Thursday 18 August 2022

Grocery Price Inflation Hits New Peak; Asda Returns To Growth And Discounters Prospering

Latest take-home grocery figures from Kantar show supermarket sales in the UK rose by 2.2% in the 12 weeks to 7 August, the fastest growth the industry has seen since April 2021.

Grocery price inflation hit 11.6% over the past four weeks, the highest level since Kantar first started tracking the data this way in 2008. Fraser McKevitt, head of retail and consumer insight at Kantar, commented: “As predicted, we’ve now hit a new peak in grocery price inflation, with products like butter, milk and poultry in particular seeing some of the biggest jumps.

This rise means that the average annual shop is set to increase by a staggering £533, or £10.25 every week, if consumers buy the same products as they did last year.”

He added: “It’s not surprising that we’re seeing shoppers make lifestyle changes to deal with the extra demands on their household budgets. Own-label ranges are at record levels of popularity, with sales rising by 7.3% and holding 51.6% of the market compared with branded products, the biggest share we’ve ever recorded.”

With inflation high and a recession likely later this year, Kantar noted that comparisons against the last financial crisis are becoming visible. McKevitt said: “People are shopping around between the retailers to find the best value products, but back in 2008 there was much more of a reliance on promotions. It’s harder to hunt out these deals in 2022 – the number of products sold on promotion is at 24.7% for the four weeks to 7 August 2022, while 14 years ago it was at 30%. Instead, supermarkets are currently pointing shoppers towards their everyday low prices, value ranges and price matches instead.

“Over the past month, we’ve really seen retailers expand and advertise their own value ranges across the store to reflect demand. Consumers are welcoming the different choices and options being made available to them on the shelves, with sales of own-label value products increasing by 19.7% this month. As an example, Asda’s Just Essentials line, which launched this summer, is already in 33% of its customers’ baskets.”


NamNews Implications:
  • Not much about brands, folks?
  • i.e. Brands need to fend off private label
  • Meanwhile, Kantar clearly demonstrate that consumers are trading down, shopping around and are hungry for value…
  • …with even higher inflation and recession to come.
  • Discounters now have a collective share of 16.1%.
  • Can you really afford not to pursue your fair share of Aldi & Lidl business? 
#ShoppingAround #Value #DiscounterShare

Sunday 14 August 2022

Fixing the UK Economy’s Cost-of-Living Crisis….

Last week, one of the political parties suggested that the UK Government should treat the cost-of-living crisis with a “wartime mentality” and thus sparked a thought here at NamNews as we focused on our perpetual search for practical solutions to Supplier-Retailer business problems…

Given the build-up of Cost-of-Living issues in the UK including soaring food-price inflation, product shortages and energy price increases all originating in Lockdown, followed by a succession of payment holidays for businesses (Rent, Rates, and Tax) and ‘Government’ i.e. taxpayer help via furloughs, all coming home to roost currently, it follows that some drastic action is required.

Moreover, think also of recent cost increases that have crept in as consumers borrowed to ease the pressure, with credit card borrowing growing at its fastest pace since 2005, with interest on cards costing an average 21.66% in July, rates for £10k personal loans rising in July to 4.18%, and overdraft rates still at all-time highs of 35.28%!

Others have attempted to explain how we have reached this point but much of the blame can be placed on the decision to move off the Gold Standard.      

On August 15, 1971, the US came off the Gold Standard, causing other countries to follow suit and in the UK ‘a pound was no longer a pound’.  In practice, this meant that Governments could print money at will (Quantitative Easing) and thus run up limitless Debt in the process. Cheap money lent recklessly via sub-prime mortgages resulted in the Global Financial Crisis of 2008 when the Banks were bailed out and became even more reckless…. 

At a Country level in terms of National Debt, anyone thinking this QE and low-interest freedom would be handled responsibly can easily put the issue in context by Googling ‘Interest paid on UK National Debt’ to find that the UK Interest Bill for June 2022 (one month!) was £19.4bn….

As a result of this Quantitative Easing, banks have been able to borrow at near-zero interest rates and charge consumers the rates outlined above. Unfortunately for all except Civil Servants on inflation-proofed pensions, Inflation began to increase, and as you know is predicted to shortly reach 13% by a very conservative Bank of England.

Taking all of the above into account, combining inflation with low growth, and low productivity, we believe we are headed into a recession that will last five years or more, thus requiring a “wartime mentality” on the part of the Government...

Speaking of wars, a recent chance discovery of a book by J K Galbraith ‘The World Economy Since the Wars’ (I have admired his work since reading his treatment of the 1929 Wall Street Crash) could provide us with an approach on how the Government might take action to address the cost-of-living crisis, in a wartime context.

Towards the end of The Second World War, the UK was faced with recession and a real danger of runaway inflation, and thereby had a need for State Control of prices, rents and wages.

The wartime solution was to supplement the price controls with a fairly comprehensive system of rationing that extended to canned goods, meats, sugar, shoes, car tyres and petrol.  Whilst in WW2 rationing was implemented via coupons and ration-books, nowadays a digital version combined with Tech-based insight re the consumer buying and usage behaviour would probably result in a 100%  leak-proof and fair system for all… Incidentally, where supply was exceptionally short and need exceptionally great, demand was thus brought forcibly into equilibrium with supply, thus eliminating a major cause of inflation.

As you know there are two ways of increasing profits, even in wartime. One way is to raise prices, the other to increase production,  As Galbraith noted, price controls and associated wage restraints made the increase of production the only available course. Profit maximisation was served horizontally by more production, not vertically by higher prices, a lesson for all… 

Monetary policy (interest rates):

To make all of this work, apart from managing consumer and business compliance, it would be necessary to keep interest rates low, effectively freezing interest rates at say 1% for the next five years of anticipated recession.  This means that any necessary borrowing by consumers or businesses would be at minimal interest rates, with a modest reward for lenders…

Lenders would thus be forced to seek increased profitability via increased efficiency and cost saving.  Consumers would be encouraged to clarify and communicate real need, thus minimising the advantages of product overlap and duplication by suppliers and retailers, who would in turn seek and provide real differentiation and be encouraged to make every sale count by delivering more than it says on the tin, every time….

Fiscal Policy (Tax and Government expenditure):

In contrast with the lightweight Monetary policy outlined above, the collecting of taxes and government expenditure would be much more aggressive… This would be a combination of high taxes on the fortunate few that have access to offshore means of tax avoidance, and Tech Giants that have hitherto contributed little to the tax pool.

Incidentally, keep in mind that the top rate of tax in the UK was 95% for many years, by no means unprecedented.

In addition, there could be excess-profits taxes applied to companies that have unfairly benefited from the Lockdown disruption of the past three years… This unprecedented clawback of money via taxation could be used to re-engineer/improve the NHS, and invest in improved provision of education for those in need. The excess cash could help to pay down National Debt and resource the negotiating of debt write-of/forgiveness where possible. 

Incidentally, given the restraints on expenditure, consumers will probably save more, besides being encouraged to postpone expenditure by relatively stable prices. The resulting build-up of consumers’ unspent money could be absorbed via the sale of Government Bonds that could be redeemed for spending at the end of the recession…

 A key benefit of the above approach would be to lift the consumer out of a necessary 24/7 obsession with the cost-of-living crisis, thereby treating one to the hitherto unaddressed fall-out of Lockdown, mental illness.

The resulting lack of sleep, skipping of meals to provide sufficient nourishment for hungry children, walking in all weathers to avoid the cost of public transport while a family car remains empty at home because of the escalating cost of fuel, will all add up to a national problem with a far greater downside and a knock-on effect on national morale that will fast become unmanageable…

An even greater casualty could be trust, a willingness to believe anything we are told. For instance, if part of the re-set agenda is to replace physical cash with its digital equivalent, then continuing with the current ‘abuse’ of money will compromise any hopes of a smooth transition. Moreover, given the move from the Gold Standard, money has become a fiat-currency, in that politicians are reliant on peoples’ belief in the value proclaimed by the government!

If people lose sufficient trust in the Government, there is a very real danger they could begin to require proof for any assertion made by anyone in officialdom, spending more time second-guessing any offering, any time, anywhere, any how….

Who knows, some could even begin to resist, and seek alternatives…                        

Something clearly has to be done…      

BTW, in terms of implementing its ‘wartime solution’ the Government might not find it difficult to achieve high levels of compliance with the above harsh regime. Best keep in mind the relative ease with which almost 100% of the UK public were fully supportive in terms of compliance re masks, social distancing, ‘jabs’ and viewing of 15 minute Government TV briefings each evening for the past 2.5 years…

All else is detail.

by Brian Moore (bmoore@namnews.com  - www.kamcity.com)

#SoaringInflation #CostOfLiving #PriceRises

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