Monday, 6 January 2020

ROCE - the ultimate KPI Helping Sainsbury's grow their ROCE

NAMs needing to understand real profitability (their own or that of the customer) have to be able to calculate Return On Capital Employed. i.e. (see above diagram) putting a company's sales below and above the line, shows that ROCE is a combination of Profit on Sales, times Sales divided by Capital Employed. In other words, Margin x Capital turn.

You are either in a small margin, rapid rotation business (chilled produce) or a large margin, slower rotation business (Cosmetics).

You improve business profitability by improving the margin or speeding up rotation...

Taking Sainsbury's latest 2019 Annual Report, we have NamCalced their ROCE 1.97%, pre-tax Net Margin 0.82% and Stockturn 15.03 times, as follows (in millions):

Help Sainsbury's improve their ROCE (and thereby drive their share price) by a combination of improving their net margin, and improving their capital rotation, as follows:

Three of the calculators for NAMs in NamCalc!

Thursday, 28 November 2019

Delay of a price increase - Cost & Value?

(Holding back a trade price increase for Asda, the cost and value for supplier and retailer)

You need a price increase to cover rising costs but have agreed with Asda to maintain current prices for 1.5 months following the new price introduction.

What is the cost to you and the value to Asda in terms of incremental sales?


Annual sales to Asda = £660k
Your Gross Margin = 43.6%
Costs rise = 8%

You have agreed an 8% price increase to restore your % Gross Margin

You have negotiated a 1.5 month delay in implementing the price increase for Asda.

What is the cost to you and the value to Asda of the delay?

NamCalc Tool 13 below, demonstrates that an 8% price rise is required to restore your % Gross Margin.

It also shows that the 1.5 month delay costs you £3,720, and you would need incremental sales of £8,525 to recover your lost gross margin.

For Asda, with a pre-tax Net Margin of 2.1%, the £3,720 is equivalent to incremental sales of £177,142, a point worth making in negotiation…?

Click to enlarge

Tuesday, 26 November 2019

Settlement Discounts: How much to pay for earlier payment in unprecedented times...?

Given the current casualty rate in retail, getting your money in faster can help.

The issue then becomes: How much to pay the customer i.e. what discount off invoice will make earlier payment attractive to the retailer?

The following screen-pull from NamCalc illustrates the calculation for a 15-day reduction in payment period. 

[The exercise proves that a 0.5% discount is equivalent to a return of 12% on the money for the retailer. We also add in the incremental sales required by supplier and retailer to recover the settlement discount amount]

Just one of the 33 calculator-tools for NAMs available in NamCalc

Monday, 25 November 2019

When a customer goes bust...

Given these unprecedented times, some customers will not succeed...

Supplier NAMs that can anticipate the inevitable, can avoid the fall-out..

One way of increasing your team's sensitivity to the signals is to calculate the cost of profit recovery following liquidation. i.e. the extra sales you need to recover lost profit.

Suppose a customer goes bust owing you £240k, and your Net Profit Before Tax is 3.4%, then via NamCalc below, you will need incremental sales of £7,058,823 to recover your lost profit!

Or would prefer to await a call from the liquidator?

Monday, 11 November 2019

Use of GMROII to demonstrate your value to Tesco

Gross Margin Return On Inventory Investment is probably one of the most valuable, yet underutilised tools in the NAM kit-bag today.

It follows that those that take the (small amount) of time to practice its use, automatically gain a competitive advantage over the competition, invaluable in these unprecedented times.

Essentially, GMROII is valuable because it links your product's Gross Margin for the Retailer, with the retailer’s stockturn of your product, instead of simply focusing on the Gross Margin.

For example, suppose the retailer sells £750k of your product per annum, enjoys a Gross Margin of 35%, and holds an average of 7 days stock of the product.

NamCalc (below) shows that the retailer is making a GMROII of 2,807% on the product. (any queries re the calculation, please let me know on

Suppose the retailer is Tesco

Tesco’s latest Sales are £56.9bn, its internal Gross Margin is approx 21%, and it holds an average of 22 days stock i.e. £2.6bn in stock at any time.

Tesco’s GMROII on its total business is therefore 460%

[£56.9 x 0.21/2.6 x 100 = 460%]

Therefore your product’s GMROII of 2,807% is a significant contributor to Tesco’s business.

See details on the NamCalc screen-pull below. Each of the 33 calculator tools also has editorial detail explaining key uses/interpretations of the tool.

More details here

Tuesday, 5 November 2019

Radical change of business model: Kellogg’s Launches Brand-based Meal Delivery Service Via Deliveroo

Kellogg’s Kitchen Creations is a delivery-only meal service that has launched in East London offering vegetarian and vegan dishes.

Rather than selling bowls of its Rice Krispies or Cornflakes, the firm has hired chefs to create a menu of meals and snacks incorporating some of Kellogg’s popular cereals and cereal bars. [more]
  • A two way route to Kellogg’s brands:
  • - indirect via the delivered meals
  • - a DIY incentive for recipients…
  • …and not a whiff of cannibalisation.
  • The fundamental issue is a branded food supplier is optimising its brands by incorporating them as ingredients in prepared healthy meals 'hand delivered' to consumers' homes.
  • An entirely new relationship with their consumers that could transform Kellogg's business model and perception of the company and its brands.
  • A incremental no brainer, one to watch...

Tuesday, 29 October 2019

The Importance of your Net Margin, when a customer goes bust...

Given that 75 Food Suppliers in the latest OC&C Top 150 Index 2019 (see The Grocer 21-9-2019) have Net Operating Margins of 3% or less, it is worth exploring the consequences of one of their customers going bust, owing them £150k...

On a 3% Net Operating Margin, the supplier needs £150k/3 x 100 = £5m incremental sales to recover the loss...

On a 1.5% Net Operating Margin, incremental sales of £10m!!

Just one of 33 calculator tools in the latest version of NamCalc

Tuesday, 22 October 2019

Tesco Trade investment: How to demonstrate your value to the buyer

Buyer: "Surely Tesco are worth more than a £10k investment, especially for a company your size?"

NAM: "Given your business model and latest net margin (2019 Tesco Annual Report) of 2.7%, our ‘mere’ £10k is equivalent to incremental sales of £370k for Tesco…."

As you know, apart from cutting costs, the only way a retailer can generate net profit is via incremental sales.

In practice, for a retail business on a net margin of 2.7% before tax, a net margin of £10k = 2.7% of sales.

So, £10k/2.7 x 100 = £370k, the incremental sales required to generate net profits of £10k.

Now, which would you prefer, my little £10k trade investment or having to generate extra sales of £370k in your category….?”

[Note for NAMs: If your company generates net profits of say 4.5%, the £10k trade investment in Tesco is equivalent to incremental sales of £222k. In other words, you need potential incremental sales of £222k to even begin the conversation…]

Source: NamCalc, a 34 calculation financial tool-kit for NAMs