Thursday, 6 October 2022

Corona Launches Online Lifestyle Store

AB InBev has announced the launch of its online lifestyle store for its Corona beer brand.


The European shop is a collaboration with sports and lifestyle retail company Cube Partnership after a deal was brokered by AB InBev’s exclusive licensing representative IMG.

Corona’s lifestyle collection includes a range of organic cotton t-shirts and sweatshirts that are made using natural dyes and water-based prints.

In addition, all products use plastic-free packaging.

Maxime Pudzeis, head of licensing EMEA at AB InBev, said: “We are delighted to partner with Cube to create Corona’s first online lifestyle store. It will provide the perfect launchpad to expand and diversify our consumer offerings with sustainable products that embody everything people love about the Corona brand.

“Building on the success of Corona’s previous apparel collaborations, we are determined towards delivering exciting and innovative collections that truly elevate the consumer and partner experience to the next level.”

NamNews Implications:
  • Having survived and thrived through the ‘pandemic’, a beverage saddled with what could have been one of the most unfortunate brand names in history…
  • …is now opening an online lifestyle store.
  • AB InBev have to be congratulated for imagination and courage at all levels…
  • (Lesser companies would surely have ditched the brand?)
  • Perhaps a pointer at how we should all place Covid in perspective.
  • And revert to ‘Business as usual’ in spite of the unprecedented distractions…
#BusinessAsUsual #Unprecedented #Lockdown #ShoppingHabits

Monday, 3 October 2022

Retailers Have Stocked Up On Festive Goodies, But Will Anyone Buy Them?

Retailers were already feeling nervous before Liz Truss and Kwasi Kwarteng launched their mini-budget for growth – and sent the pound into freefall and mortgage rates soaring.


The industry may have bought its stock for the peak trading season, so the fall in the value of the pound will not affect prices or profits until next year.

The main short-term concern before Christmas, when most consumer industries make the majority of their profits, will be consumer sentiment and spending power.

Read the full article on The Guardian website

NamNews Implications:
  • Taking some of the pressures on consumers:
    • Mini-budget fiasco sending pound into freefall and mortgage rates soaring.
    • A pause in house sales
    • Domestic renters in fear of rent increases
    • Benefit cuts
    • Spending on expensive items down
    • Skipping the little extras
    • Trading down to supermarket own label or discounters
    • Spare cash left after paying for essentials plummeted 10% in August for the average family
    • Outstanding net credit card debt has risen on average by 0.9% per month since the start of the year (No one appears to be mentioning authorised and unauthorised overdrafts at 40%...)
    • Autumn long-feared energy bills hit doormats
    • Clothing, homewares, nights out and trips away must all be on the list of household budget cuts
    • A general feeling of economic malaise and fear about the future
  • Fancy some Christmas shopping...?
#HouseholdCutBacks #MiniBudget #FallingDemand #ChristmasShopping

Thursday, 29 September 2022

Open-Book Accounting, Post Lockdown

UK supermarkets agreeing to ‘Open Book’ deals with suppliers amid an energy crisis can be a step forward in terms of supplier-retailer collaboration. Patently the root cause/s of this development are far more complex and threatening than an unanticipated hike in the price of energy.

In fact, what we are currently witnessing is the latest stage in a process that kicked off with the 2008 global financial crisis, when the cost of consumers bailing out ‘banks that were too big to fail’ began an era of low inflation and interest rates that was used in an effort to stimulate demand. The resulting and excessive ‘quantitative easing’ or printing of money caused a build-up of debt whereby a global shock was required to attempt to re-set global economies via a 2.5-year series of Lockdowns.

As markets recovered unevenly, imbalances of supply and demand resulted in soaring inflation affecting fuel/energy, supply shortages, and changes in shopping patterns, all causing chaos on shelf.

Suppliers and retailers have now been pitched into each other’s arms with the aim of collaborating or die…

Open Book Accounting (OBA) is but one aspect of this new level of partnership. In fact, NamNews quoted trade magazine The Grocer in reporting recently that industry experts are calling for supermarkets to work more closely with suppliers to prevent the energy crisis from causing food shortages.

Sources told The Grocer that some retailers were taking a collaborative approach and agreeing to so-called ‘open book’ deals. For instance, this enables both sides to track suppliers’ energy bills and take them into account during cost price increase negotiations.

At its simplest level, OBA is a ‘safe’ business practice where a company shares key financial information with stakeholders such as funders, clients, suppliers, investors, or contractors.

However, whilst ‘opening the books’ can be a major cultural change for many companies, extreme times require extreme measures, and when introduced in highly competitive retailer-supplier environments, there can be consequences…

Essentially an OBA relationship embraces a mix of Commitment, Focus, Trust, Integrity, Effective Communication, and a determination to work collaboratively in solving problems-in common. All in a highly stressed and uncertain environment where trust is paramount.

Positive
On the plus side, benefits can include:
  • New levels of collaboration between retailer and supplier
  • Resulting financial transparency improves performance
  • Members of supply chains can benefit from less overlap and costly buffering
  • Working capital usage can be optimised by relating invoice settlement to shorter, more efficient order cycles
  • Can provide a trustworthy basis of actual costings that reflect the true risk and effort for each party, minimising the need for second-guessing
One way of ensuring delivery of these benefits is for the partners to work to a P&L-in-common (see below).

Negative
Potential downside impacts of OBA can include:
  • OBA requires a massive cultural change in each organisation, top to bottom
  • Use of skills unavailable in-house e.g. independent auditors (cost, delays, objectivity)
  • Degree of detail required can be information and resource-intensive
  • Requires openness, trust and transparency that will take time to develop
  • Increased job-mobility increases the risk of information-leakage

It is hopefully obvious that OBA depends on the establishment and maintenance of long-term working relationships, especially in an environment where retailers often see rapid buyer job-rotation, sometimes six-monthly, as a way of minimising the close NAM-Buyer working relationships that make it difficult to negotiate tough deals with people you like…

In terms of NAM and Buyer, OBA obviously raises a number of issues for each party:
  • A supplier has direct experience of their brand cost structure in a given category
  • A retailer could have access to all brand costs of all category members (i.e. optimum methods of production, methods and ingredients combination)
  • Risk of incremental growth of own label at the expense of brands, via the use of brand-production insights
  • Global suppliers and retailers will have access to differences in fuel/energy prices/increases in different countries (distraction at local level especially given the relative lack of pointers in mainstream media)
Ways of optimising an OBA relationship in practice
OBA needs high degrees of trust and collaboration in supplier-retailer relationships, given that its effectiveness requires that partners share data and financial information about costs incurred in every part of the supply chain. Both parties can use this insight to ensure that costs are kept low, without compromising other aspects of the joint supply chain.

Confidentiality is a must-have, but realistically, if both parties continue to derive more benefits from collaboration than the quick hit of exploiting business secrets, there is a reasonable chance that leakages will be kept at manageable levels. Nevertheless, pragmatists on either side are unlikely to forget who is on the other side of the table…

Also, in most organisations, there will be ‘trade secrets’ that will never be opened up to anyone, even the company’s local management, let alone second or third parties… This can often take the form of the ‘magic ingredient’, a formula handed down from the owner’s great-grandparent and now securely locked in a bank vault overseas, often in a low-tax environment like Switzerland. This vital ingredient, with a transfer price designed to syphon off profits from overseas subsidiaries, ensures that corporation tax obligations are kept manageable, even in unprecedented times...

In terms of day-to-day negotiation, given the benefit of OBA and their ‘open’ access to much detail in the joint supplier-retailer business, time normally spent on adding value to concessions, devaluing concessions from the other party, and explaining/excusing our inability to comply with impossible requests or enter no-go areas, energies can be redirected to joint exploration of mutual gain. Using real data, with less time needing to be spent on validation, results can be tracked via the joint P&L. In other words, Buyer-NAM time can be more productively spent on the ‘How?’ rather than ‘Why?’ of dealing with joint trading issues, hopefully to more effect.…

Moreover, in terms of individual negotiation sessions, the Size of the Deal on the Table can be quantified quickly, allowing a joint placing of the session in context using real data:
  • Customer’s share of the category?
  • Private label share of category?
  • Our share of their business (£, %)
  • Our share of their category (£, %)
  • Size of the deal for them (£, %)
  • Size of the deal for us (£, %)
Choosing the right partner
Given the risk of OBA going wrong, especially in the current climate, it is vital that extreme care is taken in choosing the right Invest customer. In other words, OBA should only be considered for customers meeting the following criteria:
  • Potential (Immediate importance, life-cycle, market share)
  • Partnership (Strategic alignment, relationship possibility, cultural fit, consumer match)
  • Profit (Share of profit vs. share of sales)
  • Performance (Relative competitive advantage within the customer, share of category)
The results of this new level of risk-taking needs to be captured in an enhanced customer account management tool, as follows:

Customer Account Profitability impact (A P&L-in-common, sharing the net profit before tax in proportion to relative risk)

Given current crisis conditions in the market, desperate measures like OPA are required… Obviously, it cannot and will not be applied to all customers, but it can be a very effective basis for deeper relationships with Invest partners.

We are going to have to share what has always been confidential, and as you know it is always easier to be truthful than to add the extra pressure of having to lie consistently… Providing we take normal business precautions, and a customer meets the other criteria for Invest-Customer status outlined above, it may be worth considering this ultimate step in measuring the financial relationship, a P&L-in-common.

Essentially, this means extending our Customer Account Profitability model to use shelf price as the starting point, then adding in all retail costs to arrive at the supplier selling price, less all manufacturing and distribution costs, a percentage of national advertising & promotion related to the size of customer, and itemising all trade investment/funding for this customer, including retail media.

This leaves a joint net profit before tax to be split between supplier and retailer according to negotiated agreement of relative risk for the two parties. The joint P&L thus represents a final measure of each party’s trust in the costs and value of the amounts involved, the ultimate measure of fair share!

OBA represents a major breakthrough in supplier-retailer relationships, with trust as an essential bedrock, but in the new norm, there are few other real options.

Unless you prefer to return to the good old days of Them and Us…?

Sterling-Dollar Exchange rate in perspective:

Given this morning's fall in Sterling to near parity with the dollar, some of the Linkedin community with longer memories may remember in the 1940's people used to refer to a Half Crown (2 shillings & 6 pence) as a "Half Dollar" 

i.e. an exchange rate of $4 =£1.

"The times they are a changing..."

#ExchangeRate #Dollar #Pound #Value

Profits Slide At Aldi But Pledges To Prioritise Lower Prices Over Short-Term Gains

Aldi saw its profits slump significantly last year due to rising costs and investment in pricing. However, the discounter stated today that it was willing to sacrifice margin to maintain its focus on “providing the lowest grocery prices in the UK” amid the worsening cost-of-living crisis.

Over the year to 31 December 2021, Aldi’s operations in the UK and Ireland saw pre-tax profits fall 86.5% to £35.7m on sales up 0.9% to £13.65bn.

Aldi cited Covid-related costs, increasing staff pay and investment in prices. The small increase in sales came after the chain missed out on the online grocery boom during the pandemic.

“Preserving our price discount and rewarding our people will always be more important to us than short-term profit,” said Giles Hurley, CEO Aldi UK and Ireland. “Being privately owned means we can keep our promises even when times are tough.”

Aldi attracted 1.5 million extra customers over the past 12 weeks vs 2021 from supermarkets. This helped boost sales of the discounter’s Specially Selected own-label range by 29%.

Kantar showed sales growing at 18.7%, overtaking Morrisons to No 4

Aldi buying teams were “working tirelessly to counter the impact of inflation and maintain its discount against traditional full price supermarkets”.

Aldi has over 970 stores, plans 16 more in the UK by 2023, to its target of 1,200 by 2025.

Other investment – part of its ongoing £1.3bn two-year pledge – will include expanding/relocating dozens of existing stores + developing its distribution centres and technology infrastructure.

Re cost-of-living crisis, Hurley said: “It’s also a time when Aldi comes into its own. From our carefully selected range to our smaller format stores to our trademark efficiency, we can leverage our unique approach for the benefit of all of our customers.

“We will do whatever it takes to maintain our discount to the traditional full-price supermarkets and keep grocery prices as low as possible..”

Unlike the big gains by discounters in 2008, Mults are price-matching discounter key lines and introducing expanded budget ranges.

Hurley said their private ownership allows a longer view and huge global buying power.

Also, Aldi’s efficient business model can insulate customers vs rising prices across the food supply chain.

Re how much profit margin Aldi will sacrifice in 2022 to protect shoppers, Hurley said: “We always make value the cornerstone of our business. No matter what it takes.”

NamNews Implications:
  • Aldi are able and willing to take a profit-hit to grow share…
  • …as they continue to operate ‘on a roll’ in the UK.
  • And given that they rarely sacrifice share gains…
  • …not a bad strategy.
  • Suppliers and retail rivals need to watch for Lidl pursuing similar policies.
  •  Aldi and Lidl can afford to run at a loss, supported by their global operations…
  • …for as long as it takes!
#Aldi #DiscounterShare #CostOfLiving

New Owner Of Morrisons Asks Staff To Invest In The Business

Over 800 staff at Morrisons – from store managers upwards – have reportedly been asked by the company’s new private equity owner to invest thousands of pounds of their own money in the struggling supermarket chain.

According to The Guardian, middle management level departmental heads had been asked by CD&R for £10,000 while the directors of departments had been asked for £25,000 each. The minimum investment required to participate is said to be £2,000.

The newspaper’s source said that while contributions were voluntary, some staff were annoyed about feeling pressed to make a contribution to the underperforming business at the time of a cost-of-living crisis. “People are used to being paid bonuses rather than asked to invest,” the source said.

However, those who have agreed to invest in shares in Morrisons were paid a special bonus, equivalent to 60% of the amount they were asked to invest.

A spokesperson for the retailer is quoted by The Guardian as saying: “The opportunity to invest in the future of Morrisons was incredibly popular throughout the business with over 800 colleagues, or more than 90% of those eligible, choosing to invest.”

One expert told the newspaper that it was common to ask staff to invest as part of private equity deals, with the stakes seen as an incentive to help the business grow.

He suggested that the wider-than-usual scope of the Morrisons scheme could be seen as a good thing, allowing more people to benefit from a potential return on their investment.

Morrisons, which was acquired in 2021 by the CD&R in a deal worth £7bn, has been losing sales amidst the tough trading conditions, with its market share slipping behind Aldi in recent months.

Surveys suggest its prices have become more expensive compared to key competitors in recent months, weakening its performance.
One industry insider is quoted by The Guardian as saying: “The numbers look grim. [The product] doesn’t look exciting and they have missed quite a lot of opportunities.”

The source suggested that suppliers were becoming disillusioned as volume of goods sold by the retailer fell back.

Following a competition regulators delay, Morrisons is fully controlled by its new owners.
After posting a fall in sales in June, CEO David Potts: “Now that the CMA process has concluded, we are looking forward to working more closely with CD&R as we continue to drive the key pillars of our strategy, focused on being a broader, stronger, popular and accessible business.”

NamNews Implications:
  • By way of perspective, assuming that 800 staff invest an average £10k, means £8m invested.
  • And assuming a 60% bonus on amount invested, a £10k investment would cost staff £4k…
  • One way of getting skin in the game?
  • Still, fingers crossed, we are all gambling now…
#Risk #Investment #SkinInGame

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