problem for many brands in this Brave New World.  If it is there in the first place, the clarity of proposition and discipline in consistent execution is quite often lost through fragmented commercial teams.  Weak P&L management means that margin/trade spend has been conceded over the years to the extent that many brands struggle to receive the investment they need.  Rather than being concentrated or, at the very least, aligned, awareness-generating monies are split between sales, category, shopper and consumer marketing teams, and used to meet their respective, turf-driven agendas.  

Yet, as always in the gloom, there are rays of light.  Challenger brands’ growth has been the success story of the last 15 years, bringing interest to homogenised categories, and offering a recipe for success for the future.  You do not need to be big today to succeed tomorrow, and being in a rush to grow might do you a dis-service as consumers take time to evolve their shopping habits.  The well-travelled phrase ‘more haste, less speed’ is very apt here.  

Be clear regarding the market in which you are competing.  Define it narrowly and you will miss growth opportunities; be too broad and it will be meaningless.  Be ruthlessly clear on your brand proposition, and leverage that through innovation and distinctive communication.  Make sure you really do understand the available consumer touch points, and be creative in your solutions.  You don’t need a big spend to have impact but you must maximise the value of each and every part of the marketing mix you can afford.  

Think Innocent and Tyrrell’s and start with packaging and SRP.  Learn from Williams Murray Hamm’s packvertising design approach.  Think ‘less is more’ and ‘concentrate for effect’.  Market size and creative power are two of the biggest drivers of exponential sales gain so use them to your advantage.  Make sure you have proper and mutual challenge and debate with your agencies.  You don’t need stand-up rows but you should encourage the creative tension of passionate conversation and short-term disagreement.  

If you’re still wedded solely to traditional communications techniques, be creative in your negotiations with the broadcasters and expand your horizon.  Take advantage of the opportunities that digital media represent, always remembering that the consumer journey is like a funnel so ‘mass awareness effect’ should remain your ultimate goal even if it might take time to get there…don’t waste your money on gimmicks, and make your digital choices wisely.  On the other hand, if you aren’t using some of your marketing spend to test the RoI of alternatives then you are missing a trick so strike a balance.  Be clear on the investment and communications decision-maker (one!).  

Next, remember that your customers need you brand owners now more than ever before, but only if your brands, large or small, are fit to fight on their behalf.  Fail this test and you will be deservedly culled.  The reality is that it does not matter how good you are today, it will not be good enough tomorrow.  A tricky race is only going to get trickier...

To see how we can help you irrigate your business, contact Richard Nall on +44 (0) 7796 930 228 © The Brand Garden 2015

BOGOF R.I.P. - A sideways swipe at waste?

With Asda re-discovering its Walmart roots by ditching multi-buys, and Sainsbury’s clearing the multi-buy shelves by Summer, Tesco and Morrisons will not risk looking odd by comparison, meaning 'Hello EDLP....'

Eliminating multi-buys, means less scope for waste, matching purchase with need, simpler pricing helping shoppers identify real value, prices moving to EDLP, with Stelios establishing new levels of Low @25p…

In fact, best to see it as part of a war on waste, coupled with a move to supermarkets donating excess produce to charity, people eating less, in a move to healthier living…

Meanwhile, consumer-shoppers have to sharpen their savviness by getting their heads around Unit Pricing - you really think they all understand it? - with supermarkets playing their part by emphasising price per unit, AND PRINTING IT BIGGER…

Finally, joining all the above dots, NAMs, having been spared the task of trying to make a multi-buy seem profitable, now have to focus on growing at the expense of competition within the resulting flatline - or even falling - demand in many categories…

Confusing promos morphing into savvy-shopper alienation

If making promos difficult to compare is the objective, then stakeholder efforts are working well, in that Watchdog deal-quizzing of consumers found that just one in 50 was able to choose the cheapest option....

If driving sales in flat-line markets is the objective, then, according to the Daily Mail, then such confusion is causing shoppers to spend an extra £1,200/annum.

                                                                                                                    Source: The Daily Mail

What no one is measuring is the negative impact on brand equity amid the creeping suspicion of being misled. Even more serious is the fact that, in the absence of effective self-regulation - last year, the Competition and Markets Authority (CMA) said it had found evidence of misleading supermarket promotions following investigations into a super-complaint submitted to the regulator by consumer watchdog Which? - the government could intervene in order to clarify the position for shoppers...

Think bureaucracy and 'government language' to explore the implications.

How much better if suppliers and retailers worked together to attempt to retrieve some of their respective brand equity by aiming at clarity and sustainable like-with-like comparison of promos, before the government is forced to assist...

Power play in supplier-retailer negotiation – how to level the playing-field in 2016

Power play in business is not exclusively about dealings between suppliers and retailers. In fact, it is more about interactions between large and smaller organisations…

Equally, we need to distinguish between being fair in our business dealings, and securing our fair share in negotiated settlements. 

If we choose to define fair-play as respect for the rules and/or equal treatment of all concerned, as in sport, fine. However, if we assert that all players are equal in business, we can seem naïve. Patently they are not. Business is not about equality, or fairness, and attempts by a government to impose standards of fair-play based on ‘equality’ are doomed to failure.

It is about two different organisations, often representing different business models, finding ways of accommodating their differing needs in an arrangement that satisfies each party, more or less…. 

Playing fair was something parents and teachers tried to enforce in the playground, and has little application in negotiation. In fact, in these unprecedented times, it can be more productive to talk about fair share – reflecting relative risk – as the basis for grown-up business negotiation.

In other words, given that both parties in a negotiation session take risks via the give-and-take process between ‘equal’ partners, exchanging information and insights that are capable of being abused in the wrong hands, it follows that a fair-share result is one where the rewards are divided in proportion to the perceived risks taken by the counterparties, and each is willing to continue the relationship.

If successful negotiation is defined as a series of matched concession exchanges between equal partners, it clearly cannot take place between two companies of unequal size, unless the NAM can redefine the size of the ball-park.

For instance, as negotiation success is often determined by relative size of business, Tesco's £62bn sales and 28% share of retail market will generally tip the power-balance in their favour for all but the largest suppliers.

All other suppliers need to find ways of leveling the playing field in order to make both parties ‘equal’.

In practice, this means moving from a business-to-business discussion of obvious inequality, where being delisted from Tesco can mean a factory closes, to a focus on a category or even a sub-category where your brand can be positioned as a ‘must-have’ for Tesco, compared with available alternatives, and for that moment you and Tesco can be regarded as business ‘equals’... The key is realism, and an ability to calculate and demonstrate the connection between a supplier’s product offering to the desired financial performance of a major customer. Little else matters in the current economic climate.

UK multiples are currently experiencing unprecedented set-backs, suffering seemingly irreversible share loss to the discounters and local convenience, all under the spotlight of the GCA, with Tesco’s GSCOP report merely a starting point, an investigation by the Financial Reporting Council under way, a SFO seemingly just steps away from imposing financial penalties and a government needing to optimise Corporation Tax returns.

In addition, shifts in consumer shopping behaviour to smaller, faster, closer, more frequent, more convenient purchasing, has resulted in large space redundancy, all diluting major retailer profitability, in the eyes of the stock market.

In other words, it could be said that UK major retailers are now in the market for unprecedented degrees of collaboration with suppliers, more tailor-making to local need, and could be more receptive to the idea of fair-share negotiation.

However, UK multiples are still very powerful players controlling major routes to consumer, and cannot afford to be ‘pushovers’…, but they are more vulnerable than ever before.

This has to represent a significant opportunity, a useful starting point, for those suppliers that are prepared to go back to the fundamentals of consumer need in a radically changed marketplace, re-establish the value to consumers of their essential offering vs. available alternatives, and eliminate any surplus from the consumer’s point of view.

It is then necessary to realistically assess the extent to which each of the multiples has been impacted by the above market changes and issues. Specifically, this means establishing their  ability to meet the needs of your core consumer, compared with other members of the Big Four.

This will help you to establish the specifics of the retailers need-set, as a basis for comparing your ability to satisfy those needs, better than available competition. All based on what we have, all we have, our most valuable asset, consumer trust…

You are then ready to prepare for fair-share negotiation…      

easyFoodstore, Another easyDisrupter? - Comments on the spot from our North London correspondent

Brian Peataque (above), a senior savvy-shopper from Hove-actually, commented: "Normally, this stretch of the North Circular would put years on anyone, but I am excited at the prospect of getting eight SKUs for £2".

                                                                                                                                       pic: bmoore

Following a degree of shopper-demand the mults need to envy, the store had to close on Wednesday to replenish stocks, and opened again this morning.

                                                                                                                                       pic: bmoore

A single check-out, folks...

The future?
With a basic range of 76 products, approx. 500 sq. ft., and one checkout, if Stelios can make the numbers work on 25p - or even 50p - his latest market-disrupter is infinitely scalable....

This has to cause branded suppliers to seek non-compromising ways into the discounter channel, ideally via branded discounters...

NB. For NAMs not accustomed to using easyTransport, easyFoodstore is part of the easyBus depot on the North Circular, a slipway a few hundred yards north of Hanger Lane junction.

If Carlsberg did shopping trolleys... (Asda Clapham Junction)

In an effort to improve the shopping experience, Carlsberg worked with custom car experts Yiannimize to create a motorized trolley complete with an electric engine, a beer cooling system and satellite navigation. No more warm crates of beer, getting lost in the supermarket and struggling with wonky shopping trolley wheels.

GCA-Tesco Investigation, What Now?

The GCA Investigation report establishes a basis for suppliers wishing to bench-mark and re-set their relationships with Tesco and other retailers.

Nothing beats a detailed reading of the report in order to identify key aspects to a supplier’s actual trading relationship with Tesco, but application has to be top-of-mind….

In practice, suppliers need to revisit all aspects of their trading relationship and establish working limits, i.e. walkaway points, in each case.

Essentially, the report provide two key areas for immediate application, Credit periods and Deductions.

Credit Periods
Tesco currently pays suppliers in 44 days on average, and the GCA report (7.3) refers to a Competition Commission Report published in 2000 that noted ....retailers delaying payments to suppliers beyond contractual payment periods or by more than 30 days from the date of invoices may adversely affect the competitiveness of some suppliers. 

In practice, for daily delivered SKUs, it could be said that seven days is even more appropriate, but every little helps…

However, strictly speaking, GSCOP specifies that breaches occur when a retailer deviates from a negotiated agreement on terms i.e. the onus is on suppliers to reach agreement on a 30-day credit period if they wish reduce their exposure and operate on that basis.

Deductions:
The report also focuses on unilateral deductions and gives sufficient examples for suppliers to use as a basis for internal adjustment of their systems. Essentially, this means assessing their supplier-retailer relationships re
- Unilateral deductions made in relation to historic claims (Post-audit recovery)
- Unilateral deductions for short deliveries and service level charges
- Unilateral deductions made for other items or unknown items

Given that it can be easier to document each aspect of the trading relationship in advance of execution, if only to avoid having to recover two year old documents under the pressure of a two week buyer deadline, suppliers need to establish ways of minimising post-audit claims, agree and document delivery and service level conditions and anticipate possible deductions for any other breaches.

The pending SFO report - due this week - will add numbers to the above, as well as fleshing out Trade investment definitions and measures.

On balance, the GCA and SFO reports can provide a basis for suppliers to revert to basics with Tesco, treating the company as a new major customer. This means re-assessing Tesco’s relative competitive appeal vs other customers from a consumer-shopper point of view (think media fall-out from both reports), the retailer’s development life-cycle in a radically changed market, and the characteristics that qualify them as an Invest, Maintain or Divest customer, all tailored to your brand consumer...

Finally, for your category, an objective re-assessment of your relative competitive appeal vs Tesco’s new appetites arising from both GCA and SFO investigations will help you determine the strength of your negotiation position in re-setting and optimising the opportunity window partially opened this morning by the GCA Report... 

SFO Tesco investigation set to conclude this week

According to CityAM, quoting Cantor Fitzgerald’s Mike Dennis, the investigation could be wrapped up this week. Any fine/redress will obviously impact Tesco’s cash position in terms of repayment and re-financing bonds, adding to pressures on the company.

Longer term we believe that the government will legislate re the accounting for trade investment, and probably move to retro-payment based on auditable results. 

This means a move for suppliers to building in KPIs and compliance for every trade initiative, an inevitable and long overdue progression to fair-share dealing....

This development coupled with Tesco’s loss of market share, and unlikelihood of a return to old market dominance, means that suppliers are in a stronger position re negotiation of compliance.

A once-only opportunity for NAMs that are prepared to go all the way…

Vintage Me-too, or Brexit-prep?

Counting on Tesco brand values to drive improved performance

                                                                                                                       Chart: CityAM                                                                                                              
The YouGov Index score shows a brand’s overall health and is a combination of several metrics – namely its Impression, Quality, Value, Satisfaction and Reputation measures.

The chart speaks for itself and echoes Tesco’s sales results from Jan 2014 to Jan 2016, through a low point in December 2014 and a continuing upward trend into 2016…making the point that at base, it’s the brand that counts, more than a little…

A Tesco on the way back now has to nurture its delicate relationships with shoppers – and suppliers – and regulators – to avoid even a little unhelpful misstep….

HT to Andy Parker for pointer

Trade Investment Accountability and how Governments will legislate…

Following the Tesco Accounting scandal, a lack of consensus among the UK's major food retailers is detracting from efforts by the Financial Reporting Council (FRC) to improve the way that companies report complex supplier arrangements and will prolong the uneven disclosure of supplier income, according to a new report by Moody’s Investors Service - more here

NAM Implications:

• The combination of inconsistency and scale of payments involved means that governments will eventually legislate to optimise taxable income
• It is probable that such legislation will be conservative (small ‘c’), retrospective, i.e. paid after-the-event and based on measurable results,  the only certainty...
• In other words, all trade investment will specify KPIs, build in compliance, and payments will be withheld until auditable results are available

NAMs and their customers had best prepare for the inevitable…

The ultimate T-cut: Asda plans to axe free tea and toast perk for staff

Reports in The Standard that Asda will stop providing breakfast perks, which also include coffee and vending machines, insisting it must make “tough decisions”,  means that the company could fall foul of the Law of Unintended Consequences.....

Although possibly a minor scratch for the owners, this could be major gash for the recipients, and their unions…

Think also of the massive signal being sent to the market – ‘I knew their Christmas was bad, but…’

It remains to be seen how this T-cut application will affect the staff-shopper interface, but the issue for NAMs has to be how this 'financial viability' parameter will impact their next session with the buyer… 

Amazon Rumoured To Be Eyeing Tie-Up With Ocado

City rumours reported in The Daily Mail yesterday suggested that Amazon is preparing to make an approach for Ocado as part of its plans to launch a full grocery delivery service in the UK.

NAM Implications:

• For Amazon this means leap-frogging years of food-delivery expertise in the UK’s most concentrated M25 market
• For Ocado, a takeover by Amazon provides a means of capitalising on their investment to date in leading-edge fulfilment and a degree of food-delivery experience that far outranks* Amazon Fresh, besides providing an additional revenue stream via third party retail usage of their facilities
• For the mults, already tempted to outsource fulfilment to a 'manageable' Ocado, joining with the biggest elephant in the room might be too tight a squeeze…
• ...and no mention of money, because the potential gains are so obvious for Amazon…

*See Paul Clarke Ocado presentation 

HomeBunnings - an Au shake-up of the UK DIY sector?

News of Bunnings £340m takeover of Homebase means inevitable change to DIY retailing.
Wesfarmers need to justify an overseas investment, Bunnings need to make an impact, and the competition need to make counteracting moves.

What is certain is all DIY retailers are now in the market for innovative instore - and car-park - theatre* initiatives.

A must-take opportunity for all suppliers to be first from the trap, while others sit and wait...

* Bunnings is known for its “sausage sizzles” outside stores where local sports or community groups are allowed to set up stalls and sell food to customers, UK weather permitting....

A 'Bowie-comment' on the global stockmarket rout

Ground Control to Major Tim
Ground Control to Major Tim
Take your Man up pills and put tin helmet on

Ground Control to Major Tim
Commencing meltdown, algos on
Check deflation and may Goldman Sachs be with you

This is Ground Control to Major Tim
You’ve really made bad trades
And the papers want to know whose shirts you’ll wear
Now it’s time to leave the free-fall if you dare

This is Major Tim to Ground Control
The markets are through the floor
And the £’s floating in a most peculiar way
And the stats look very different today

For here
Am I with a tin hat on
Just got out of bed
All the markets are bright red
And there’s no easing from the Fed

Now I’ve lost one hundred thousand pounds
I’m feeling very sick
But I think my broker knows which way to go
Tell my bank I owe it very much you know

Ground Control to Major Tim
Your stop-loss is dead,
You’re really on a limb
Can you hear me, Major Tim?
Can you hear me, Major Tim?
Can you hear me, Major Tim?
Can you….

For here
Am I with a tin hat on
Just got out of bed
All the markets are bright red
And there’s no easing from the Fed….

Source: Stephenroi - comment on The Slog https://hat4uk.wordpress.com/ 15-01-2016

Guest Blog: Releasing cash is always faster than generating sales

5 levers to release cash....
By Ian Yates, Director at Barcanet

Looking for cash...want to avoid the travel ban, release funds for innovation, identify more efficient operating models?

Historically, companies have managed costs through a series of (mainly) uncoordinated technologies and processes, supported by tactical initiatives when budgets needed to be squeezed.

Today, with competitors constantly innovating and new entrants changing the game, businesses need to take a more enduring approach to cost optimisation and find new operating models and/or efficiencies to release the cash needed to fund their own innovation and growth.

Working with hundreds of businesses around the world, I have found the following five levers consistently optimise spend across any business operating cost;

1. Visibility
Whether you run a multi-national organisation with disparate systems, and de-centralised supply-base or a sole-supply contract with complex commercial or operational terms, getting visibility of spend, usage and performance drives better decision making.

The visibility lever will;

• Centralise usage and costs data
• Bring transparency to complex categories and contracts
• Provide governance for your business policies

Giving the right insight, to the right people, at the right time allows for simple data-driven decision making.

2. Compliance
Errors in invoices or missed discounts accounts for up to 3% of the cost of goods/services bought in some categories. Some estimates put ‘procurement fraud’ at as much as 1% of a businesses turnover.

The compliance lever includes factors such as;

• AP and contact commercial terms compliance
• Governance over days-to-pay and early-payment discounts
• Identification of shadow/rogue spend

Finance and ERP systems deliver an element of this compliance, but a lot of value is lost throughout the process. Pre-payment audit routines and insightful reporting retains cash in the business and provides the mechanism to drive change.

3. Consumption
Be that non-production, “We were paying $5m per annum on mobile phone services for people who had already left the business – some of them years ago!” or production, “We used 0.5% more in one factory than another, with almost identical outputs, doesn’t seem a lot but the cost was millions per year”.

The consumption lever brings insight to make simple, data-driven decisions;

• Benchmarking internal usage and cost profiles
• Optimising assets
• Making users accountable

Generating the realisation of cost brings behavioural and cultural change. Users are in the best position to reduce costs and bring faster innovation to business operating models.

4. Price
Over two-thirds of CPO’s see cost reduction as a priority, and yet 84% are not satisfied with the levels of insight they receive. Businesses need to recruit well and have a strategy for these procurement professionals to align with. However arming them with good, consistent data allows the team to negotiate and manage suppliers from a position of knowledge.

The price lever comes from;

• A suite of reports of spend and usage from all silo’s in the business
• Insight to business and new product strategy
• Supplier performance and risk management insight

Procurement working as a business partner rather than simply a cost reduction specialist, better defines the business objectives for the supply base, increasing agility, optimising costs and reducing supply-chain risks.

5. Process
Simplification and standardisation are two of the key words I hear repeated at almost every customer. But where do you focus resource where it really matters?

The process lever provides the business and the change agents with insight to identify these areas and data on where best practice is being achieved;

• Benchmarking cost, usage, margin and ROI
• Identifying why rogue/shadow spend happens – what is the benefit
• Identifying impacts across silos

You will find some components of these levers are simple to implement, others require a more structured approach to sustain the benefits over the longer term. However, these benefits can be significant and worth the investment - sustainable reductions of 20-50% of operating expenses.

More details here

For further information, contact Ian Yates, Director at Barcanet
Email: ian.yates@barcanet.com or Tel. +44 7868-745705

Aldi's older UK stores growth slowdown - beginning of the end, or end of the beginning?

With Aldi growing new space by 10-15% per annum, the discounter is clearly racing to reach its full foot-print potential in the UK.

Although like-for-like sales in stores open more than 1 year are 1%, the emphasis has to be on making the Aldi offer accessible to the entire UK population, in the current flat-line market. Given the relatively low cost of opening new outlets, Aldi – and Lidl – are better able to afford a greater degree of geographical infilling than are the redundant-space mults.

It could therefore be said that Aldi are approaching the end of the beginning of the first discounter-wave in the UK.

With Kantar figures showing Aldi and Lidl attracting 1m more shoppers to their stores, resulting in a 13.3% and 18.5% jump in sales respectively, it can be seen that initial access to their offering can be lucrative for the discounters. Given that they are simultaneously pushing upmarket, successfully, and with no end to flat-line demand in sight, the discounters are surely pursuing the right priorities in this market.

Given eventual discounter outlet saturation, both players will then have sufficient financial momentum to focus on optimising like-for-like performance at local level, well in advance of any end in sight…

Meanwhile, branded suppliers have to find ways of sharing in this discounter growth. This means finding ways of moving from the ‘ongoing continuous relationship’ process that was possible with traditional retailers, to the ad hoc transactional dealings necessary with discounters.

For instance, a little-noticed announcement by Nestlé some weeks ago re highlighting its confectionery brands in all of Aldi’s German outlets, indicates one of the moves being made towards continuous collaboration with this increasingly important route to consumer for major brands…

To help your colleagues focus on this challenge, why not consider running a what-if on the Aldi-Lidl combination eventually moving from a 10% to a 20% share of the UK grocery market?

Fancy a half-empty, half-full beer?

                      Pic: Simon Lambert and Sons, a pub in Wexford

A Brand New Challenge?

                                                                                                      Pic: Brilliant Ads

Argos - a Local-leap by Sainsbury's?

Yesterday’s surprise announcement of an initial rebuff by HRG not only places the Argos-Homebase combination firmly in the takeover frame, but also sets a minimum starting price of £1bn.

The advantages for Sainsbury’s in terms of adding to their non-food offering, making more use of big-space via a transfer of Argos Click & Collect, and re-acquiring a DIY operation they sold some years back, combined with successful initial trials of Argos shop-in-shop make this a must-have acquisition, but not at any price.

Incidentally, gaining access to Argos Click & Collect expertise hopefully does not rank high in terms of plus-points, given that this ‘mail-order’ company transitioned into ‘hard-copy’ click & collect as an extension of their original business rather than a high-tech entry into online…

It also goes without saying that Argos vs. Amazon is a no-contest battle, on any parameter…

In terms of upping-the-ante, with a market capitalisation of £5bn, a share price showing a 57% drop since 2008, and continuing pressure from the discounters, Sainsbury’s is not in a position to raise their bid significantly in the month that remains in which to make an improved offer.

However, having put HRG in the spotlight, other mults now have until 2nd February to assess the relative appeal of acquisition in terms of similar advantages to their businesses.

In practice, Tesco and Morrisons are currently distracted by more pressing issues, but Asda’s Walmart (Mkt Cap $196bn) would have little problem in covering ‘whatever it takes’ to add scale to their UK repertoire…

On balance, the next move depends on the extent to which Sainsbury’s faith in the future of Local convenience causes them to consider converting ‘as many as it takes’ of Argos 800 High Street outlets – moving more Argos ranges into larger Sainsbury’s outlets – into additional Local branches, and persuading their largest shareholder - Qatari - to make up the difference…

Amazon Pantry could help itself to Ocado's lunch, but the combination impacts us all

                                                                                 Source: Wired via Business Insider

An article in Business Insider, acknowledges that the introduction of Amazon Pantry, already impacting Ocado shares, down 35% since June 2015, is hurting Ocado, but reports that Goldman Sachs has an interesting theory about how this might actually be good for Ocado.

Essentially, apart from putting Ocado into the takeover frame, Amazon Pantry will add to pressure on the mults, pointing them at possibly leasing Ocado's online platform and delivery infrastructure, and, as per Paul Clarke's presentation above, online grocery delivery is more complicated than general merchandise.

However, the real issue is that the combination of Amazon and Ocado expertise is raising the online bar to such an extent that other retailers may not even bother...

NB Making a difference to your online approach in 2016:  If you want a real insight into the unprecedented standards being set by Ocado in developing an online multi-product delivery-pipeline into your home, see CEO Paul Clarke's 16min +10min Q&A presentation to the Wired Retail conference above