Wednesday, 18 May 2022

Cost Of Morrisons Rescue Deal For McColl’s Revealed

Administrators’ documents show Morrisons paid the equivalent of £182m to rescue McColl’s.

Morrisons won by promising more cash for unsecured creditors and leveraging its position as McColl's main supplier.

McColl’s had an equity value of around £3m by the time its shares were suspended on 6 May. However, regulatory documents published by administrators PwC revealed that senior creditors were owed £160m.

PwC’s account of the chain’s final months show that four credible bidders had emerged for McColl’s, but that had narrowed to three by the time shares in the group were suspended.

The PwC document noted: “Any buyer would need to have the capacity to supply the entire store estate, possibly in a short space of time. All parties realistically capable of doing this had already been approached.”

Both EG and Morrisons submitted offers that included the retention of the entire estate of almost 1,200 stores, the rescue of McColl’s pension schemes, the costs of the administration, and full repayment of secured bank lenders and preferential creditors such as HMRC.

McColl’s had been in talks for several months with its lenders and Morrisons for financing to secure its long term future. In March, its Chief Executive Jonathan Miller stepped down after the business endured torrid trading conditions and supply chain issues that impacted its revenue and profit.

Commenting on the deal last week, Morrisons’ Chief Executive David Potts said: “...we believe this is a good outcome for McColl’s and all its stakeholders. This transaction offers stability and continuity for the McColl’s business and, in particular, a better outcome for its colleagues and pensioners.”

The wholesale agreement will continue without interruption.

McColl’s has converted 270 shops to Morrisons Daily, “fundamentally reshaping the business into a more profitable and sustainable model”.

In November, it announced that it would accelerate the number of conversions to 450 within a year.

The rollout is expected to continue and provide Morrisons with a significant presence in the convenience channel to challenge chains such as Tesco Express and Sainsbury’s Local.

NamNews Implications:
  • In other words. Morrisons’ £182m offer covered:
    • Retention of the entire estate of almost 1,200 stores
    • The rescue of McColl’s pension schemes
    • The costs of the administration
    • Full repayment of secured bank lenders
    • And preferential creditors (HMRC)
  • It follows that McColl’s will be run on strictly financial terms going forward.
  • All part of the New Norm…
  • Key that suppliers run a financial check over major customers.
  • i.e. given your exposure, what incremental sales would cover your credit exposure, if a customer got into terminal difficulties.
  • In the process, why not reclassify your major customers as Invest, Maintain or Divest?

Thursday, 12 May 2022

Private Label Loyalists Now Equals Those Of Brands

Amid the current cost of living crisis, new research shows that supermarket private label loyalists (shoppers that buy them over 75% of the time) are now equal those of national brands loyalists in all key European markets.

According to a new report from IRI called Private Labels: Hiding in Plain Sight, around 50% of shoppers switch between both with most now appearing in the mid-income bracket, but also with high-income cohorts in France and Germany. Private label shoppers are looking beyond price. Where they intend to spend more or less in 2022 and beyond is in line with wider category trends.

The study highlights that modern private label brands have evolved from their origins 40 years ago and developed into strategy-focused, differentiated, data-driven, and consumer-obsessed brands. Private labels are gaining ground in value sales, market penetration, consumer value and retail experience, while closing the gap on instantly recognisable national labels.

According to IRI, private labels now occupy a global category footprint of 16.5% of FMCG value sales. Driven by several growth factors, private labels are said to offer the same or better quality, affordability, healthier options, consumer acceptance, and portfolio stratification into Premium.

With the highest penetration in Spain (44%) and Germany (38%), private labels make up 35% of total FMCG sales in Europe, equating to €194bn. Germany records the highest absolute value (around €60bn), followed by the UK (€43bn).

The report notes that private labels have become a substitute in several growth categories for many national brands having undergone a significant transformation that focuses on quality, trust, environmental credentials, innovation, and delivery on claims.

In certain categories, such as beauty, vitamins and supplements, and alternative remedies for example, private labels often lead in innovation, which is then followed by national brands.

Ananda Roy, International Senior VP, Strategic Growth Insights at IRI, said: “Private labels may not be instantly recognisable brand names, but the fact is they don’t need to be. Retailers have re-imagined what consumers can expect from them in every supermarket aisle. They offer considerable value to shoppers who are not entirely price-driven by delivering quality, product performance and premium innovations which are comparable to the bigger, more established national brands.

“They compete for growth and margin on near equal terms and often present worthy competitors that are perhaps not fully acknowledged by the big brand owners. Private label brands are basically hiding in plain sight.”

Report highlights:

Pandemic chaos causes sales to slide, but positive outlook ahead – Consumer buying behaviour amid pandemic chaos provided a transient boost to national brands, causing private label value sales to fall. During 2018-2019, private labels experienced strong value sales growth (+8% and +11.3% respectively). However, this tapered off during the early stages of the Covid crisis as consumers opted for trusted national brands amid uncertainty – value sales dropped 1% in 2020 (value share 35.2%) and 1.4% in 2021 (value share 34.6%).

However, IRI believes there is a distinctly positive outlook ahead as this trend is likely to be dampened and possibly reversed as national brands raise prices to counter inflationary headwinds and private labels return to growth.

Strategic drivers of growth – Growth in private labels has accelerated due to established retailer equity and trust, transparent pricing and consistent availability across national store portfolios. Edible and non-edible private label products are often manufactured under white-label arrangements alongside national brands. Consumers are receiving the same high-quality products they would if buying a national brand in terms of product performance, and in the case of edibles, taste, quality, and healthy options often match those of rival national brands.

Occasionally, if things do go wrong, consumers also receive the exact same consumer protections (returns, refunds and goodwill gestures) from retailers as they would from national brands. This has helped narrow the value and equity gap with national brands significantly.

Price wars looming – Small and mid-sized manufacturers are likely to lose consumers, volume and value to large manufacturers and private labels who are expected to mitigate inflation and maintain availability, despite ingredient shortages and supply-side disruptions. This creates the real possibility of price wars in the remaining half of 2022 with private labels having the potential to capitalise on inflationary trends.

Innovation is the new battleground – Private labels are often leading innovation in high-margin categories, such as Bakery, Beverages, Beauty, Vitamins and Supplements and over the counter healthcare remedies. IRI’s research shows that consumers found shopping in-store for private labels easier owing to clean labelling and clear ingredients. This made the experience more enjoyable and less confusing than having to shop amongst the confusing array and proliferation of packs, offers and formats among national brands. Shoppers say the gap between private label and national brands is narrower still when shopping online due to the platforms and mechanics being identical.

IRI expects new innovations to make private labels even more competitive as they take advantage of quick commerce, shoppable recipes, meal kits and leveraging retail media, all of which offer new routes-to-market, attraction of higher-income shoppers, and lower cost-of-sales.

Beyond retailers, Quick Commerce players are now creating their own private labels as seen recently in the UK by the launch of Jiffy’s bakery range.

Non-edibles lead recovery – Growth has been led by Italy (+3.4%) and Spain (+1%) and lagged in France and the Netherlands (-4%). However, there is evidence of a soft recovery, particularly in non-edibles, which is being driven by the easing of Covid restrictions. This has risen by 1.2% in value sales over the last five weeks.

Actions for manufacturers and retailers

As private label enters 2022 with a competitive tailwind, IRI has outlined several strategic opportunities and actions:
  • Induce shoppers by trial and conversion of the 50% that regularly switch between private label and national brands.
  • Further mining of loyalty data to enrich shopper segmentation and tracking.
  • Invest more in retailer media to personalise promotions, experiences and track effectiveness.
  • Promote private labels as ‘better value’ based on quality, trust, innovation and sustainability credentials.
  • Make shopping for private labels quick, easy and fun by ensuring transparent pricing and clean labelling that helps clarify range, endorsements, innovative packaging and merchandising.
  • Disrupt product experience and route-to-market which are less easily substituted.
  • Partner with quick commerce leaders to create higher margins, bypass brands and distributors and create opportunities to offer a wider range of food and non-food products.
IRI’s ‘Private Labels: Hiding in Plain Sight’ report can be downloaded here.
NamNews Implications:
  • If retailers obey the normal brand ground rules…
  • …especially ‘always more than it says on the tin’…
  • …and focus on repeat sales via loyals…
  • …then own label sales and penetration will continue to increase.
  • Largely at the expense of less focused brands?
  • This IRI report is a worthwhile read…

Thursday, 5 May 2022

Cabinet Minister Tells Consumers To Buy Supermarket Value Brands To Cope With Living Cost Crisis

The cabinet minister that oversees food and farming has been accused of being out of touch after suggesting that consumers facing surging grocery and energy prices should buy supermarket value brands to cope.

After latest figures from the British Retail Consortium (BRC) showed that shop prices were increasing at their fastest rate since September 2011, George Eustice highlighted that the food industry was facing the knock-on effect of higher energy costs pushing up fertiliser and feed costs.

“Generally speaking, what people find is by going for some of the value brands they can actually contain and manage their household budget. It will undoubtedly put a pressure on household budgets and, of course, it comes on top of those high gas prices as well.”

He argued there was a “very, very competitive retail market with 10 big supermarkets and the four main ones competing very aggressively, particularly on some of the lower-cost, everyday value items for households, so things like spaghetti and ambient products – there’s a lot of competition to keep those prices down”.

Eustice added: “Where it gets harder is on things like chicken and poultry, and some fresh produce, where those increased feed costs do end up getting passed through the system because these people work on wafer-thin margins and they have to pass that cost through.”

Data released by NielsenIQ yesterday suggested that shoppers are already cutting back on alcohol and meat as household budgets come under pressure from the cost of living crisis. Consumers spent 7.8% less on chicken, beef, pork and fish in the four weeks to 23 April, whilst sales of beer, wine and spirits were down 15.9%.

Pat McFadden, a shadow Treasury minister, said Eustice’s comments were “woefully out of touch from a government with no solution to the cost-of-living crisis facing working people”.

He added: “People are seeing their wages fall, fuel and food costs rise, and families are worried about how to make ends meet.

It’s time for the government to get real help to people rather than comments that simply expose how little they understand about the real struggles people are facing to pay their bills.”

NamNews Implications: 
  • Presumably ‘Letting them eat cake’ is not an option…?
  • People are being driven to buy value brands at Tesco, Morrisons and Asda…
  • ..but may want to shop at Sainsbury’s, even Waitrose.
  • This growing tension between Needs and Wants will cause problems…
#HighInflation #ConsumerCoping? #Struggles

Saturday, 30 April 2022

Sainsbury’s Plays Down Impact Of On-Demand Delivery Services

Amid the significant hype and investment around rapid, on-demand grocery delivery firms, Sainsbury’s has suggested that the actual demand for such services is relatively limited.

Alongside its standard online grocery operation, the supermarket sells its products via Deliveroo, Uber Eats and its own Chop Chop service.

However, Sainsbury’s Chief Executive Simon Roberts revealed yesterday that on-demand doesn’t generate major sales volumes.

He said: “It’s built through the course of the year but in total terms, the size of our on-demand business is a bit more than the equivalent of two of our supermarkets.”

However, Sainsbury’s is now facing competition from a raft of start-ups, including Jiffy, Getir, Gorillas, GoPuff, and Zapp that vying to win on-demand spend by offering deliveries within minutes of ordering.

This has prompted traditional supermarket groups to rethink their business models and team up with the rapid delivery providers.

Roberts said Sainsbury’s was waiting to see how growth progresses in on-demand as consumer shopping behaviour starts to normalise as Covid concerns ease.

However, he insisted he was pleased with how Sainsbury’s own Chop Chop delivery service was performing. “It’s a good way of using our convenience stores to fulfil those missions,” he said.

NamNews Implications:
  • Nonetheless, Sainsbury’s have feet under the on-demand delivery table…
  • With their own Chop Chop service to gain hands-on sharp-end experience.
  • Whilst outsourcing cost via Deliveroo and Uber Eats as pace-setters.
  • This combination of delivery options will provide Sainsbury’s with real insights that can optimise potential…
  • One to watch and even get on board.
#QuickDelivery #HomeDelivery

Thursday, 14 April 2022

Tesco Flags Continuation Of Discounter Price War; Sector Shares Crash On Inflation Hit Warning

Alongside its impressive annual results statement yesterday, the CEO of Tesco vowed to support shoppers “in their hour of greatest need” by continuing its price battle with Aldi, Lidl, and other discounters.

"(Consumers) are already planning changes to the way they shop, and we will make sure that we will be there to support them."

The group noted that the final outcome depends on customer shopping habits, cost inflation levels in the months ahead, and the extent to which rising costs are absorbed or passed on to consumers.

Murphy highlighted that Tesco was managing to keep price inflation in its stores a “bit under the number for the overall market” as it battles the discounters that are gaining share by attracting cash-strapped shoppers.

Tesco have really strong levers through the Aldi price match, low everyday prices and Clubcard prices
He also noted that it was offering competitive prices on thousands of household and beauty items to stop customers from going to fast-growing chains such as Home Bargains and B&M.

“We plan to make sure we stay close to the situation and offer no reason to go anywhere else from a price competition point of view,” Murphy said. “That’s our commitment and that’s unwavering regardless of what happens in the market.”

He declined to say whether the business would be cutting prices further or be forced to increase them.

“We stay close to our suppliers and work with them to manage their input inflation but we are very rigorous about making sure that we don’t accept any cost that would be unnecessary."

The bleak outlook sent shares in all the listed grocery retailers tumbling and comes just a week after Morrisons cautioned that its sales and profits would be affected by geopolitical and inflationary pressures.

Sainsbury’s shares lost 2.5%, whilst Marks & Spencer shares tumbled 2.1% and Ocado’s slipped 2.6%.

Shore Capital retail analyst Clive Black downgraded his recommendation for Tesco from ‘buy’ to ‘hold’, and added that if the supermarket catches a cold he would expect others to catch ‘influenza’.

AJ Bell financial analyst Danni Hewson added: “There is a real risk that cash-strapped families will cut back on their shopping and if this trend does play out as expected, it won’t just be Tesco feeling the pain.”

NamNews Implications:
  • Aldi price match, low everyday prices and Clubcard prices will help fight the other mults…
  • Meanwhile, Tesco determination to offer no reason to go anywhere else from a price competition point of view…
  • …spells continuing price war in 2022…
  • …no matter what happens in the market.
  • Listed retailers fell approximately 2% yesterday, reflecting inflation and other market factors.
  • Meanwhile, little/no mention of discounters’ ability to fund UK price cuts via global businesses to grow share…
#PriceWars #Inflation #DiscounterShare

Friday, 8 April 2022

Owner Of Morrisons Offers To Sell Petrol Stations To Ease Competition Concerns

Clayton, Dubilier & Rice (CD&R) has offered to sell several of its petrol stations to gain final clearance for its acquisition of Morrisons. The Competition and Markets Authority (CMA) launched a Phase 1 investigation into the £7bn private equity deal back in January.

Whilst the takeover has already been completed, the regulator had ordered all parties to remain separate and hold off on integration plans until its probe had taken place.

Concerns centred around CD&R also owning the Motor Fuel Group (MFG), the largest independent operator of petrol stations in the UK with 921 sites under brands such as Esso, BP, Shell, Texaco, Jet and Murco. Meanwhile, Morrisons operates 339 petrol stations, the vast majority of which are located at its supermarkets across the country.

The CMA announced last month that it found the deal raises competition concerns in relation to the supply of petrol and diesel in 121 local areas across England, Scotland and Wales. These are all areas in which MFG and Morrisons both have petrol forecourts and would face only limited competition after the merger, meaning that the deal could lead to an increase in prices.

Facing the prospect of a full Phase 2 investigation, it was announced yesterday that CD&R has now offered to divest a number of the petrol stations to gain approval for the takeover.

While the competition watchdog did not disclose how many sites the private equity firm was offering to sell, it said: “There are reasonable grounds for believing that the undertakings offered by CD&R, or a modified version of them, might be accepted by the CMA”.

Similar concerns were raised when the Issa brothers bought Asda due to their ownership of the EG forecourt empire. The CMA eventually forced them to sell 27 petrol stations to get the Asda deal across the line.

Recent reports have suggested that CD&R wants to sell off the entire MFG business via a £5bn auction, with another private equity firm the likely buyer.

NamNews Implications:
  • A no-brainer decision (given the stakes involved…)
  • Therefore proactive suppliers (and retail rivals) will have already factored this outcome into their trade strategies…
  • …hopefully.
  • Meanwhile, a what-if re CD&R selling off the entire MFG business via a £5bn auction is worth conducting.
  • NamNews subscribers See 'Moving from Managing a Traditionally Owned to a PE Owned Mult'
#Petrol #Competition #PrivateEquityOwnership

Tuesday, 29 March 2022

Grocery Shoppers Turning To Own Label And Discounters As Inflation Bites

The latest market data from Kantar shows that grocery price inflation has hit its highest level in 10 years, with consumers appearing to be adjusting their shopping habits to save money.

Take home grocery sales fell 6.3% over the 12 weeks to 20 March as people continued returning to eating out of the home again. Sales were still up versus two years ago, although only by 0.7% as the comparison now includes the record buying seen before the first lockdown.

“What we’re really starting to see is the switch from the pandemic being the dominant factor driving our shopping behaviour towards the growing impact of inflation, as the cost of living becomes the bigger issue on consumers’ minds,” said Fraser McKevitt, head of retail and consumer insight at Kantar.

Over the latest four weeks, grocery price inflation reached its highest level since April 2012 at 5.2%. Prices rose fastest in markets such as savoury snacks and pet food.

McKevitt commented: “More and more we’re going to see consumers and retailers take action to manage the growing cost of grocery baskets. Consumers are increasingly turning to own-label products, which are usually cheaper than branded alternatives. Own-label sales are down in line with the wider market but the proportion of spending on them versus brands has grown to 50.6%, up from 49.9% this time last year.

“Meanwhile, the grocers are also adapting their pricing strategies in response to the rising cost of goods. One trend we’re already tracking is the move away from selling products at ‘round pound’ prices. The percentage of packs sold at either £1, £2 or £3 has dropped significantly from 18.2% last year to 15.9% this March.”

Despite Covid loosening its grip on day-to-day grocery habits, Kantar highlighted that some pandemic trends are proving stickier than others. The acceleration of online shopping over the last of years appears to have resulted in the permanent enlargement of the channel. 12.6% of sales were made online in March 2022 compared with only 8% three years ago. Shoppers over the age of 65 are leading the charge with the proportion of this demographic buying online having doubled from 9% to 18% over the past three years.

NamNews Implications:
  • Actual inflation of 5.2% morphing into perceived inflation of something close to 10%…
  • …in terms of the effect on shopping behaviour.
  • Continued uncertainty (about most things) driving switches to own label and the discounters.
  • Real issue: Aldi & Lidl now have a share of market growth window…
  • …whereby they can each afford (as global retail players) to run losses in the UK…
  • …for as long as it takes to increase their share of grocery as much as they want.
  • (Note the ‘oldies’ buying into the convenience of online delivery, a trend that can only increase as the population ages)
#StickyChanges #Discounters #GlobalPortfolioManagement

Friday, 25 March 2022

Study Suggests Consumers Are Uneasy About H&B Brands Supporting Woke Causes

 According to new research, two-thirds (68%) of consumers are uneasy or unsure about health & beauty brands teaching and promoting ‘woke’ causes.

The survey was commissioned by The Pull Agency, a creative agency specialising in healthcare and beauty brands. It also found that when it comes to Corporate Social Responsibility (CSR), what most people (58%) want is for health & beauty brands to ‘pay their taxes, treat people fairly, respect the environment and not use it as a PR opportunity’.

Nearly half of the UK consumers (41%) agreed that the amount of ‘green-washing’ and ‘woke-washing’ in the health & beauty sector (brands faking their sustainability credentials or their interest in social issues) is becoming noticeable.

A quarter (26%) think those brands come across as inauthentic as a result, while one in seven (14%) deliberately avoid the brands they see as behaving this way.

The survey suggested that being an ethical corporate citizen is what consumers want most from health & beauty brands, rather than the in-vogue focus on brand purpose, such as showing support for a social justice purpose like climate change, LGBTQ+ rights or diversity and inclusion. In fact, the study highlighted that only 22% of UK consumers are familiar with the term ‘brand purpose’, while 37% think they’ve heard of it, but admit they don’t really know what it involves.

Kathrin Rodriguez-Bruessau, head of brand strategy at The Pull Agency, commented: “While the marketing world would have us believe that a grandiose brand social purpose is paramount, consumers don’t seem to care as much or really understand the concept. According to most people, the first step is to just get the basics right and be a decent corporate citizen.

“Trying to be more than an ethical business actually carries risks. Several healthcare and beauty brands have got in trouble for perceived woke-washing and superficial attempts at brand activism. People are getting much smarter at identifying what’s real and what’s not and clearly irritated by inauthentic looking claims.”

NamNews Implications:
  • Key to remember that most consumers emerging sane from two years of unprecedented Lockdown…
  • …are super-savvy i.e. thinking and speaking for themselves.
  • Part of this is being able to see thru blunt PR…
  • They also want nothing less than demonstrable value for money.
  • More importantly they are more than capable of operating a social-media driven, Tell-a-Friend campaign…
  • Handle with care!
#SavvyConsumer #ValueForMoney #Genuine #Sincere