Morrisons-Amazon Supply Arrangement implications

News that Morrisons aim to supply Amazon Prime Now and Amazon Pantry customers with a wide range of Morrisons ambient, fresh and frozen products will obviously impact UK multiples' business.

NAM Implications:

• Prime Pantry Partnership is a leap forward for Morrisons, besides optimising spare capacity in their factories...
• Morrisons, by continuing to work with Ocado, can have little objection to Ocado offering their fulfilment services to other mults...
• By which time, as Amazon-Morrisons coverage increases, so will Morrisons begin to compete with itself via Ocado-Morrisons
• Meanwhile, although charging £2.99 for Prime Pantry delivery, if Prime customers ‘forget’ the annual fee, Amazon will have set a new low in delivery charges, increasing pressure on other multiples
• …While Amazon then tightens the delivery-speed option…
• Finally, Argos fulfilment had better be as good as is hoped…

Zero-sum collaboration: Every £1 checking compliance, is one less building joint equity...

Amazon Fashions Some Private Label

News that Amazon is introducing at least seven private label fashion brands in early 2017: Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro and Society New York, represents a significant breakthrough.

These surrogate labels may not shake the foundations of Food and H&B brands - yet - but if Amazon strengths are applied to the concept, then the possibility of some real incremental competition may warrant a place on the NAM agenda.

For instance, Amazon could optimise its data-collection capabilities to read consumer trends and deliver products to match them; fill gaps in its merchandise selection that leading brands won’t supply, and, most importantly perhaps, ride the sea-change taking place in retail and fashion toward the see-now, buy-now, wear-now movement. 

Adding speed and efficiency o these strengths make them unique to Amazon…and migrating them over to private label Food and H&B would be a small step for Amazonkind…apart from revealing and filling range gaps of which even brand owners are currently unaware.

So there are advantages for all in monitoring Amazon’s early moves, however distant from a NAM’s remit...

Or why not wait until it becomes a proper threat?

What if easyFoodstore decide to sell paint?

Given the initial success of easyJet's venture into discount food retailing, it might be interesting to explore the possible application of airline pricing to selling paint…

Customer: Hi. How much is your paint?

Clerk: Well sir, that depends on a lot of things.

Customer: Can’t you give me an approximate price?

Clerk: Our lowest price is our introductory special at $12 a gallon. After that we have dozens of different prices up to $199.

Customer: What’s the difference in the quality of the paint?

Clerk: Oh, there’s no difference. It’s all exactly the same stuff.

Customer: Well, in that case I’ll take your $12 paint.

Clerk: Well actually the $12 variety is only available on our website. If you want to buy it here at the store you’ll be charged an additional $20 Customer Convenience Fee

Customer: So if I go home and get it off the website, its only $12?

Clerk: That’s correct sir – plus a Credit Card Usage Fee of $6 and then there’s standard Shipping and Handling of $15.

Customer: What? So in other words buying online would cost me almost exactly the same as what I’d have to pay here in the store?

Clerk: I suppose so, but if you buy it here you get to use it immediately. Online purchases take ten business days to get to you – unless you pay the optional $25 Express My Paint Fee.

Customer: You’ve got to be kidding me!

Clerk: Well no sir, but it’s academic anyway as right now the $12 paint is completely sold out in both places.

Customer: That’s BS. I’m looking at shelves full of the stuff!

Clerk: Ah, but that doesn’t mean it’s available for sale. We sell only a certain number of introductory priced cans on any given day. Oops, look at that! It just became available again – at $17.50.

Customer: C’mon! You mean to say it went up while I’m standing here?!

Clerk: ‘Fraid so. Inventory control changes our prices all the time.

I strongly recommend you purchase your paint as soon as possible as it could go up again. How many gallons do you want?

Customer: Well, maybe three gallons. No, make that four, I don’t want to run out. I assume I can return anything I don’t open?

Clerk: Certainly sir. The $12 paint is non-refundable, but if you return it within 48 hours you will be entitled to a $5 credit towards the future purchase of another gallon of the same color at the same or higher price.

Customer: That’s crazy. In that case I’ll just give any unopened cans to my brother as he’s planning to repaint his home soon.

Clerk: Sorry sir, no-can-do! Our terms and CANditions – that’s a little in-house joke – prohibit paint transfer. It is strictly for the use of the original purchaser.

Customer: But wait a minute, I hadn’t spotted those “Paint Sale – $9.99* a Can” signs over there? That sounds like a much better deal.

Clerk: Ah yes, that’s from our low cost paint division. The asterisk denotes that the cans are actually half-gallons and the price is based on a minimum purchase of two. There is also an additional Environmental Fee of $5 per can, a non-refundable Can Deposit of $3.50, a Paint Facility Charge of $5 and if you want more than one color, the second has a $25 surcharge and the third is $50 extra.

Customer: This is utterly ridiculous. To hell with this! I’ll buy what I need somewhere else!

Clerk: Well sir, you may be able to buy paint for some rooms from another store, but you won’t be able to find paint for your connecting hall and stairway anywhere but here. And I should also point out that if you want Uni-Directional paint it is priced at $249 a gallon.

Customer: I thought your most expensive paint was $199!

Clerk: That’s only if you paint non-stop all the way around the room and back to the point at which you started. Stairways and hallways are considered one-way exceptions to the rule.

Customer: So, if I buy the $199 paint and use it in my hallway what are you going to do about it – send some goons in to paint over it?

Clerk: Wow, I believe you’re getting it now sir. But no, please, that would be plain silly. We’ll simply charge you a Direction Adjustment Fee plus the difference to $249 on your next purchase.

Customer: Next purchase? No way! I’m out ‘a here

Clerk: At Skyhigh Paints we never forget you have a choice, so thanks for shopping with us. Have a nice day!

Credits: 
Appears to have originated in Travel Weekly, October 1998, by Alan H. Hess

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…