Thursday 2 November 2017

CMA Delays Revealing Provisional Decision On Tesco’s Proposed Takeover Of Booker

Having originally said it would publish details by the end of October, the CMA yesterday altered its administrative timetable to say the provisional findings would be available ‘early/mid November’. (More)
  • Continued uncertainty means suppliers to Booker revert to short-term mode in terms of dealings with Booker…
  • …and the rest of the wholesale sector.
  • Whilst at the same time anticipating further consolidation in UK wholesale.
  • i.e. reducing the possibility of prices and terms discrepancies…
  • But if the deal goes ahead, be prepared to offer Tesco-Booker terms to all wholesalers.

The unintended consequences of an unprecedented merger:
  • This issue is not about increased Tesco buying power (Booker would add 10% to Tesco purchases)
  • The real issue is that Booker will be able to avail of Tesco buying terms, resulting in unmatchable competition for wholesalers not so privileged…
  • Time for suppliers to conduct what-ifs on supplying all wholesalers on Tesco terms?
  • Or watching Tesco-Booker grow at the expense of other wholesalers - same difference?
  • Or other wholesalers being taken over by other mults? - almost same difference?

Tuesday 31 October 2017

Ground down by the price of your £2.50 high street cappuccino?

 pic: Brian Moore
Given that the humble £2.50 cappuccino has fallen out of favour, coffee connoisseurs demand more than a standard caffeine fix to help them through the day, at a price!

The Daily Mail lists sources like The Connaught in Mayfair (£7.50 for any cup of coffee) and Claridge’s (up to £20 for a filter coffee for two people), apart from the ultimate deep-pocket source like The Wellesley hotel in Knightsbridge serving Wild Kopi Luwak coffee, at £45 a cup (More).

But the real issue has to be the contrast between High Street coffee at £2.50 a cup compared with home filtered at 9p a cup.

In other words, far from seeing up market varieties as a threat, a DIY approach might be more dangerous…

In fact, with street coffee priced at upwards of £2.50 a cup, I have reverted to grinding and filtering best quality French coffee beans, purchased from Waitrose at £2.60 per 227g bag. Each bag yields 5 x 6 cups, effectively costing me 9p a cup. If I could buy wholesale, the price would be no more than £2/bag...

OK, the ambience is worth something, but 30x 'domestic rates'?

In fact, when you think about it, apart from the bill, most people's memory of a great restaurant meal is coloured by the final course, a cup of coffee. Yet, even at these mark-ups, some restaurants risk diner alienation by skimping on the coffee, thereby triggering the 'tell a friend' mechanism' whereby, if you please a customer, they tell one friend, disappoint them and they tell ten, electronically.

Monday 30 October 2017

CMA Set To Reveal Provisional Decision On Tesco’s Proposed Takeover Of Booker

The regulator began its in-depth probe into the deal back in July, with it collecting views from across the wholesale and convenience sectors into what impact the tie-up will have on Booker’s competitors and independent shopkeepers. (More)
  • The issue remains that if a deal goes ahead, a key wholesaler will have the advantage of buying on Tesco terms...
  • ...and closing Tesco branches will not affect that competitive edge…
An insight for NAMs from NamNews

Sunday 29 October 2017

Shrink-flating the London Symphony Orchestra, an FMCG parallel?


As part of the cut-backs in funding for the Arts, a government official attended a recent performance and reported a follows:

Schubert’s No.8 in B Minor

To the Chairman, The London Symphony Orchestra

After attending a recent performance of this work, we make the following recommendations:
  1. We note that the twelve first violins were playing identical notes, as were the second violins. Three violins in each section, suitably amplified, would seem to us to be adequate.
  2. Much unnecessary labour is involved in the number of demisemiquavers in this work. We suggest that many of these could be rounded up to the nearest semiquaver, thus saving practice time for the individual player and rehearsal time for the entire ensemble. This simplification would also make more use of trainee and less-skilled players with only marginal loss of precision.
  3. We could find no productivity value in string passages being repeated by the horns; all tutti repeats could also be eliminated without any reduction in efficiency.
  4. In so labour-intensive an undertaking as a symphony, we regard the long oboe tacet passages to be extremely wasteful. What notes this instrument is required to play, could, subject to a satisfactory demarcation conference with the Musicians’ Union, be shared out equitably with the other instruments.
Conclusion

If the above recommendations are implemented, the piece under consideration could be played through in less than half an hour, with concomitant savings in lighting, heating and overtime, wear and tear on the instruments and hall rental fees. Also had the composer been aware of modern cost-effective procedures, he might well have finished this work…

Just like cutting back the contents of our best brand and thinking our most regular consumers won't notice...

And almost as bad as not caring if they do...!

Friday 27 October 2017

GSK Eyeing Consumer Healthcare Units Of Pfizer And Merck

Alongside a third-quarter trading update on October 25th, the Chief Executive of GlaxoSmithKline (GSK) admitted that the British group could be interested in acquiring the consumer healthcare arms of US rival Pfizer and Germany’s Merck. (More)
  • Given GSK current market cap of £70bn, acquisition of Pfizer’s consumer division (£11bn) and Merck division (£3bn) would be significant acquisitions…
  • ....Resulting in the acquired brands being driven hard…
Therefore no harm in competitors conducting what-ifs re the possible changes, just-in-case…

Reckitt Benckiser Announces Restructuring Plan

Reckitt Benckiser (RB) recently announced a restructuring of its business that will see it separating its consumer health unit from its home and hygiene divisions to enable greater focus on each and accelerate growth. (more)

A need for what-ifs all round:

-   possible spin-offs
-   possible acquisitions
-   possible increased focus by division

But a running certainty: it will not be business as usual…

Monday 9 October 2017

Tesco-Booker and the rest...

The unintended consequence of an unprecedented merger:

  • This issue is not about increased Tesco buying power (Booker would add 10% to Tesco purchases)
  • The real issue is that Booker will be able to avail of Tesco buying terms, resulting in unmatchable competition for wholesalers not so privileged…
  • Time for suppliers to conduct what-ifs on supplying all wholesalers on Tesco terms?
  • Or watching Tesco-Booker grow at the expense of other wholesalers - same difference?
  • Or other wholesalers being taken over by other mults? - almost same difference?

Monday 24 July 2017

Amazon will pay full price to marketplace retailers to boost its inventory

Despite its reputed 300m item assortment, Amazon has some item gaps, either in category or geography. In which case, as a service to its US clients, according to Arstechnica, Amazon contacted thousands of third-party retailers re a new program in which Amazon would buy their inventory at full price. Amazon would then be able to sell those products on its website, allowing it to quickly fulfil more orders around the world.

The service is part of Fulfilment by Amazon (FBA) in which third-party merchants piggyback on their shipping efficiencies by paying an inventory and storage fee to Amazon.
  • This represents a significant step forward, in that Amazon are prepared to sacrifice profits to satisfy consumer need
  • And once the happy customer comes back…
  • Another hurdle for competing online retailers to add to 1-Click ordering, 24hr (or less) delivery, and returns as easy as ordering…
Time to anticipate the inevitable UK introduction?

Monday 17 July 2017

When the price is even half right...


Pics: Brian Moore, Tesco Hove

Anyone can clear shelves, and even create excitement in store, at a price, but how about making some space for a case of Revenue Management?

Whilst Revenue Management evolved in the late Seventies as a way of maximising revenue from airline seat sales, for a number of FMCG organisations, Revenue Management really began its surge forward in 2009, a year after the global financial crisis changed everything.

The impact of unprecedented market confusion and uncertainty on suppliers’ and retailers’ P&Ls is now evident. Whilst this has caused many to resort to short term fire-fighting, such circumstances represent real opportunities for those that can adapt to business change, while others await a return to ‘normal’…

For those wishing to optimise their investment in Revenue Management, it is perhaps useful to place key changes in the market within a Revenue Management context in order that suppliers better understand the pressures on retailers and thereby pitch supplier Revenue Management initiatives in ways that enhance their appeal to retailers by emphasising positive impacts on their latest P&L.

In terms of where major retailers are now, it is evident from latest annual reports that UK net margins have fallen to 2% from highs of 5%+. This means that there is currently little, if any profit surplus available to pay down debt, a major priority for the multiples. In addition, several years of flat-line growth combined with low net margins means that UK retailers can only grow at the expense of competitors, who are also under serious financial pressure. For instance, if sales go down by £1, it means that the retailer loses two pence of profit each time.

In addition, with average gross margins of say 24%, it means that a lost sale of £1 loses the retailer 24p in gross profit i.e. a 12x multiplier of the 2p net profit. These are seriously distracting issues for retailers accustomed historically high levels of retail profitability.

Moreover, in the ‘good old days’ when big was best, it seemed logical to build 100,000 sq. ft. ‘palaces’, designed to last forever. In fact, an annual depreciation charge of 2% means a 50-year write-down, in practice a 50-year lock-in to the space.

Given that multiples were able to generate sales of £1,000 per sq. ft. per annum, the relatively recent discovery that 80% of sales are generated by 20% of a retailer’s SKUs meant that product culls were necessary in the short term. However, the longer-term impact of the 20% space redundancy caused potential dilution of the retail standard KPI of £1,000. This means that any alternative use (i.e. instore theatre) of the redundant space has to generate £1k/sq. ft./annum. This space KPI also means that the obvious option of surplus stores sell-off is compromised in that no other retail model can achieve UK multiples’ ‘norms’, apart from the fact that placing too many shops on the market at one time could seriously dilute property values, and thereby devalue retailers’ Balance Sheets.

Add to this the threat of online with Amazon offering a range comprising over 300m SKUs, and high entry level standards of 1-click ordering, returns as easy as ordering and fast zero-defect delivery of 4 hours to 1 hour within the M25.

Finally, add the discounters, Aldi and Lidl, who grew sales at 19.2% year-on-year and achieved a combined record market share of 12% in the 12 weeks ending 21 May 2017 (Kantar Worldpanel). The research group found that 62% of the UK population shopped in an Aldi or Lidl store during the 12-week period, compared to just 58% last year – meaning an additional 1.1 million households visited either of the two chains.

Meanwhile, many suppliers have embraced the operational applications of Revenue Management as a way forward. They have developed the ability to drive better visibility, control, decision-making and collaboration across their organisations, the entire cross-functional teams, through the use of tools like Exceedra*.

It is against the above retail reality back-drop that Revenue Management-ready suppliers need to attract the attention of seriously distracted retailers, by positioning Revenue Management not only as a way of directly contributing to a retailer’s sales, but also a means of improving their net margins. In doing so, a supplier’s Revenue Management team could provide a new and complementary way of relating supply and retail, adding a collaborative richness to their joint aims.

In terms of on-shelf execution, shelf-edge e-pricing will be an essential enabler. This final link in the chain will need to be positioned carefully, in order to minimise the media-driven ‘surge-pricing’ negatives already causing issues with the consumer. Instead, suppliers will need to begin the massive education job of convincing the consumer that demand-driven pricing is beneficial.

Reality-based Retail Revenue Management will make that possible….

* For a free White Paper: How can Consumer Goods organizations develop a best in class Revenue Management capability