Taking Back Some Back Margin from Tesco, by re-negotiating its usage...

Given that supplier investment in back margin was originally intended to stimulate sustainable sales of the brand and should always have been conditional, many suppliers will be reluctant to simply surrender the allocation and use of trade investment monies – other than the three permitted buckets – to a retail partner working to a different set of priorities.

Moreover, as the surrender of any influence over the use of trade investment by the supplier could result in elimination of any discussion re KPIs and compliance conditions in monitoring retailer performance, even the effectiveness of the three permitted buckets could be compromised.

This could possibly result in either additional transfers to front margin, or even de-listing in extreme cases of poor performance.

It is therefore imperative that suppliers and Tesco find ways of jointly optimising the discretionary use of trade investment budgets by the two partners.

In other words, assuming that the three permitted back margin buckets account for half of a supplier’s 20% trade investment in Tesco, this leaves the ownership/control of the remaining 10% subject to further negotiation… 

In order to convince Tesco of the bona fides of such trade investment ‘retention’, a supplier has to be able to guarantee that the monies are fully allocated to the development of their business with Tesco.

The funds will need to be invested in initiatives that drive traffic to the retailer’s stores, where incremental sales of the supplier’s brands will reward Tesco via a combination of front margin and volume rebates.

It is unlikely that a retailer in Tesco’s current condition would agree to anything less…

Is Back to Front the Only Way Forward?

Given that Tesco plans to reduce the negotiating elements of Back Margin from 24 to just three by 2017, namely volume, prominent positioning, and compensation payments in the event of product recalls, it may be useful for NAMs to work this through in terms of the financial impact on their Tesco relationship, especially given the latest £6.4bn loss….

Essentially, it is probable that the total Tesco take from your brand will remain the same i.e. they are unlikely to surrender any income currently coming from Back Margin; a proportion of this will simply move into Front Margin.

In other words, say the current 20% of trade price represented by trade investment will translate into 15% of ex VAT shelf price, assuming a 25% retail margin.

The issues for suppliers include: 

• What will happen to shelf prices if Tesco want to drive sales really hard via an extra 15% price cut, using the ‘excess’ back margin?
• Will the resulting scale economies be sufficient to satisfy Tesco (i.e. their January price-cut test appeared to be profit-neutral, according to a Dave Lewis interview in The Grocer)?  

In practice, given Tesco’s need for cash, it is probable that they will simply absorb the ‘freed-up’ back margin within the business, and finance price-cuts via current front margins. One of the remaining Back margin elements - Volume Rebates - will hopefully be sufficient to help make the price-cuts profit neutral…

On balance, Tesco’s move from Back to Front Margin represents a quantum leap for suppliers in that their front margin income will be a direct result of sales made and all back margin will be sales-based and paid in arrears.

This is a major breakthrough in UK supplier-retailer relationships and should not be underestimated.

However, we are now at a point where suppliers could lose control of some historical back margin monies, unless they are prepared and able to negotiate alternative, Tesco-specific uses of the investments.

When we say fastest...

                                                                                                        Pic: Wim Schipper via Brilliant ads

(For added ooompf, why not slope the logo backwards?)

In a game where all eyes are on the profit ball, can Tesco afford to forget Net Margin?

Given that share price is driven by ROCE, in turn a result of  Net Margin times Capital Rotation, no one, especially share-incentivised senior management, will allow Tesco to long ignore the bottom line…

Tesco now has other priorities in terms of offer simplification, rebuilding of consumer and supplier trust, but ensuring adequate - at least 15% ROCE - rewards for risk will always be close to the surface.

The issue for cull-survival suppliers has to be not only contributing to Tesco Top Agenda items, but also finding ways of translating this support into bottom line impact.

Essentially, in terms of faster capital rotation, by simplifying their offer and cutting out over-lap and wastage, Tesco will be able to focus on optimising stockturn. This means that suppliers that can deliver more often in smaller quantities will be seen to benefit the company in terms of speed and availability.

By reducing the number of unprofitable (large) stores, and franchising off redundant space in remaining stores, Tesco will make their fixed assets more productive. In the short term, suppliers that can make the space work harder via in-store theatre will help….

This leaves Net Margin, with transfers from Back to Front margin an obvious option, unless Tesco can be persuaded to embrace supplier-driven alternatives…

Deep down the City does not care about Net Profit in itself, they know that a business can either be small margin, fast rotation, or big margin slow rotation. All they want is an acceptable overall result - ROCE - to justify risk and exposure, and invest in the share price.

Retailers and their suppliers will be left to deliver the rest… See how here

Don't forget the money – but now it's all about consumer trust...

To us optimists, yesterday’s 5% fall in Tesco’s share price was hopefully the result of some profit-taking, with plenty of slow upside as the market absorbs the significance of the change in Tesco’s relationship with suppliers and shoppers…

No-one will ever be allowed to forget the money again, but the emphasis in now on rebuilding trust at both ends of the Tesco candle, and no taking of supplier-prisoners…. i.e. any tin-content issues will be ‘cullable’ offences

A reminder of the basics…
According to changingminds, trust is about:

1. Predictability
Trust means being able to predict what other people will do and what situations will occur i.e. less time spent second-guessing and checking compliance

2. Value exchange
Trust means making an exchange with someone when you do not have full knowledge about them, their intent and the things they are offering to you i.e. a simple buffer-free offer from both sides, with minimal just-in-case complexity

3. Delayed reciprocity
Trust means giving something now with an expectation that it will be repaid later i.e. no need to open the tin in the store

4. Exposed vulnerabilities
Trust means enabling other people to take advantage of your vulnerabilities - but expecting that they will not do so

How consumers manage trust
- Get it right, and they may tell a friend
- Get it wrong and they will certainly tell ten…

BTW, in case of any delay in achieving 100% trust-distribution, best to keep in mind that under the skin we are all third parties, however close the relationships…

Another UK record for Tesco - How a £6.4bn loss will impact suppliers

By posting the biggest ever loss in UK business history, Tesco is hopefully making a final test of shareholders’ confidence in their turnaround.

Dave Lewis will have to provide more detail, but essentially he has three priorities:
- Regaining competitiveness
- Protecting & Strengthening the Balance Sheet
- Rebuilding trust and transparency in the business and the Tesco brand

Regaining competitiveness:
- Price-cuts in anybody’s language (Same offer, reduced SKUs, 100% on-shelf availability, and prices low enough to make a difference, possibly via the moves from Back to Front margin…?)

Protecting & Strengthening the Balance Sheet:
- Improve Current Ratio (i.e. Current Assets/Current Liabilities) i.e. reduce Stocks via smaller, more frequent deliveries, and increase cash.  An obvious move would be to increase trade creditors, but this would damage Tesco credibility in the current climate, and would be a breach with recent promises to pay smaller suppliers in 14 days.

- Improve Cash-to-debt ratio (i.e. combination of cash and short-term investments, divided by combination of short & long term debt) Tesco will attempt to generate cash surpluses in the business, and pay down debt, possibly via pressure on cost prices, cost-cutting, back-to-front margin moves, and stripping out anything that does not contribute to availability and customer service.

- Improve Debt-to-equity ratio (i.e. long-term debt divided by shareholder equity) Shareholder equity is a combination of share capital and retained earnings i.e. net operating profit after dividend. This is why Tesco is not paying a dividend at this point, in order to reinvest as much as possible of their £1.4bn operating profit into the business. In practice this route will prove too slow in significantly improving their debt-to-equity ratio, so expect more emphasis on driving down debt..i.e. asset sell-offs.

Rebuilding trust and transparency in the business and the Tesco brand
- Whatever the cost, everything left on Tesco’s post-cull shelves will deliver what it says on the tin, or more, or else...
- Tesco will anticipate the potential flak arising from the Which? super-complaint re in-store offer ‘confusion’ by going for transparency and genuine, sustainable competitiveness.
- It hopefully goes without saying that brand contents-reductions to disguise retail price increases are now off limits, as Tesco changes its corporate colours from blue & red to whiter-than-white. They have nothing more to lose…

In other words, hold on to your hat, its not over yet…

Tesco property write-down - ‘official’ acknowledgement of the structural changes in UK retail

We all await - with bated breath - the extent of Tesco’s property write-down at Dave Lewis presentation of the annual results tomorrow. This will be the first official acknowledgement of the structural changes that have taken place in UK retailing, and at City estimates of £3bn+ the impact on Tesco’s Balance Sheet and the market will be fundamental.

...with other mults needing increasingly persuasive arguments for not following suit…

In round numbers, think 20% reduction in large space retail

Why the write-down?
As you know, large space UK retail works on the premise that sales per sq ft of £1,000 per annum are sustainable

Undershooting presents three alternatives:

• Sell ‘em, Close ‘em or Convert ‘em…
• Selling = ‘sell-off’ in an over-spaced market, Closing = write-off dilution of the bottom line, leaving fundamental Conversion as the only option…
• Action: Amazon permitting, the way forward for the mults has to be via conversion of large outlets to collaborative ‘shopping centres’ based on partnerships with specialist retailers in non-food categories, leaving grocers to sell groceries…

In practice, this will mean retail partnerships based on a rental – % of sales combination, with  both measures focused on space productivity

What can suppliers do about it?

• Short-term: Scope for any instore theatre at big venues, and best bit-parts locally
• Medium-term: Scope for demonstrably productive instore theatre, all venues, based on a sales/sq. ft. KPI
• Long-term: Think 1:1 consumer entertainment…

And by the way, back to the NAM-salesforce drawing board…

Scope for one more?

                                                                                                    Guillaume Quilliot via Silvana Ciraolo

Free Aldi bus for students' weekly shop

                                                                                                           pic: An Focal

Given the discounter’s primary audience-mix of students and senior citizens, and the likelihood that carefully managed long term loyalty will eventually bridge the generation-gap, this new initiative indicates the degree of Aldi’s determination to optimise its market share long term…

Currently operating at UCD, Trinity, Limerick, DCU, and Dundalk Institute of Technology, Aldi plans to serve all third level campuses by the end of 2015.

“The bus service is completely free, anyone can hop on, you don’t have to live on campus at all, you just need to email the UL Aldi Bus Rep, book your spot and even if you don’t you can show up and if there are spaces available you can get on.  They have allocated stops for the bus so it’s safe, the students will be signed on by reps and they will make sure everyone is on again after they are finished their shopping.”

Aldi’s “University” page on its website features weekly promotions of healthy recipes and cooking guides, along with the cost of purchasing each meal, in a weekly shop of €34.

Not bad for the ‘foreign, downmarket, cut-price retailer’ that had the cheek to enter the state-of-art, up-market, big-space UK retail scene 25 years ago…

With an 8.1% share of the Irish market, Aldi have no plans for extending its bus-service to the UK, yet…

New Walgreens Boots growth strategy - back-to-basics+ via Boots

Building on improved sourcing - scale economies - across the group, the Boots influence on Walgreens is being demonstrated via convenience, pharmacy modernisation and customer care. In the US, this merely represents the harvesting of low hanging fruit…

However, a key contribution will be Boots global vision applied to wholesale consolidation, with M&A a vital route to WBA global purchasing power. In the process, it is unlikely that the group will pass up many opportunities to expand its retail footprint via acquisition.

In other words, we are beginning to see the emergence of a fully global group aimed at selling any H&B goods and services that can be legally sold to consumers and retailers, with buying muscle to match…

It is vital that suppliers gear up to this new global reality, in terms of time, money and people.

When it comes to globalisation, McKesson-Celesio has the potential to go global, but is way behind Boots WBA vision.

The major grocery multiples are currently focused on protecting their national/UK interests, and are no longer acting globally.

This leaves WBA as the only global player in H&B. 

The group is being driven by the Boots culture in retailing, and Alliance Boots in wholesaling, implementing a global vision that has not missed a beat so far…

A diminishing window to get things right?
Suppliers need to prepare for the inevitability of full global coverage, and ensure that their prices and terms are fully synchronised, before WBA gets really serious about scale economising…

Less is the same, but the cost is more

Like bankruptcy, a brand dies in two stages, first slowly, then suddenly....

In other words, whilst the Tesco product cull may contain a few (30,000) surprises, the slow, steady erosion of brand equity leading to this inevitable de-listing will have been building for a number of years via petty short-changing of the consumer by the brand's champion via same-price contents reduction, on the assumption that consumers are locked into unquestioning loyalty, like years ago.....

'Savvy' buying started with the consumer and has gradually spread up the supply chain, but appears to have stopped short of the brand owner....?

Given the effort it requires to build brand loyalty, and ease with which it can be destroyed, coupled with the multiplier effect of a dissatisfied consumer telling 10 friends, it is bewildering how brand owners are taking such liberties with brand franchise in reducing contents...

Taking into account the ability of the consumer to product-compare on the go, it becomes obvious that the real cost of brand desertion is borne by the supplier, with Tesco merely the catalyst, and the consumer a key driver.

When a customer becomes a busted flush - where this leaves the NAM, incrementally?

Today's news that unsecured creditors of 'in administration' Phones 4u are unlikely to receive any compensation is just the latest demonstration of the difference between government 'green shoots' and the street-level experiences of businesses and the public...

Given that any supplier making 5% net profit before tax and owed £150k by Phones 4u, now need incremental sales of £3m to cover the lost profits, it is obviously vital that in any category, NAMs, as chief can-carriers, need to be hyper-sensitive to the financial health of their customers...

Why NAMs?
Other job-holders, being at least at one remove from the supplier-retailer commercial interface, and reliant on open domain returns at Companies House, tend to work in arrears...

However, a NAM is usually in the thick of the day-to-day sell-buy exchange with customers, dealing with the customer's live issues like off-shelf sales vs. target, cash-flow, real-world in-store fulfillment and compliance, against a constant backdrop of demands for cash and extra days credit...

Add to this the NAM's (intimate) knowledge and insight re the personalities involved in the decision-making-process, coupled with latest available financial returns and the result is a 'good-as-you-get' indicator of the customer's ability to stay in business.

Other key indicators are detailed here and here.

Whilst you may be in doubt as to who is in the firing line when it comes to customers going bust, you can at least be sure that you will be head of the queue when it comes to attempting to generate the incremental sales required to cover lost profits...

To avoid becoming another busted flush, why not calculate the current amounts owed by your customers, divide by your pre-tax net profit margin, and multiply 100 to reveal the true scale of your exposure vs. your current incremental sales options...   

The CMA investigation of Poundland’s takeover of 99p Stores - a retro, redundant exercise in cut-priced, hyper-competitive British retail?

Over at The Telegraph, Graham Ruddick reports that the Competition and Markets Authority's analysis could result in the closure of 33% of the 99p stores, thereby jeopardising the deal...  He also points out that the UK consumer now has unprecedented multichannel access to choice via discounters, major mults and the Internet.

This makes consumers less vulnerable to abuse by anti-competitor behaviour.

We would simply add that where market information flows freely, competition plays a regulatory function in balancing demand and supply.

In other words, the emergence of price comparison tools, at home and in-store, has helped to create a state of almost perfect competition in the UK, where the role of the CMA is in danger of becoming redundant, unless little £1 sparks of initiative are damped down at birth...

If fact, in the current real world, could the CMA initiative be deemed anti-competitive?

What if Aldi & Lidl grow at 10% in flatline?

Apart from politicians' assurances re post election growth, just suppose that we are into flatline growth for the next five years, at least...

Also given Aldi & Lidl combined share of 9% (see yesterday's NamNews) and a conservative (!) estimate of 10% growth vs major mults at 0%, the two discounters will reach 15% share by 2020...

The resulting issue for suppliers has to be, barring radical changes in discounter ranging policy, most of this growth will be via surrogate branding, at the expense of national brands...

Branded suppliers have a choice:

• Either persuade the discounters to stock more brands...
• Or find a way to optimise private label, and seek a fair share of the discounter action

...whilst the major mults mount the deepest price cuts ever, possibly fuelled by back to front margin moves...

'Back-to-Front' thinking spreads on-shelf as Melbourne shopper encourages people to buy local

                                                                                                                   pic: Daily Mail

In a classic example of unforeseen consequences of shopper engagement, the Daily Mail reports on an Australian woman starting a ‘flip it and reverse it’ campaign and turning labels around so people can see where supermarket foods ACTUALLY come from...

The issue for retailers is whether this one-off initiative represents a single-shopper quirk, or is perhaps the tip of a consumer-need iceberg. In other words, should enterprising retailers seize a competitive edge by filling shelves to reveal label contents, and perhaps add an occasional normal facing to aid brand-identification?

Given that this 'dumbing-up' would reverse years of simplifying shelf-filling process, and could result in knock-on labour cost-increases, perhaps suppliers could play their part by modifying their shelf-ready pack configurations?

Meanwhile, marketing colleagues on regular store-visits are bound to notice the slight reduction in pulling power of current back-of-pack labelling, and may hopefully authorise enhanced branding of rear labels..

...thereby begging the question as to the function of the now-redundant front label, in these unprecedented times?   

A Post-Easter Bargain from Sainsbury's?

                                                                                         Pic: MEN/Alex Kilpatrick

A Manchester offer you can refuse, and one you cannot, Moscow-style?

                                                                                                  pic: Business Insider

With inflation in Russia running at 11.4%, maintaining the retail price represents a discount!

Meanwhile, in deflationary UK, holding the price steady indicates a price increase!

Fortunately, in each case, the consumer is savvy, and understands these subtleties!

More on Russian pricing here at Business Insider

Tesco & Walmart: going in different directions to reach the same point?

News that Walmart are telling suppliers to 'keep those trade funds and put them toward the cost of goods' will result in significant - and permanent - price cuts, has to indicate that Asda may at least consider a similar approach in the UK....

Given that trade investment can be 20% of supplier selling prices - translating to 15% of net shelf-prices for a retailer on average margins of 25%, the impact on retail prices would be significant..

Meanwhile, Tesco's move from 27  to 3 negotiation points re trade investment would achieve a similar result on shelf.

Whilst each retailer is taking responsibility for setting the selling price in a drive for market share, the difference between the two approaches are:

• Walmart/Asda are implying that trade investment transferred into lower buying-in prices and then to EDLP has more impact on consumers    
• Tesco sees merit but overlap in some trade investment buckets and will presumably negotiate the transfer of 'surplus' monies to the front margin, where they will presumably fund price reductions?

The issue for UK suppliers has to  be the extent to which the other retailers will follow the trade-investment funded pricing route...

Easter 2015: Is nothing sacred?

                                                          Brighton Easter 2015    pic Brian Moore

...or, in flat-line markets, simply high-level headhunting, at the expense of the competition..?

There will always be someone who says they can do it cheaper...

    Thanks to Guillaume Quilliot via Jonathan Hughes

Tesco's Margin Objectives: Going from Back to Front to go Back to Basics

Given that Tesco plans to reduce the negotiating elements of Back Margin from 24 to just three, it may be useful for NAMs to work this through in terms of the financial impact on their Tesco relationship.

Essentially, it is probable that the total Tesco take from your brand will remain the same i.e. they are unlikely to surrender any income currently coming from Back Margin; a proportion of this will simply move into Front Margin.

In other words, say the current 20% of trade price represented by trade investment will translate into 15% of ex VAT shelf price, assuming a 25% retail margin.

Only issues are 
-   What will happen to shelf price if Tesco want to drive sales really hard via a 15% price cut?
-   Will scale discounts be large enough to satisfy Tesco (i.e. their January price-cut test appeared to be profit-neutral)?    

However, on balance, Tesco’s move on Back to Front Margin represents a quantum leap for suppliers in that their front margin will be a direct result of sales made and will be paid in arrears

BTW, it might be wise to hold a bit back in case a change of management at some stage concludes that your category’s in-store presence needs a little ‘livening-up’ via an additional injection of trade investment…  

Passing the Tesco Cull-test: Hints from the Dave Lewis Grocer interview

See the full in-depth interview here, a treasure-trove of insight

The cull-test: Opportunities for all suppliers to get it right, irrespective of size…

Criteria for de-listing:
- SKUs with a small amount of customer appeal i.e. not meeting a real need
- SKUs needing too much Tesco effort i.e. vs consumer benefit derived

What Tesco want:
- Unique Propositions i.e. a demonstrable difference, a major hurdle for realists
- Innovations that customers value i.e. a real step forward that makes a demonstrable difference
- A good economic equation i.e. an appropriate mix of back & front margin

In other words, a mix of product, price, presentation and place that satisfies the felt-need of the savvy consumer…
…..and not forgetting the margin…

Tesco to move to 14 day payment for smaller suppliers – a ‘temporary’ competitive edge?

In a specially extended interview The Grocer’s Adam Leyland talks to Dave Lewis about future moves. The real value of this type of uncut, indepth interview is that it can be a source of missing pieces of their particular Tesco jigsaw, for individual suppliers. In other words, well worth a read by any NAM trying to anticipate what to expect from their largest customer…

The 14-day move
One particular gem is Lewis’ promise to pay smaller suppliers (less than £100k sales) in 14 days, and to make payment days category-specific, presumably reflecting delivery-resale cycles, and related to size of supplier.

Apart from the obvious relief, such NAMs need to calculate the financial benefit (and cost to Tesco) of moving from Tesco’s average 37 days to 14 day payment.

Assumptions:
Annual sales to Tesco                            = £95m
Current payment period                          = 35 days
i.e. Tesco pays 365/37 times/annum       = 9.86 times/annum
:. Amount that Tesco owe, at any time    = £9.635m
Cost of money say 10%
i.e. financing free credit                          = £0.964m

New payment period                               = 14 days
i.e. Tesco pays 365/14 times/annum       = 26.07 times/annum
:. Amount that Tesco owe, at any time    = £3.64m
Cost of money say 10%
i.e. financing free credit                          = £0.364m
:. Saving for supplier                              = £600k
i.e. Percentage of sales 0.6/95.0   x 100  = 0.6%
In other words, a gain of £600k to the bottom line

Impact on other retailers?
However, the real issue is how other retailers will react to this master-stroke in PR by a Tesco going to the heart of the public’s growing concern that ‘abuse’ of small suppliers can lead to less choice on shelf…

In other words, Tesco stand to gain a distinct competitive edge by leading the market in fair-share payment, resulting in loss of share by those who fail to follow suit…          

The Heinz-Kraft 'tip of iceberg' warning for vulnerable companies

The key driver is changing eating habits and consumption behaviour in many countries, resulting in reduced sales and over-capacity, a trigger for more of the same, in all flat-lining categories... These consumption-changes combined with structural changes in how we shop, and austerity driving consumers to 'make do' have brought Warren Buffet and his new lesser-known Heinz-Kraft partner Jorge Lemann to the M&A centre-stage to provide growth and/or add value to ailing companies...

How the targeting-process works (types of targets)

• Identification of categories under threat from changing trends i.e. growing health awareness causing drops in consumption/switching
• Acquisition of competitor for increased revenue or market share
• Complementary coverage in terms of brands, categories, channels and geographies i.e. scale economies, negotiating muscle up and down supply-chain
• Potential synergies where Production, Finance, Marketing and Sales can be combined/replaced
• Short-cut into innovation and diversification

Finding target companies

• Search for categories where shares are 'cheap' i.e. low and falling ROCEs, that 'can be bettered'.....
• Falling sales when other categories are flat-lining
• Identification of companies that have lower net margins resulting from inefficiencies and/or cumbersome structures (from an outsiders point-of-view)

Objectives
The acquirer needs to correct 'faults' that defined the target, fast, to minimise dilution of the combined organisations and convince shareholders of the 'wisdom' of the move.

This means

• Increasing sales and cutting costs
• 'De-duplicating' Fixed Assets i.e. Land, Buildings, Plant and Equipment ('they don't need two of anything')
• Reduce stocks, debtors (credit to customers) and optimise cash
• Increase creditor-days i.e. take longer to pay
• 'De-duplicating' job-roles
• Anticipate demands of the regulators re competition legislation
• Selling off anything that 'does not fit'

In other words, drive ROCE upwards to match that of the acquiring company

Action for NAMs

• For NAMs in target and acquirer companies, check through the above (and see more here) to anticipate the inevitable moves...
• For NAMs in other companies in category, re-assess the new competitive landscape (See Buying Mix Analysis)
• For all other NAMs, find ways of driving ROCE (your personal contribution, your company's and the customers' ROCE) to ensure autonomy, and become too expensive to buy i.e. so that the above synergies are not worth the cost for potential acquirers

All else is detail

Tesco culling: anticipating the obvious?

As the Tesco management-cull continues in high profile, the 30% product-cull remains beneath the pre-September radar. In the meantime, NAMs have to speculate and focus on the ‘no-brainers’, or wait and see….

One obvious criterion, apart from cutting overlap and de-duplicating ranges/categories, has to be relative rate of sale. In other words, given that supermarketing (!) is an extreme version of the 80/20 rule, and a key issue for Tesco has to be what to do about the long tail of slow-selling SKUs...

One approach would be to agree an economic tail-length and simply cut off the rest – the ‘P&G approach’?  
This would obviously result in issues re space redundancies, franchising the freed-up space, or even outlet disposal.

An alternative way forward would be to acknowledge that the long tail exists in many categories because demand exists, albeit in low purchasing frequencies. The problem of viability arises because of the relatively high cost of bricks & mortar space, and the need for physical productivity.

However, in online retailing, selling space is limitless and is available at minimal cost...
Does this mean that Tesco will simply shift ‘long tail’ SKUs into their online offering, leaving ‘best sellers’ in-store?

In other words, realigning the business  to focus on core strengths of B&M retailing (simpler offer), and making online more productive (the Unilever approach?)

I wonder which way ex-Unilever Dave Lewis will choose?

The Kraft-Heinz Co. - the next steps?

This deal will see Heinz pick up a 51% stake in Kraft Foods, becoming a shot-caller in anybody’s language...

Draft Agenda as follows:

• Key driver is changing eating habits in many countries, resulting in reduced sales and over-capacity, a trigger for more of the same
• Obvious synergies in terms of geographical and category coverage globally
• Increased negotiating muscle ref. major global, local customers and bought-in goods and services...
• ...which will help when rationalising credit terms, margins and trade support
• Inevitable regulator-driven disposals arising from competition issues
• Leading to acquisition opportunities for other suppliers…

Next one, please?

Morrisons chief admits multiples' recession price rises 'mistake' - a need for a trust-reboot?

If it has taken 60 years for supermarkets to build trust in best prices since the fifties, and has now been – as Andy Higginson says – ‘wiped out in an instant’, the issues for retailers have to be:

- How long to rebuild that trust?
- What degree of price-cutting will be necessary to make a difference?

Rebuilding trust?
Given that pricing confusion – difficulties in making like-with-like comparisons -  is but one element of the consumer-retailer-supplier contract, those retailers that are really serious about rebuilding their credibility with shoppers will need to re-assess the entire ‘package’ in order to ensure that any gains via deep-cut prices are not diluted by disappointment on opening the tin…

In other words, household brands and even private label products that have been disguising price increases by reducing contents have to be regarded as parties to the ‘deception’ in that whilst they comply with the ‘letter’ of contents legislation, they are often in breach of the ‘spirit’ of consumer expectation…

Also, when it comes to actual ingredients, it hopefully goes without saying that any ‘short-changing’ of the shopper-consumer via inferior substitutes will add to a savvy consumer’s view that brand owners or retailers cannot be automatically relied upon as outsourcing-partners in making the decision to buy.

All of these areas have to be corrected to get to square one in rebuilding trust in major multiples…

Making a difference via price-cuts
Given the above entry-level changes on-shelf, the question is how big a price cut will make a difference?

Essentially, given the easy-availability of price-comparison facilities, on-shelf prices will have to at least match the discounters on an ongoing basis, with any (minimal) price premium being justified by advantages in the shopping experience. Any over-estimation arising from retailer-ego will soon be challenged via consumer walkaways...

How long?
Given that it took 60 years to build the trust…

Seriously, any retailer that succeeds in correcting the above trust-issues, has to experience growth at the expense not only of the discounters, but will also eat into the shares of other multiples...

It simply depends on how radical they want to be…

Amateur shopkeepers, breaking all the retail 'rules'?

pic: Brian Moore

Minimal shelving, some product samples and 10 floor staff.....
....and a world-beating £3,000 sales per sq ft per annum, 3 x Tesco performance, and no sign of being eclipsed, despite the built-in warning in their logo........

Simply creative - provocative, memorable, and above all 'uncopyable...'

http://adsoftheworld.com/media/print/carlsberg_dont_drink_and_drive  
Advertising Agency: BBR Saatchi & Saatchi, Israel

Hat-tip to Keith Hallam

Checkout scam for the 'discount' shopper?

pic: Brian Moore

Checkout operator tapes a barcode for a low-price item (say pack of screen-wipes @ £2.50) and scans it instead of the £30 Box-set in order to oblige a pal in the checkout queue.

Relating retail business rates to sales performance - the unintended pay-off?

Over at The Telegraph, Graham Ruddick develops some good reasons for how local councils’ discretionary expenditure of retail business rates could transform the high street in terms of positive use of the funds at local level.

However, basing rates on sales achievement could result in even more positive benefits for the High Street...  By relating the business-rate to a retailer’s sales, rather than an out-of-date value of the property, the retailer could focus on driving business rather than covering overheads.

Even more importantly, the council could actually play an active role in helping business succeed…

As a stakeholder, the focus of the council could change, giving councillors a reason to make pro-active moves to help create an environment that meets the needs of all parties in the High Street.

This could bring a whole new purpose to maintaining building fabric, level and quality of domestic and retail occupancy, access and parking facilities, cleansing and lighting, and even some accountability…

These moves would eventually result in higher retail property values, but the council having a pro-active stake in thriving businesses, combined with the power to spend locally at their discretion, could get everyone there faster… 

Does Cadbury chocolate taste different in different countries?

Can international taste-harmonisation help?

The BBC have published a detailed study of consumer reaction to perceived differences - 37,000 petition signatures to boycott Hershey's! - in the versions of CDM as made in the UK and by Hershey's under licence in the US.

The article goes into a degree of detail that will prove compulsive to those in the 'candy' sector, but the key issues raised in terms of consumer expectation that global brands should taste the same in every country may have implications for brands in other categories.

For instance, Nescafé UK blend might seem weak to hard-core Mediterranean coffee users... 

Now whilst traditionally, such variations in local versions of brands might have been 'kept where they belong' by harmonising prices and terms, in a well-travelled world where every little helps, it might be necessary to find a way of harmonising taste..

Accordingly may we propose the use of Taste-corridors..?

In the 'worst-case' scenario, the brand owner decides that one taste will fit all and pulls all global variations 'down' (?) to a common formula, in which case it had better be good...

In the 'Recommended Scenario' the extreme versions are gradually merged into a corridor that provides sufficient variation to satisfy some needs, saves face in the marketing department, and probably goes unnoticed by the bulk of users...

...until you try....

St Patrick's morning-after shop closure, a Reason vs an Excuse...

                                                                                              Galway, source Joe.ie

Hopefully, this valid reason for achieving a worthwhile life-work balance can provide an excuse for Mick to move to self-service...thus avoiding any perceived drop in service level!

Sainsbury's '3%' Net Margin going forward - the 'new' role for NAMs?

If Mike Coupe is acknowledging the end of 5% net margins in UK grocery margins, and implying a more likely 3% going forward, the issues for suppliers have to be:

- Can 3% Net Margins work?
- How can my brand help?

Essentially, as you know, the driver of share price increases is ROCE, and given that ROCE is a multiple of Return/Sales and Sales/Capital Employed i.e. Net Margin x Capital Rotation, then it matters little whether a business chooses to operate a high margin, low rotation, or a low margin, high rotation business model.

It is the combination that counts, and 15% ROCE provides an acceptable reward for risk...

Therefore, if 3% Net Margin is the retail 'norm' going forward, then the multiples need to focus on increasing their capital rotation - with the help of suppliers - in order to compensate for the lower margin in producing an 'acceptable' 15% ROCE.

Increasing Capital rotation i.e. Sales/Capital Employed i.e. increasing Sales and/or reducing Capital Employed

Given that the retailers are already doing everything possible to drive sales, we shall focus on ways of increasing capital rotation, a less costly option for NAMs:

As you know, Capital Employed = Fixed Assets + Current Assets - Current Liabilities

Fixed Asset optimisation:
Fixed Assets in retail means sales space, and helping the retailer to increase space productivity - i.e. sales/sq. ft. - has to be a way forward in making their Fixed Assets more productive, using £1,000/sq. ft. per annum as a benchmark.

This means increasing basket size, and trading up the shopper. This is where in-store theatre, and shopper marketing can play a role. It also means de-listing of any overlap and de-duplicating within the assortment in order to simplify the offering to increase its shopper-appeal.  This is what Dave Lewis doing via the 30% product cull...

Incidentally, all retailers will pursue this approach to a point where they begin to sell off unproductive outlets, or risk becoming uncompetitive. Hence the store culls in the pipeline...

Current Asset optimisation:
Currents Assets = Stock + Debtors + Cash
Here the emphasis has to be on Stock optimisation i.e. increasing stockturns, without compromising on-shelf availability. This means smaller, more frequent deliveries to produce annual retail stockturns of 20+ i.e. 18+ days stock. For a retailer, this results in less capital tied up in stock, less wastage/shrink, and faster throughput.

Current Liabilities optimisation:
Current Liabilities = Bank Overdraft + Creditors
As Current Liabilities are a negative, retailers should try to increase Bank Overdraft and take longer to pay suppliers, in order to increase their Current Liabilities. However, since the global financial crisis, retailers have been trying to pay down debt and reduce exposure, thereby closing off this option

Meanwhile, taking increasing amounts of free credit from suppliers has breached politically acceptable limits, and will probably be progressively reduced in the future, thus closing off another option for retailers.

Thus the NAM needs to focus on space and stock optimisation.

In other words, doing a little more of what you are already doing, but relating it more to the top-of-mind concerns of the buyer in the future, in terms of its direct impact on the retailer's ROCE and thus the share price...

...while others turn up the volume on their traditional selling points, as they await a return to normal...

Diageo U-turn on threat to extend supplier payment times - a step on the way to fair-play?

According to The Telegraph, Diageo has reversed its intention to extend the number of days it takes to make payments from 60 days to 90 days on all new contracts and tenders. In doing so, they have reduced the likelihood of being quoted by retailers as an excuse to extend their payment terms to a new 'norm' of 90 days...

However, this move again highlights the inadequacies of the Prompt Payment Code.

Whilst ‘Prompt payment’ and ‘On-time payment’ can focus attention on the pressures caused by extended credit, I believe that these conditions miss the point in commercial relationships. The issues are the length of time taken to pay, and that suppliers are having to contribute to the working capital of a customer by giving free credit in excess of the time taken for the customer to convert their output into cash i.e. Trade credit was originally intended to bridge the gap between supply of a product to a retailer and payment by a shopper.

In the case of supplier-retailer relationships, a retailer is usually more powerful than its suppliers and often has access to a number of different sources of supply for the same type of product. This means that the retailer is usually in a position to dictate terms of payment on a ‘take it or leave it’ basis, i.e. 30, 60, 90 or even 120 days, if they prefer.

Whilst the Prompt Payment Code has recently been strengthened by introducing a 60 day maximum payment term, and enshrining a 30 day payment term as a norm for all signatories as standard practice, the fact remains that payment period should reflect the time taken between delivery and resale in order to qualify as 'fair-play' trade credit.

In other words, different categories should have different payment times, e.g. Perishables should be paid for more quickly i.e. say 5-10 days, whilst goods that have a retail stockturn of 12 times per annum - 30 days stock - should be paid in 35 days.

With UK Multiples holding an average of 20 days stock, their average payment periods should not exceed 25 days...

Inconvenient convenience at Morrisons - an iceberg tip in retail property revaluation?

Morrisons latest results indicating the likely closure of 23 convenience outlets, coupled with the 25% write-down of its property portfolio is simply an overt acknowledgement that Bricks & Mortar UK retail is over-spaced.

Essentially, this means that given the emergence of the squeezed-middle issue, coupled with the development of online, physical retail space - and large stores in particular - are now not as valuable as before the global financial crisis. In addition, given that there are no alternative uses that can deliver sales of £1k per sq. ft. per annum, then the property values have to be written down to market value, in order to satisfy the auditors.

However, if all mults placed their redundant properties on the market simultaneously, market values would be driven down. Therefore actual property sell-offs will be gradual.

Incidentally, this means that in the short to medium term the mults will be in the market for innovative use of their redundant space via productive in-store theatre...

In addition, retail net margins are unlikely to rise in the flat-line price-cut future...

Meanwhile, as far as the stockmarket is concerned, the mults' fixed asset base is over-valued, meaning that the reduced net margin vs. excessive capital employed relationship is driving down the ROCE, and with it the share price...

Morrisons is simply grasping this property write-down nettle now, partly in readiness for the arrival of Mr Potts, whilst Mr Higginson is allegedly departing for the beach, hopefully leaving his mobile switched on...

Finally, given their Tesco heritage, the Morrisons' team will not have missed the fact of Dave Lewis' radical-cull moves to eliminate product/people/property overlaps in simplifying the Tesco onshelf offer.

The results are already coming through via increased growth for Tesco, and other retailers not implementing similar programmes, could find themselves left at the station, as the post-modern retail train gathers pace...  

The Tesco-Schweppes Pricing Spat - really about ownership of the Consumer?

In my early days in marketing, I was always surprised that my UK colleagues agonised for hours re every shelf-price increase of a few pence, whilst my continental colleagues focused on back margin and hardly touched on shelf prices. The answer came in a negotiation session with a major French retailer when a reference to shelf-price impact was slapped down with ‘when we buy your product, the selling price is our business. Now tell me about the back margin’…

In this era of post-modern retail – think game-changing 2007 financial crisis, a new world of multiplicity, diversity, contingency, fragmentation and rupture which accepts that we now live in a state of perpetual incompleteness and the permanently unresolved – an era where the 4x4 consumer has morphed into a basket-carrying shopper searching out daily bargains, and consumer-ownership has become the issue.

In other words, Tesco – and later the other mults – are simply clearing the decks, simplifying the offering and taking control of the shelf, especially pricing.

In terms of the consumer, if ‘ownership’ is defined by extent of knowledge, then retailers combining Clubcard and scanning data to produce a shopper-profile that includes name, address, age, sex, family structure, income-level, state-of-health, recreations and travel, dietary habits, insurance, debt-profile and bank-balance, have to have a greater claim to ownership of the consumer than a marketer knowing that the consumer is probably grey-haired and living alone on the outskirts of Oxford, two children having left home… This was a battle for ownership that was lost way before 2008.

In other words, we now have to accept that a retailer in the midst of a 30% product cull, and in the rifle-sights of the SFO and GCA, is not going to take any prisoners, much less tolerate any interference re how they market to ‘their’ consumer-shopper...

In reality, however, the consumer is now ‘ownerless’, savvy, willing and able to shop around, and is determined to accept nothing less than demonstrable value for money…

Welcome to the new world of post-modern retail…

120 days credit - when the customer makes you an early payment 'offer you can't refuse'....

Given the possibility that 120 days credit may become the ‘norm’, and the likelihood that retailers may offer ‘easy invoice’ arrangements for suppliers in need of cash, it may be useful to explore the financial options in advance…

In other words, when the choice amounts to 120 days net, or ‘early’ payment @ x% off invoice, what financing are we talking about?

Assumptions:
Annual invoiced sales to the customer/annum = £9.5m
Customer wants to pay in 120 days
Supplier wants to be paid in 5 days (after all, little point in going back to your current 40 days if you need money now)
i.e. a 115-day reduction in payment period

At 120 days, customer pays 3 times per year i.e. 365/120          

At 5 days, supplier wants to be paid 73 times per year i.e. 365/5                          

Amount customer owes when paying in 120 days
                                                = £9.5m/3          = £3.17m
               
Amount customer owes when paying in 5 days
                                                = £9.5m/73         = £0.13m
                                                   
i.e. Cashflow saving = £3.17m - £0.13m
                                                  = £3.04m

Say the cost of borrowing is 10% interest per year
Then the cost of borrowing £3.04m for a year
                                                  = £0.304m

Which is equivalent to 3.2% of supplier sales to customer
                                          i.e. £0.304m/£9.5m x 100%
                                                     
Then any extra discount above 3.2% is more beneficial to the customer than investing the money at 10%.

A 3.2% discount off invoice seems reasonable?
If the above supplier is making a Net Profit margin of 5%, then the £0.304m discount represents incremental sales of £6.08m, a mere 64% increase in sales to the customer, to recover the discount…

NB. Best check the above application to your latest annual results with Finance, before leaving the building…

Segment 7: The older savvy consumer – a need for understanding?

In our world of in-store theatre, with consumer-shoppers merely playing their parts during store visits, it might be useful to segregate them into seven ages for closer examination.

Given the increasing age-gap between older shoppers and those charged with meeting their needs, it might be useful to start with Segment 7, our older members of population.

By understanding the difference between their willingness and ability to buy, and taking into account the real factors determining their purchasing behaviour, it may be possible for suppliers and retailers to do more about optimising their store visits. 

The following extract from Nora Ephron’s ‘I Remember Nothing’ may provide new insights…

“In these days of physical fitness, hair dye, and plastic surgery, you can live much of your life without feeling or even looking old. But then one day, your knee goes, or your shoulder, or your back, or your hip. Your hot flashes come to an end; things droop. Spots appear. Your cleavage looks like a peach pit. If your elbows faced forward, you would kill yourself. You’re two inches shorter than you used to be. You’re ten pounds fatter and you cannot lose a pound of it to save your soul. 

Your hands don’t work as well as they once did and you can’t open bottles, jars, wrappers, and especially those gadgets that are encased tightly in what seems to be molded Mylar. If you were stranded on a desert island and your food were sealed in plastic packaging, you would starve to death. You take so many pills in the morning you don’t have room for breakfast.

You lose close friends and discover one of the worst truths of old age: they’re irreplaceable. People who run four miles a day and eat only nuts and berries drop dead. People who drink a quart of whiskey and smoke two packs of cigarettes a day drop dead. You are suddenly in a lottery, the ultimate game of chance, and someday your luck will run out. Everybody dies. There’s nothing you can do about it. Whether or not you eat six almonds a day. Whether or not you believe in God.” 

Nora Ephron: I Remember Nothing

120 days credit - a supplier own goal?

Yesterday’s Kamblog post re Lidl’s alleged request for 120 days credit raises some important issues for NAMs.
I believe that this first (?) move by a retailer in the UK is an unintended consequence of supplier attempts to reduce the cost of trade credit given to retailers by passing demands for extra days credit back up the pipeline to their suppliers...

In other words, the genie has been released from the 120 day credit-bottle, and we are now headed towards an era of universal 120 day credit.

Government intervention?
If governments are really serious about protecting small and medium sized enterprises, they will abandon the meaningless ‘on time payment’ condition and legislate to ensure that payment periods truly reflect order cycles and delivery frequencies, so that trade credit fulfills its original function - a bridge between buying and reselling..

Size of the problem - the calculations:
Say UK annual sales of Big 4 multiples   (2013/14)     =   £117bn ex VAT
Assuming average retail Gross Margins of 25%
Then Supplier sales to Big 4                                      =   £88bn ex VAT
Assuming average payment periods of 40+ days
Then retailers pay suppliers approximately 365/40 = 9 times/annum
Meaning the 4 retailers are holding a total of £9.8bn free credit from suppliers at any time i.e. £88/9
Assume cost of credit = 10%
Then it is costing the supplier base £980m p.a. to give interest-free credit to the Big 4
Which represents 1.1% of supplier sales i.e. 980/88,000 x 100

If the payment period moves out to 120 days, the same calculation shows that supplier cost of credit will move out to approximately £3bn, i.e. 3.4% of supplier sales…!

Action for NAMs

1. Why not calculate your current cost of credit for each of the four multiples?
2. Then calculate the cost to you of 120 days credit in each case, and the value to your customer in incremental sales….
3. Then ask yourself about the impact on your bottom line, and practice reverse-negotiating the difference...

It will still be tough, but at least you will be way ahead of the supplier-pack…

120 days, just a Lidl bit of extra credit?

According to The Sunday Times, Lidl UK are allegedly asking some suppliers to accept 120 days payment terms.

Apart from the usual cost/risk balancing act required in unprecedented times, suppliers have to ask themselves why the extending-credit option is now featuring so prominently in supplier-retailer relationships.

Given that a retailer's working capital is made up of bank overdraft and creditors (i.e. suppliers, mainly), minus stock, debtors (i.e. shoppers, mainly) and cash, when profits are under pressure, few squeeze-options remain.

With price-cuts obligatory, bank overdrafts expensive, stock rotating 20 times/annum, the retailer's only opportunity to supplement the bottom line is via extended trade credit - apart from selling off underutilised stores (!)

Obviously, some suppliers will try to pass the cost of additional credit back up the pipeline by taking longer to pay ingredients and services suppliers. But, given the difference in added value within supplier and retailer business models - ingredients cost a supplier say 10% of their trade prices, whilst retailers pay 75% of their Net retail sales for products - a supplier would have to take 10 times longer to pay, in order to neutralise the cost of trade credit given to retailers. So a supplier is only reducing some of the pain by extending their supplier payment periods to 120 days.

However, the real issue is the need for fair payment - based on order cycle time i.e. the gap between delivery and payment by shopper - rather than the current justifications such 'on time payment' in compliance with current legislation, and trading 'norms'.

With some major suppliers moving to 120 day payment of their suppliers (see Ad Age, KamBlog) there is a very real danger that a new 'norm' of 120 days (4 months!) is being established by suppliers(!)...and retailers would be unwise not to move to this new credit period 'norm'.

In fact, it could be said that Lidl UK are simply first out of the frame, again...

Tesco - playing the waiting game

Given the amount of uncertainty in the Tesco pipeline - Product cull, SFO Commercial Income investigation and GSCOP checkout - it is tempting for certainty-seeking NAMs to await the output from each initiative before incorporating the results into their trade strategies...

This is almost as dangerous as ignoring their existence and ploughing on regardless, using the tools and skills that were designed to work - and did so effectively - when markets grew steadily at 5% in real terms!

But five years of flatline demand was never anticipated or budgeted for...

Pragmatic NAMs don't need to wait for inevitable conclusions - they take informed guesses at what will affect them and act now. They thus gain while others sit and wait.
OK, perhaps others stand and wait - looks better, but is no more productive.

Informed guesswork:

- The Tesco Product Cull - a mix of surplus products and sub-categories of up to 30,000 SKUs, eliminating those items that do not represent a sufficient point-of-difference to justify a place in the slimmed-down Tesco portfolio. If you have any doubt, consider it out...

But even if your brand is on the plus-side of marginal, consider whether it is worth trying to break through to the guys making the cull-recommendations, or is it best to devote your energies to establishing alternative distribution, before the lanes get jammed with other NAMs' cars...

- SFO Investigation - a long drawn out exercise that will hopefully result in a set of clear definitions of trade investment buckets, their purpose, their time-of-value transfer (to allow for defensible booking and auditing), and - without doubt - paid on results and in arrears...

Meanwhile, busy buyers will be tempted to pull these payments into front margin and possibly fund deep-cut prices with the 'surplus' profit.

- GCA Investigation: This will focus on Tesco's compliance with GSCOP in two areas:
Part 4 (paragraph 5) of the Code: No delay in Payments;
Part 5 (paragraph 12) of the Code: No Payments for better positioning of goods unless in relation to Promotions.

Whilst it is possible that Tesco may have been moving so fast in recent years that inadvertent breaches may have occurred, the GCA is still reliant on hard evidence of non-compliance with the letter of the Code, in order to pursue a case against a retailer.

Only when retailers and suppliers can be persuaded to define and comply with the fair-play spirit of GSCOP will the CODE become a day-to-day working tool* in the supplier-retailer relationship. The reference in Part 4 (paragraph 5) to 'payment within a reasonable time after the date of the supplier's invoice' goes part of the way, but 'on time' payment - whatever period has been 'agreed' - is still the 'letter-of-law' guiding principle for retailers...

KAMtip:
Assume that the three initiatives have panned out as indicated above, and take appropriate action now

* Making GSCOP a workable tool in the day-job for suppliers and retailers:
Why not submit your ideas to the GCA Team on what would make the Code represent fair-play? 
This would represent no 'whistle-blower risk' but could help in establishing a basis for a Mark 2 Code that might better reflect the realities of joint-partnership, with willing compliance a given....  

David Potts completes the 4-man solution to Morrisons rebirth

The combination of Higginson, Strain and Potts with hopefully silent partner Morrison, sharing a philosophy of down-to-earth common-sense retailing and their Tesco-in-common experience, constitute a grounded team that is hopefully well poised to implement Dalton Philips’ breakthrough strategy…

Appointed to pull Morrisons into the 21st Century via an injection of IT, global vision and democracy, Philips managed the five-year programme of heavy lifting, but was undone by the middle-squeezing impact of Waitrose and the discounters, at a time when a return to basics was required in retail…

In the interim, with his pragmatic approach, Andrew Higginson has reduced the Morrisons’ message to basics and will probably go for growth via a shift from back to front margin, a focus on pricing and optimisation of his familiar like-minded CEO.

The new team will build on Philips’ improvement in operating systems, and moves into convenience and online (with possibly a re-assessment of the small-print of the 25-year Ocado contract...).

Within the business, the new chairman and CEO will sound and feel like Ken Morrison, which will not only provide internal reassurance, but will also ensure a couple of years’ silent tolerance from at least one key shareholder…

Back to the future for Morrisons?
Meanwhile, NAMs need to anticipate a return to the old Morrisons, but manage a retailer that is super-charged with the benefits of a visit to a future that was found to be not all bullshit….

The Tesco Cull - where does this leave product innovation?

Time was when getting a new product listed had to overcome the ‘we don’t have rubber-shelves’ barrier, allowing us to put forward a magnanimous offer to cull one of our current lines that was patently well past sell-by…

The key difference now is that the shelf is also being ‘shortened’…by up to 30%, to be precise…

This puts us in a whole new ball-park, given that one part of Tesco (via a third party) is busy finding ways of eliminating current lines /categories, seemingly without buyer intervention, whilst the buying team are presumably attempting to operate in a ‘business as usual’ environment..?

In other words, a new product now needs to represent a spectacular leap forward, in order to make a real difference. Moreover, given that the emphasis in Tesco will be on front margin, the usual trade investment package will carry less weight.

This means that the product will probably have to succeed elsewhere, i.e. via one of the other mults, proving that it deserves a place in the market, in order to enhance its Tesco-appeal, but at the same time denying our No 1 retailer the traditional innovator’s advantage… 

Hopefully, these mental gymnastics will help NAMs to think fundamentally about the meeting of real consumer need, better than available competition, and allow them to refine a bespoke trade package that really stands out in the marketplace, and proves it in practice…

Allan, key to the Tesco fine-tune?

If we assume that much of the heavy lifting has been completed at Tesco (???), then the appointment of John Allan has to be about tightening the bolts on the Tesco rebuild.

True, the SFO and GCA issues are still in the pipeline, but if the broad procedures anticipating their inevitable outputs are not already in place, then we are all in trouble...

Moreover, pro-active suppliers will already have anticipated the outcome of the Tesco product-cull (think obvious over-laps by function, undifferentiated me-toos, products that are in the assortment because of back margin, rather than consumer demand, and slow-yielding 'experimental' products outside the core Tesco offering) and pushed on half-open doors elsewhere...

So that leaves John Allan's probable MO:

Taking some key features of an Allen-key might provide some pointers:

• The tool is simple, small and light: an essential requirement in fine-tuning...
• The contact surfaces of the screw or bolt are protected from external damage: See Contract of Employment 
• There are six contact surfaces between bolt and driver: Having ensured driver-bolt fit, little scope for slippage in addressing problems
• Torque is constrained by the length and size of the key: Hopefully, given the retail experience, little danger of over-doing the treatment
• Very small bolt heads can be accommodated: Even minor issues will receive attention, just-in-case...
• The tool can be manufactured very cheaply, so one is often included with products requiring end-user assembly: "If the tool is right, don't ask the price..."
• Either end of the tool can be used to take advantage of reach or torque: A need to bend over backwards for sensitive issues?
• The tool is L-shaped: Perfect for current flat-line environment (An L-shaped recovery involves a sharp decline in key metrics followed by a long period of flat or stagnant growth).

Finally, remembering that we are still talking about Tesco, with a variety of heritage problems that may resist first attempts, the tool can be reconditioned using an electric grinder by removing the worn-out part, and then works like new...

* Apologies to the Allen Manufacturing Company of Hartford, Connecticut...

YouTube 10th Anniversary: How the Video Streaming Site Changed your Audience Gateways..., hopefully?

On St Valentine's Day, 10 years ago, Chad Hurley, Steve Chen, and Jawed Karim, three former employees of PayPal, registered a new company devised around a simple idea: that there should be one website where people can upload and watch videos.

In an era of increasing media fragmentation, amidst falling TV viewing figures, well-targeted YouTube content provides an unprecedented means of engagement for marketers everywhere.

According to The Atlantic, YouTube is now the third most viewed website in the world, boasting over one million viewers who watch more than six billion hours of footage each month. Each minute, users upload 300 hours of video to YouTube's servers.

Whilst amateurs strike lucky with worrying frequency, it can be a relief to NAMs to realise that 29 of the site's 30 most watched clips are professionally produced music videos.

In other words, the access process is easy, but getting attention requires skillful, creative targeting and professional execution...leading the consumer to NAM-engineered fulfillment at point-of-sale...

Getting it wrong upfront will not matter, in that your YouTube output, if it even floats, will quickly sink without trace. The real pain results from seeing a competitor that has managed to strip their offering down to the bare essentials, and succeeded in touching a consumer-nerve more effectively than available alternatives, race off the shelves....

In an ocean of distracting content, in unprecedented times, the consumer wants simplicity, clarity and a way of buying optimally, with all excess removed...

What else do you think is happening at Tesco?

St Valentine’s Day passing of Nutella-man

Saturday saw the death of Italy’s richest man, Nutella billionaire Michele Ferrero (89).

His father Pietro’s great idea in the scarce post-war years was to create a chocolate-like sweet using cheaper hazelnuts, which were abundant in the countryside around Alba, instead of expensive cocoa.

He is alleged  to have been so excited at the discovery of the successful recipe that he woke up his wife at midnight - she was sleeping - and he made her taste it with spoons….

No record exists re what happened next (!), except to say that his idea resulted in a new blend where a kilo of so-called “pasta gianduja” cost the equivalent of 30 cents in today’s money compared with €1.50 for a kilo of chocolate.

Michele Ferrero’s privately-owned firm is now famous for Nutella spread, Ferrero Rocher chocolates, Kinder eggs and Tic Tac sweets, turning over €8.1bn in 2013.

‘Never patronise a child,’
Ferrero’s greatest skill was knowing what children want, and never talking down to them, a strategy that anyone with savvy grandchildren will endorse…. Ferrero started in the family business when he was 20 and was leading it by 32, growing by undercutting the fine chocolates market with products that boasted “more milk, less chocolate”.

A simple idea, consistently applied and value that is obvious to all...

A template for re-newing Tesco?