Sunday 10 July 2022

Morrisons Updates Loyalty Scheme

Morrisons has overhauled its ‘My Morrisons’ loyalty scheme with the aim of making it easier for its customers to save money as the cost of living crisis worsens.

Updates include the introduction of more deals in categories that shoppers appreciate savings in the most, including meat, dairy and impulse. The grocer will also offer its customers surprise offers such as flowers on Mother’s Day or sweet treats at Halloween.

Additionally, new Basket Bonuses will give shoppers that chance to ‘bag a bonus’ offer. This might be money off a shop or a treat from one of its Market Street counters.

Meanwhile, the look and layout of the My Morrisons app has also been improved to make it easier and quicker to use.

Over summer, members of the scheme will also be invited to participate in a six week ‘collector scheme’. This will enable them to receive a “significant money-off voucher” at the end of August if they have met the criteria and shopped in four of the relevant weeks.

“We know that this is a very tough time for customers and so our improved My Morrisons scheme will help the millions of customers who are part of it by rewarding them with instant offers when they shop,” said Rachel Eyre, Chief Customer and Marketing Officer at Morrisons.

“We have taken on board customer feedback about which categories are the most relevant and have also introduced unexpected surprises to put a smile on our customers’ faces.”

At the end of last month, Morrisons revealed that its like-for-like sales slid 6.4% during its first-quarter period to 1 May, with the group blaming a “very challenging” trading environment as inflationary pressures grow and consumer confidence weakened.

After the £7bn takeover of Morrisons by CD&R was recently given the green light by competition regulators, the group’s Chief Executive David Potts signalled his intention to start working with the new owners to help its customers through the difficult economic conditions.

However, analysts have suggested that the heavy debt pile picked up from the takeover deal could give Morrisons less flexibility to absorb increasing costs and restrict its ability to compete on price with its cheaper rivals.

NamNews Implications:
  • Good to overhaul to shopper needs.
  • The issue is how the add-ons will chime with shoppers unable to cope with the shelf impact of soaring inflation.
  • Meanwhile, who knows the additional pressures/distractions of a debt pile with soaring interest costs…
  • Watch this space!
#Loyalty #Saving

Wednesday 6 July 2022

Brand loyalty, built on honesty, could be the best policy in an unstable world…

Lockdown and its aftermath have brought about a destruction of trust in society. In fact, it could be said that the only residual trust is the faith people place in brands.

With the benefit of over two years’ hindsight, we can now see that one of the biggest casualties of Lockdown has been trust. Amidst all the turmoil of the past two years, the loss of faith in politicians, the judiciary, banks, traditional media and other institutions means consumers are increasingly checking ‘under the lid’ and taking nothing for granted, with ‘Buyer Beware’ now a default position…

Since the global financial crisis of 2008, given 14 years of artificially low interest rates and mountains of printed money (so called ‘Quantitative easing’), we have been able to live and perhaps die beyond our means. Moreover, what started as emergency measures are now life support essentials for many businesses… If in doubt, watch while companies fall by the wayside as they have to return from the various tax and other ‘cost’ holidays granted during Lockdown and its aftermath, especially inflation-driven increases in interest rates as we pick up our obligations. We are fast approaching payback time, and it already hurts… In other words, many companies are in no state to produce sufficient ROCE to survive in the New Norm.

Meanwhile, consumers are trying to survive in a toxic mix of inflation and uncertainty on many levels. There is a mix of different degrees of inflation at different stages of the pipeline, some real, some the result of opportunism. Some caused by ingredient cost inflation, some resulting from having to substitute ingredients, thereby impacting the taste, but each inflationary element diluting potential sales.

All of the above are resulting in increased prices, putting us on a path towards 20% inflation and more. Inflation is being applied in many ways, all adding to the distrust and suspicion. Take the variety of ways of expressing a price increase on shelf. This can mean going for a straight one-off increase, hoping the consumer will accept paying more for the same amount of a well-known brand. Alternatively, we can try dithering bit-by-bit increases, hoping the consumer will not notice the price creep, and reach a point where rejection of the brand is the only option…

Then there is the Letter-of-Law vs. Spirit-of-Law option, shrinkflation. In effect, shrinkflation can be an outright attempt to deceive our most loyal consumer, the consumer that knows the brand specification almost as well as our technical team. The brand owner actually thinks a regular user will not notice the reduction in contents and that those that query and challenge the shortfall will accept our Letter-of -Law explanation of the weight change difference hidden in the small print, forgetting the danger of a loyal user deciding to get even rather than wasting breath getting mad. In shrinkflation, we thus have a recipe for destroying hard-won trust, at the very least…

It is a given that willing repeat-purchase by a regular user is the only real test of consumer (or retailer) need-satisfaction. Trust in the brand can guarantee increasingly profitable return visits of the consumer to the brand, requiring less and less persuasion to draw them back and retain their patronage. Moreover, given the encouragement of always receiving more than it says on the tin, we can even achieve a level of product satisfaction that moves the consumer to ‘tell-a-friend’ mode, effectively becoming a brand ambassador on our behalf. Key to this level of supplier-consumer relationship is complete trust in our brand…

So much for brand management pre-2020. However, in March 2020, as we have seen above, the introduction of Lockdown began the erosion of consumer trust in everything… In fact, consumers are also now approaching payback time as they enter the ‘New Norm’. They now have to view the world through a lens that reveals levels of inflation that few have experienced in their lifetime.

As a consequence, consumers, retailers and suppliers are being forced to re-evaluate everything, including their value systems, as they try to cope with rapidly rising energy, food and sheer living prices. The obvious signs are changes in how we measure what we believe is good value for money. In effect, we are looking afresh at how and where we buy. In practice, consumers are shopping more often, thereby wasting less. They are choosing different products (even own-label!), in smaller amounts, and are shopping closer not only to save petrol. Health and necessity are but additional factors in their decision-making…

A fundamental re-set is taking place at all levels in how the consumer assesses value, within a context of second-guessing everything, because they feel they can trust no one.

Lockdown and its aftermath has brought about a destruction of trust in society. However, it could be said that trust in a well-tried brand might be for many consumers the only truth among all the distrust…

In their quest for real value, consumers are seeking simplicity and consistency in their purchases, with choice of retailer being a slow-burn process in some cases. In fact, few will remember the arrival of a down-market small shop with a very limited range that dared to enter the sophisticated UK retail grocery market in 1990. And now, 32 years later, Aldi are actually pushing Morrisons off the No.4 spot of the mults’ ivory tower…

With consumers completely changing their way of measuring value, they are getting closer to a simple value for money assessment and are moving towards the ultimate simplicity, the discount offer. Then Aldi could move towards pole position, IMO.

Add the idea that anyone would ever trust their money to the Internet in order to buy online, let alone patronise a garage-based bookseller and allow them to grow to a 500m SKU offering of Amazonian proportions, all based on trust…

Trust in the brand can be a source of stability amidst the misinformation, and the more incredible the misinformation and official deception becomes, so it will result in less and less trust in the system, and the more a trusted brand will stand out.

Basic trust in the brand evolves over time, not because of reams of research, official assurance, or copious details on the label, but simply because of a combination of the brand name/logo, reliance on common sense and years of personal repeat usage giving me the confidence that when I remove the lid, the contents will even exceed my expectations, every time. In fact, a favourite brand can provide me with sufficient satisfaction that I will even recommend it to a friend...

That same trust and endorsement means my friend will not have to waste time second-guessing the offering. Also, given some degree of expectation-management to dilute my natural optimism, I will have hopefully started a new user on the road to years of brand satisfaction and loyalty.

Given the market turmoil, consumers are re-evaluating where they shop for real value. They are also second-guessing their sources of brand information, especially their use of traditional media. One simply has to check the 7% annual fall in newspaper circulation and moves from broadcast TV to an increasing variety of streaming services to appreciate that fundamental change is taking place in media usage.

However, it is only when one examines the emergence of Retail Media that it can be seen that a means of communicating with a hand-in-wallet shopper, in the aisle, at point-of-purchase, with a tailored message based on all a retailer knows about every aspect of that buyer’s buying and consumption behaviour, has to represent a complete break with the blunt message of traditional broadcast media. Only those with a brand marketing background will fully appreciate the size of threat that Retail Media represents for baggage-laden traditional media. That baggage means that consumers will increasingly trust and rely upon Retail Media in connecting with their brands…

Another trust-builder is emerging via Deliveroo. Now that home delivery has become Quick Commerce, and embraced Retail Media, the consumer can add Deliveroo to their sources of trust amidst the market turmoil (see Deliveroo launches ad platform). As Roger Dunn, Head of Retail Media at Criteo, says: “Deliveroo presents an exciting opportunity, especially for brands that are specifically relevant for quick commerce - so energy drinks, ice cream, and all those other impulse buys that don't necessarily stand out during a more considered weekly online shop, but consumers occasionally want... and quickly!”

We would add that it will be a big brand in a quick commerce category achieving spectacular success via the Deliveroo platform that will deliver a big ‘shot in the arm’ for Retail Media.

On balance, we believe that brand loyalty, built on trust, and always delivering more than it says on the tin, has to be your way of optimising your greatest asset.

Over to you…

Tuesday 28 June 2022

A Brief encounter in Dublin:

Friday 28/06/1963 - Cycling home from work Smithfield Motors on her birthday, my wife Nora was prevented from crossing the Liffey to allow an open Limo with an attractive American to drive slowly past... His beaming smile + birthday wink converted Nora into a JFK fan to this day...

#Dublin #JFK #Nora

Aldi Heading For ‘Big Four’ As Morrisons And Asda Lose Ground

Given proof that Asda and Morrisons are losing market share as the cost of living crisis worsens, analysts have again raised questions over the impact of private equity ownership on the two chains.

Kantar data for 12 weeks to 12 June showed that take-home grocery sales at Asda and Morrisons had fallen 4.8% and 7.2%, respectively.

As a result, both lost market share as Tesco and the discounters made gains.

Morrisons’ 10.1% share fell to 9.6% YOY, while Aldi is 9%, up from 8.2%. If this trend continues, Aldi will soon take its position in the Big 4.

Richard Hyman on This is Money website said it was now a question of “when, not if” Morrisons falls behind Aldi.

Meanwhile, Shore Capital retail analyst Clive Black said: “It’s not fanciful to suggest that by 2023 Aldi will be the fourth-biggest grocer in the UK.”

The differing fortunes of leading grocers will fuel fears private equity firms are not good stewards as consumers are squeezed by surging inflation.

Asda and Morrisons have been accused of raising prices faster than rivals, and experts say the heavy debt piles picked up during their takeovers give them less flexibility to absorb increasing costs.

Hargreaves Lansdown analyst Susannah Streeter said: “The discount grocers are snatching more customers from Morrisons and Asda, which seem to be falling behind in the competition to cut prices since being bought out.

“They went on a price offensive in April, but as they face an ever-tighter squeeze with costs mounting as they carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts.”

Black also blamed the new ownership of Morrisons and Asda for the decline in sales and market share. He said: “They are profit maximisers and are clinical cash flow people. Whether they are getting the sums right between sales and margins, time will tell.”

The deals saw Morrisons saddled with £5.6bn of debt, while Asda’s buyout was funded with £4bn of debt.

Hyman blamed the exodus of senior leadership since the Issa brothers and TDR Capital takeover.
Hyman said Morrisons underperformance was “a bit more worrying”.

Earlier this month, CD&R’s £7bn takeover of Morrisons cleared its final regulatory hurdle, 8 months after completion. Potts said they could now work with its new owner on the path ahead, with it focused on helping its customers through the difficult economic times.

NamNews Implications:
  • Given the consumer pain coming through the pipeline…
  • …Aldi as No.4 is a running certainty.
  • Asda & Morrisons “carry heavy debt loads, it’s going to be a lot harder to find room for fresh rounds of price cuts”
  • …begging the question: are you giving your major customers the attention deserving of their new ranking?
  • …and acknowledging their differences in business model?

#MarketShares #AldiRank

Sunday 19 June 2022

Superdrug Benefitting From ‘Home Salon’ Trend

Superdrug has revealed that sales of at-home beauty devices and products have rocketed over the last year as consumers continue with habits picked up during the pandemic.

The health & beauty retailer highlighted that it had seen a surge in demand for hair removal devices, including a 103% rise in sales of Superdrug’s Studio Brow Razors (vs 2021), which following the latest dermaplaning ‘peach fuzz’ TikTok craze is now their best-selling items across its own brand make up accessories range.

Sales of the B. Brow Groomer are also up by 163% and Superdrug’s Male Grooming range has seen dramatic increases, with sales of their Men’s Nose Hair Trimmer increasing by 87% in the last year.

Superdrug has also seen an upsurge in the hair category, with at-home salon hair tools up by 38% (vs 2019) and hair rollers up by 81% (vs 2021).

Nailcare is also an area where Superdrug has seen strong growth, with sales up by 77% (vs 2021) as people turn to DIY nails. In particular, artificial nails have seen a 236% increase in sales, and
Superdrug now claims to be the number one supplier in the market.

The retailer noted that many consumers began their at-home beauty journeys throughout the pandemic, with manicures at home, following online hair tutorials, or how-to-wax guides. Superdrug pointed to research showing that 34% of shoppers replaced professional beauty and grooming treatments with DIY alternatives, and more than half of these (21%) intend to continue doing so. With the top two reasons being to save time and money, which comes as no surprise with the recent increased cost of living crisis.

Jamie Archer, Own Brand Director at Superdrug, said: “From looking at recent sales and how we have seen consumer shopping habits change in recent years, the home salon trend is here to stay. It’s been great to see these categories taking off and that the momentum is staying as shoppers look to experiment with beauty and try new treatments and looks.

“With the growth of TikTok our customers are able to trial a range of different trends from their homes, making beauty treatments even more accessible. We predict that we will continue to see growth in areas such as hair removal and DIY nails throughout the summer as the cost of living crisis continues, and we will continue to offer consumers a little bit of everyday luxury at cost-effective prices.”

NamNews Implications:
  • Like ‘working from home’…
  • …a genie has escaped the bottle in the case of home-grooming.
  • And Superdrug are perfectly positioned to optimise the Home Salon trend.
  • Especially as consumers begin to brag about the benefits…
  • …and demonstrate them in their appearance.
#PermanentShoppingChanges #HomeGrooming

Tuesday 14 June 2022

The Untouched Cup of Coffee

How often do we finish a good meal out, with a cup of coffee we know is bad.

Not bad enough to complain or miss a tip. Just enough not to risk a repeat visit...

Leaving the waiter with an untouched cup, wondering why…?
#LastImpression #Hospitality #RepeatVisit

Saturday 11 June 2022

Tailoring Major Customer Management by Business Model (Vive la Difference?)…

Given that the Morrisons takeover has now been approved and Boots endgame is fast approaching, it is perhaps time to acknowledge the different business models at play when managing UK major customers...

UK retailers now comprise two PLCs, two in Private Equity ownership, one Partnership, a Co-operative, and a strong probability that Boots will end up in PE hands, it seems logical that we should acknowledge that these fundamentally different business models should each be handled differently…

Given that they have different approaches to what success looks like, it seems natural that understanding their key drivers in the new norm and adjusting our approach to meeting those needs may help us gain a competitive advantage over our rivals that simply offer a ‘same size fits all’ option.

Their different business models cause retailers to have different business needs, to hear and assess our offerings from different perspectives, to have differing opinions re fair share, but more importantly, they are driven to behave differently based on the extent to which they perceive their needs are being met. Based upon the extent of these differences, making them an offer-in-common patently misses a trick in normal times. Making the same mistake in times unprecedented could be unrecoverable…

Clearly, differentiating these business models can help. Essentially there are five traditional retail business models operating in the UK (DTC and pureplay online are also present but will best be dealt with in a future NamNews article). These business models are PLC, Private Equity, Co-operative, Partnership and Private Company:

Public Limited Company (PLC)

Have shares traded on the stock market i.e. Tesco and Sainsbury’s. They are driven by Price to Earnings ratio (P/E), Share Price, in turn driven by Return On Capital Employed. ROCE is a multiple of Net Profit BT/Sales and Sales/Capital Employed i.e. Stockturn. They are also very focused on minimising Corporation Tax (For a detailed treatment of ROCE, see Finance in major customer management In other words, as you know, a PLC can be a low margin, fast rotation business or a high margin, slow rotation business. All that matters is the combination of margin and speed of rotation in producing an acceptable ROCE.

In selling to a PLC, it is worth keeping in mind that they are interested in what you do to improve their P&L i.e. Increase their sales, and reduce operational costs – in fact, reduce their business costs (including credit period) to improve their NPBT. They rely on small, frequent and accurate deliveries. They are obviously interested in your direct trade investment and increasingly interested in your use of retail media. In fact, retail media’s precision, impact and productivity at the point of purchase can make your retail media spend act in both your interests (See Alexander Knapman’s Retail Media summary on page 3). The PLC retailer obviously regards your brand as a means of attracting your consumer to the aisle to be confronted by their better-priced own-label equivalent. However, they also see your need to optimise your use of their retail media.

A PLC retailer operates entirely differently to a PE-retailer…

Private Equity Owned Retailer: i.e. Morrisons, Asda, Boots.

They are driven by Earnings Before Interest, Depreciation and Amortisation i.e. EBITDA. Think typical P&L starting with sales, then come the direct expenses (i.e. costs of generating sales, manufacturing/buying goods followed by sales and administration expenses. Then comes the EBITDA line, below which are Interest, Tax, Depreciation and Amortisation. Anything below the EBITDA line does not affect the valuation of the business, providing sufficient cash is generated to meet interest payments.

PE owners are less driven by net profit before tax because the nature of the business model means that the high cost of borrowing to buy the company results in little or no corporation tax being paid in the typically 5 to 7 years of PE ownership. Moreover, the retail management team are usually heavily incentivised to ensure a 100% focus on the EBITDA driver. A UK PE-retailer is typically valued at 10x EBITDA in the open market (other industries/sectors have different multiples of EBITDA). In other words, a PE retailer wants you to help reduce operational costs and simplify their processes whilst driving sales. Like PLCs, they can see brands as a means of drawing shoppers into the aisle to

be confronted by a better own-label offer. Following takeover, they will inevitably take steps such as selling off as many shops as possible, and leasing back those that are or can be made more profitable.

Hopefully, it can be seen that a PE-retailer is run very differently [See The-implications-of-private-equity-takeover-of-a-mult ]from a PLC retailer, but both see business through a strictly financial lens…

Co-operative Retailing:

As you know, Co-operatives arose in response to a fundamental need in the community. The core values that underpin the co-operative model – self-help, democracy, equality, equity and solidarity – guide the way decisions are reached. Ideally, this means that the Co-op will buy to serve the needs of their members and the interests of their community will be factored into their business decisions. Moreover, their one-member, one-vote rule means that the interests of the largest shareholders do not trump the rest. This group emphasis has caused them to appear less efficient than ‘normal’ retailers in the past, but they have evolved a sustainable model that generates sufficient profit to survive and grow in the current climate. Their emphasis on bottom-line impact tends to be less overt, and cash is used more as a measure of productivity than an end in itself.

The Co-op is thereby radically different to a PLC and a PE retailer and needs to be treated accordingly, if only to spread your business risk over the various routes to consumer…

Partnership Retailing: i.e. Waitrose

The John Lewis Partnership is a 100-year-old model and began as an experiment to find a better way of doing business by including staff in decision making on how the business would be run. The principles for how the company should operate were set out, along with a written constitution to help Partners understand their rights and responsibilities as co-owners.

The founders wanted to create a way of doing business that was both commercial, allowing it to move quickly and stay ahead in a highly-competitive industry, and democratic, giving every Partner a voice in the business they co-own. Their profit-sharing scheme can help partners focus on goals in common but given that profit-share is a significant part of their remuneration package, then issues can arise at times of low profitability when partner share is reduced.

Moreover, in a rapidly changing retail environment, the mix of retail format i.e. combination of department store and food retailing can cause difficulties in shifting gear. Suppliers have to sell to Waitrose in ways that acknowledge the influence of department store thinking and can accommodate the inefficiencies of combined distribution in terms of out-of-stocks.

Suppliers have to factor the high level of shopfloor partner involvement and their sense of ownership into business strategies, whilst allowing for potential dilution of morale when profits are not deliverable, factors that are not often present in PLC and PE-retailer relationships…

Privately Owned Limited Company: i.e. Aldi

Think Morrisons in Ken Morrisons’ day before going public i.e. little or no borrowing, a focus on minimising tax, simplicity of execution and limited frills, and a straightforward, no-nonsense offering representing good value for money…

In essence, Aldi simply fitted into the model that Morrisons could have become. The key advantages of the private company model include being able to act without having to have the approval of outside shareholders. That said, survival in the current climate means being able to generate an acceptable ROCE, capital rotation and a net profit before tax. Big ideas cannot be financed if internal funds are insufficient, thus limiting expansion. Negotiations, usually with owners of the business can be tough, and are usually finance-based and often need to deliver demonstrable value for money. Thus it can be seen that privately-owned retailers are different to Partnerships, Co-ops, PE-retailers, and PLCs…

It is important, and in the current climate vital, that suppliers treat all these models differently, using an approach that acknowledges these differences in business needs, objectives, and what good looks like, in order to ensure that what they hear from your proposals resonates with their financial aspirations and delivers accordingly.

All else is detail…

Wednesday 8 June 2022

Swedish Online Supermarket Launches In The UK Offering Savings On Brands Of Up To 60%

Motatos, an online grocer that offers shoppers discounted prices on surplus inventory from wholesalers and distributors, launched in the UK this week.

The business was founded in Sweden in 2014, but now operates stores in Denmark, Finland, and Germany, and has proved popular with cash-strapped consumers.

Motatos sells food that would otherwise have been thrown away due to modifications in packaging, seasonal changes, or short best before dates. It focuses on ambient goods such as soft drinks, snacks, household goods, pet food and personal care products.

It sells lines from leading brands such as Cadbury, Kellogg’s, Heinz, Typhoo, Walkers, Ariel, and Dove, with claims of savings of up to 60% against the “normal retail price”.

Motatos founder Karl Andersson said: “We’re really excited to be launching in the UK at this stage in our development. There’s so much opportunity here for consumers to be able to help reduce waste whilst also reducing their weekly spend, meaning they don’t have to choose between price and being environmentally conscious.”

Christabel Biella, Motatos UK country manager, added: “The cost of living crisis is affecting all sectors, and UK shoppers are looking for ways to cut down their monthly spend without compromising on all the brands that they love.

“With prices surging, Motatos is hoping to make a real difference to consumers by offering savvy savings, allowing them to be sustainability-minded and reduce waste. It’s a win-win.”
The site has a minimum order value of £20. Deliveries are free for orders over £40, with a £2.99 charge for those below that level.

NamNews Implications:
  • The right offering, right timing, right brands, right target audience…
  • Pressing the right buttons: Waste-reduction, environment-protection, Sustainability, savvy savings...
  • Watch this one go…
#WasteReduction #Sustainability #Saving