'Caveat emptor' has morphed into 'caveat venditor' - why ‘seller beware’ is the new mantra for savvy consumers..

Today’s news that the Competition and Markets Authority (CMA) plans to take action after its investigation into misleading supermarket promotions should not be news, except in that it signals a significant shift in responsibility from buying to selling…

In other words, for many years sellers have relied upon the ‘letter’ of the law in terms of leaving the responsibility for checking match with consumer need to the purchaser, rather than the ‘spirit’ of the law whereby a savvy consumer expects to receive what it says on the tin, at least…

•   The real issue is why retailers need to learn about consumer trust the hard way?
•   To say nothing of the basic Tell-a-friend formula in junior selling school:
            -  Exceed Consumers’ expectations and they will tell a friend..
            -  Short-change them and they will tell 10 friends…

In other words, in a world of savvy consumers, caveat emptor has truly morphed into caveat venditor…courtesy of the new Peoples' Champion - the government!

Asda Move Closer to Walmart - the two-pat approach to ‘Save Money, Live Better’

Further to NamNews' report on Asda's Overhauling Of Its Brand To Bring It More In Line With Walmart, NAMs might benefit from a deeper dig into where Walmart are headed in coping with Aldi/Lidl, and online competition like Amazon Fresh.

In fact, Walmart Food EVP Steve Bratspies' recent presentation to the Bentonville Bella Vista Chamber’s WalStreet (sic) supplier group gives considerable insight re Walmart's food plans, and by inference, a view of where Asda is headed.

Five building blocks that will remain
Bratspies outlined five customer promises that are foundational to Walmart’s strategy in the midst of these shifts.

• EDLP – Price is still “the decider,” even as the bar is being raised across other customer criteria.
• Quality you can trust – Customers are smart enough to expect one-dollar quality on a one-dollar item but won’t tolerate one-dollar quality on a five-dollar item. Quality is defined by the item being purchased.
• Everything you need – Despite its forays into small formats, Walmart is still very much in the supercentre business and is invested in facilitating a one-stop-shopping experience for its customers.
• Happy to help – Of Walmart’s three sub-promises (a fast, clean, and friendly shopping experience), friendliness makes the biggest difference at the end of the day.
• Shop your way – Customers must be able to access Walmart online from any device and from multiple locations.

Walmart's Growth Game Plan
1. Win in fresh
2. Re-energize the centre of the store
3. Expand physical-to-digital integration
4. Win on the fundamentals

Above all, Bratspies encouraged global suppliers to bring great ideas from other markets, empowering Walmart-facing teams to make decisions and “come sell us stuff”, pointing out that that their buyers are there to buy.

In other words, make a point and back it up with the numbers...we are listening like never before...

Hat-tip to Carol Spieckerman via Pete Louree and Spencer Booz

Tesco £40 minimum delivery spend, an each-way bet on basket-size?

Their new £4 surcharge on orders below £40, in line with Asda and Sainsbury’s, means that Tesco are crossing fingers that a sufficient number of core £25-users will either pay the surcharge or raise their order-quantities to £40+…

In practice, they are taking the basket-size route to fulfillment-cost amortisation vs. the blanket-distribution approach of Amazon i.e. delivery density – try tracking your next Amazon parcel and be impressed by the number of local deliveries your driver makes en route to your door.

The Tesco numbers look like this:

Order size £25
Tesco gross margin say 25%, i.e.       £6.25
Delivery charge, say £4                      £4.00
Delivery surcharge - £4                       £4.00    
Approx. cost of order fulfillment say £20.00

An improvement, but Tesco still loses say £5.75 per order

Order size £40
Tesco gross margin say 25%, i.e.  £10.00
Delivery charge, say £4                 £4.00
Delivery surcharge - £4                   £0.00    
Approx. cost of order fulfillment say £20.00                                          

Tesco loses £6 per order (i.e. needs incremental sales of £24 to cover the loss)

In fact, apart from increasing the base delivery charge, Tesco’s only route to break-even is via its gross margin i.e. say 25% of goods sold. This means they would need to increase the minimum basket-size size to £64, to break even on a delivery.

If Aldi enter the home-delivery race, my bet would be on them taking the localised delivery-density route, if Amazon don’t beat them all to it….

Kingsmill is back on the shelves at Tesco - Life after Re-set?

News in This is Money that ABF has managed to persuade Tesco to take back its key Kingsmill 50/50 bread, a blend of white and wholemeal flour, indicates that in the right circumstances, some re-set moves can be reversed.

Given that Finance Director John Basson could only make minimal reference to the move: ‘The Kingsmill bread line was taken out of Tesco but we are not going to get into the detail because it was a sensitive commercial agreement’, it is reasonable for NAMs in other categories to assume that Kingsmill made a successful, demand-based case for re-instatement.

Given the scale of the initial cull, it was always obvious that a 30,000 SKU reduction would mainly focus on product overlap and duplication and miss some gems in the process. What is encouraging to discover is that there are ways back in, for products in genuine demand, 'packaged correctly'...

If you are still awaiting the re-set email from Tesco it might be wise to revisit your current Tesco listings, re-assess SKU appeal and prepare for a fast response.

Our guest-KamBlogger Wayne Robinson offers three ways forward:

1. Lurch into analysis mode...deep diving in to category data...ranking ros...etc It's not only the market/consumer data that will be swaying decisions about products on the shelves; there will be a financial element to this too.
2. Use your research and insight to bring products to market that are focused on consumers' needs and have a true usp that add value to the category...otherwise known as innovation. In other words, try to identify the 'gems' in your assortment
3. Channel diversification. No manufacturer should be overly reliant on any one customer. In other words, anticipate the obvious and try to optimise other routes to consumer, for products that are worth it.

Finally, it is worth bearing in mind that whilst some shops will be casualties, Tesco are unlikely to close down aisles, meaning there will be new opportunities for real innovation, as Tesco attempts to optimise redundant space...

'packaged correctly'? It can be assumed that a key criterion for a brand's success in a financially driven demand-based Tesco, has to be an appropriate combination of shelf-price, margin, support and credit period. In other words genuine consumer appeal, in a suitable financial package....

Retailers have yet to truly connect with mobile shoppers - traditional retail missing another trick?

An article by Samanta Edwards over at The Wallblog examines new research on mobile-shopper optimisation (Window on Connected Shoppers - a free 20 page report on converting connected shoppers into buyers).

With one in three of the 30% of smartphone owners that have used their smartphone to shop in the last month, only one in ten of them regularly use apps as part of the purchase process – suggesting that retailers are failing to provide the right content.

In fact, according to the research, in-store smartphone users utilised their devices for:

• sharing ideas (47%)
• comparing prices (29%)
• product information (20%)
• sharing photos, taking pictures as a reminder, store location and browsing (with no intention to purchase) were all cited by 17% of respondents

As always, the problem is not that most retailers are missing the mobile trick, but that a select few (Apple, Schuh) are setting and making new standards in customer-connection work, and have to grow at the expense of old-fashioned retail competition, especially in the case of in-store mobile purchasing...

In other words, these physical retailers have managed to get live mobile-consumers into their stores, and are failing to see that online completion of the mobile journey is still a retail sale....

A 3-in-1 sign of the mobile times?

                                                                                    pic: B Moore, Greenwich High Street, 8-07-2015

Offline limits to online growth: Is click-and-collect 'cannibalising' retailers?

Given that the cost of fulfilling an online order is approximately £20, and market willingness-to-pay appears to have an upper limit of £5 per delivery, it is obvious that a retailer loses £15 per online order.

Charging for Click & Collect merely addresses the 'front end' of this problem in terms of covering some of the real cost of the 'final mile'. It also means that John Lewis introduction of a  £2 charge is possibly adding to the problem by giving the impression that a home delivery option is worth the difference - £3...

Meanwhile, for a Bricks & Mortar retailer in a virtually zero-sum flat-line environment, any scale advantages will be neutralised by increasing redundancy of physical space.

With Click & Collect growing at 20-30% per annum, the real issue for retailers is that the growth of their online business not only cannibalises their regular in-store sales but also causes them to lose more money as online sales increase.

In a flat-line demand environment with market share increases having to come at the expense of the competition, it would appear that major physical retailers are in a race to the bottom in terms of profitability.

Meanwhile, Amazon and other pure-play online retailers will grow at the  expense of physical players until a point is reached where even their growth is limited by consumers' refusal to pay adequate rates for order fulfillment.

For suppliers, this means that having managed to take the GSCOP-route out of the extremes resulting from dealing with the Big 4 multiples, we may be unconsciously accepting the even tighter harness of the online route to consumer...

In other words, with the benefit of hindsight, it might be wise to anticipate, prepare for and negotiate fair share dealings from the start, rather than require a Mk.2 GSCOP rescue sometime in the future...

Retail queue optimisation - or how to burn a mink coat safely...

                                                                                                    pic: Kim Stallwood

According to The Telegraph, the UK population is losing the ability to form an orderly line, in that companies are developing new technology to make queuing more efficient or eliminate waiting altogether.

In fact, dedicated tennis fans join the famous (or infamous) Wimbledon queue every year and, for many, waiting in line has become almost as enjoyable as the tennis itself.

However, this may become increasingly exceptional.

In fact it is estimated that British retailers lose almost £4,000 a day because people are put off making purchases by queues.

The article goes on to detail initiatives by John Lewis aimed at to shortening queues for "click & collect" parcels, sensors embedded in trolley wheels, Barclaycard Anywhere’s device that eliminates the need for receipts and cash protection in-store, and provides a number of pictorial examples of potentially redundant traditional UK queueing…

Speaking of which, despite having a low tolerance limit for any form of queueing, I did spend 15 minutes in a sale-queue outside a major London store, back in 1979..

A neighbour of mine had decided to queue for 5 days to secure a mink coat reduced from £795 to £79, which she planned to burn in an animal rights protest.

Details here & here

I was working in Oxford St on Fay's fourth day and decided to join her in line and keep her company for a while. She was delighted to see me (!) as she apparently had some technical issues to resolve i.e. how to ensure the coat burned quickly. I assured her that my expertise was limited to retail buying and selling, but decided to practice my listening skills for a moment…

I asked her what she planned and she told me about a bottle of petrol she had about her person, intending to sprinkle it liberally, etc.

I cautioned her that unless she intended to make the ultimate sacrifice, perhaps draping the coat over a nearby wire waste-bin (pic) would suffice…thus ensuring a 100% success in terms of media coverage, and my little place in history…

For the NAM in a hurry...

See the Cargo-Runner, and how it works, here ( BBC )

Are your media strategies keeping pace with market realities?

                                                                    Pic: B Moore: Olympia 27-06-2015

The case for Shopper Marketing, packed in a conundrum?

We somehow break through the apathy - at great expense in terms of time, money and people - in unprecedented times, within a flat-line demand environment, at a significant price disadvantage in a cut-throat environment, manage to get our brand considered as a fleeting alternative, and motivate the potential consumer to move towards the nearest store.....

Only to leave them to their own devices at the door.

They then have to find their way to our part of the store, cope with the confusing appeals of the category's competing offers, including private label, all subject to the inevitable 'cool-off', even if our offer presents on-shelf as intended...

"I cannot forecast to you the action of the brand owner. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is the brand's need for 110% consumer satisfaction."
(with apologies to Mr Churchill)

The GCA-GSCOP five-issue approach to optimisation of supplier-retailer relationships.....

Some indication of the steady progress being made by the GCA can be gleaned from the latest YouGov survey (here), but nothing beats participating in yesterday's 2nd Annual Conference, a unique mix of Sales, Finance and Legal stakeholders, all sharing a common interest in optimising the supplier-retailer relationship.

(NamTip: key for NAMs to have a detailed knowledge of GSCOP in order to fulfill their co-ordinating role re the major customer)

At the start of the GSCOP process, the GCA was faced with what could have been an overwhelming number of potential issues. However, by focusing on a rolling five-issue 'hit-list', Christine Tacon was able to help both suppliers and retailers focus on a manageable set of issues within GSCOP as follows:

Top Five Issues:
1. Consumer complaints (processing charges by retailer) - New (in discussion)

2. Delays in payment (failure to pay suppliers within agreed time periods) - New (in discussion)

3. Forecasting/service levels (issues arising re forecasting and call-off/delivery) - Live (currently under discussion with each party)

4. Requests for lump sums: (see GSCOP) - Live (currently under discussion with each party)

5. Packaging & design charges (possible excess over market rates) - Live (currently under discussion with each party)

Forensics: third party audits (2 year limit on claims) - Closed (meaning agreement has been reached on process and  interpretation. Any further instances will be regarded as in breach)

Drop and drive - delivery performance:
(issues around possible discrepancies between deliveries and receipts - Closed (see Forensics)

As can be seen above, given that two issues are 'Closed', five issues remain. At yesterday's conference it was announced that the Consumer complaints issue is now closed. This means the GCA is now in the process of prioritising a new issue, to be determined by degree of relevance to suppliers/retailers i.e. your opportunity to submit details of perceived breaches either directly to the GCA, or via your trade association.

It has taken many years to reach this point in the evolution of supplier-retailer relationships. The application of GSCOP is now gathering momentum but still requires 'proof of purchase' in order to access the benefits

Your input can help...

NB GCA Conference: Speaker presentations now available here

Tesco Express-cashback?

                                                                                                                                               pic: Mirror
Police hunt robbers after supermarket cash machine blown off wall with explosives at Newtonhill Tesco, Aberdeenshire

Restructuring for the new UK retail trade environment

With all attention focused on the structural changes occurring in UK retail, in particular the growth of the discounters and Waitrose at the expense of the Big 4, in a flat-line market, very little attention is being paid to the most obvious of knock-on implications, the need for some adjustment in how we manage this new mix of retail routes to consumer…

At current rates of large space redundancy, the economics of selling off ‘spare’ space – at a rate that forces buyers of the property to achieve sales intensities of £1,000/sq. ft.+ to justify the investment, the resulting property lock-in prevents major retailers from scaling down to the smaller, closer convenience outlets demanded by consumers shopping more often in smaller quantities.

This has to result in a gradual loss of market share from Kantar’s current levels of 73.5% for the Big 4, to a combination of the discounters, Waitrose, online and emerging formats. Incidentally, even if the Big 4 retain their fair share of online growth, online success does little or nothing to address their bricks & mortar surplus issues…

This has to result in losses in market share for the Big 4 – the only issue is the point of settlement..

All of this means that the requirements of the UK NAM role are changing, along with the relative importance of the Big 4 in supplier portfolios.

Time for a market-led change of emphasis at NAM level? 

Subscribers can access the implications and options for NAMs in the June issue of NamNews.

Waitrose 'pick your own discount' scheme - a further move from Back to Front margin?

Waitrose has introduced a new personalisation initiative instore and online called ‘pick your own offers’ to keep up with the competitive grocery market.

myWaitrose loyalty card holders will be encouraged  to select 10 products that they would like to save 20% on, from 1,000 own-label and branded goods (staple items and more luxurious treats).
Whilst Waitrose unique initiative democratises the discount-choice, the issue for suppliers has to be the removal of control from a classic back-margin driven bucket, to a 1,000 product pool of Waitrose choice, and ultimately the discretion of the shopper…

Not what was intended in supplier strategies, but perhaps the ultimate in meeting shopper needs?

...and if successful in terms of traffic driving, a pointer for other retailers?

BTW, if you feel more secure with traditional back margin utilisation, it may be worth checking your category promo-profitability rating in Nielsen's latest interactive Win-Lose survey of promo-breakeven results

Supermarket re-sets, an overdue cull of the obvious? A Guest-KamBlog from Wayne Robinson

First we had Kingsmill as a big brand casualty. Followed quickly by Rachel's Organic. Topped off by news that Cott have just been displaced in Tesco.

The range culling could take up to 18 months according to Jason Tarry at the IGD Tesco trade briefing.

That's 18 months of pain, and 18 month's watching the merry-go-round of brands and tertiary players being displaced in one retailer and (hopefully) winning in another retailer. It will be interesting to see how the brand distribution landscape looks at the end of the process. This industry "re-setting", whilst fascinating to observe, will undoubtedly have a far reaching and lasting impact, and not necessarily for the better for some manufacturers.

Certainly sme's at the other end of the manufacturing scale must be feeling very exposed. Research from Begbies Traynor highlighted over 1,400 food manufacturers were in "distress" - a rise of 94% yoy. The likely causes being the fall-out from the price war centered around the LAD's. Who knows what those numbers will look like once the full effects of the impending range changes kick-in.

So how do manufacturers respond to this next wave of turmoil and capitalise on the inevitable opportunities that it will throw up?

Could I suggest three ways?

1. Lurch into analysis mode...deep diving in to category data...ranking ros...etc. Am sure that it will help, but it feels a bit late for doing that...if you have a duff product with low ros then it shouldn't be on the shelf in the first place, and you have to accept that your days are numbered. (Dave Lewis stated at the IGD trade briefing that 20% of sku's in an Extra store were only selling 1 pack per store per week. Gulp.) Let's face it do we really think that Kingsmill, Rachel's and Cott didn't put the data in front of Tesco? It's not only the market/consumer data that will be swaying decisions about products on the shelves; there will be a financial element to this too.

2. Use your research and insight to bring products to market that are focused on consumers needs and have a true usp that add value to the category...otherwise known as innovation. Pret recently claimed in their annual results that innovation was a major contributing factor to their record results. We are so in need of some new news on the supermarket shelves to inspire us back in to shopping and move us all away from the price point paranoia that is taking the entire industry down a one-way street. Great article here highlighting that consumers are still searching for those exciting products...but struggling to find them, other than in specialists shops. Go figure.

3. Channel diversification. No manufacturer should be overly reliant on any one customer. There needs to be an acceptance that business with specific customers will ebb and flow; if you have a wide enough customer base then your overall sales will continue to grow and expand. There are plenty of growth opportunities outside of the grocery channel. Develop a plan, prioritise, and go forth and broaden your customer base!

With 30% of the range coming out of Tesco there is going to be some unpleasant fall-out. And whilst the remaining range will benefit from more space and perhaps more distribution, in the larger store format especially, there will still be plenty of opportunities and space for exciting and relevant new product development - Jason Tarry has made it clear that Tesco still want to have a market leading choice of products...and with Tesco claiming a renewed focus back on the Tesco brand, then this might be the saviour for many manufacturers looking to plug sales gaps.


Wayne Robinson - wayne@wayne-robinson.uk

The 8 Variables making every retailer a Big 4 competitor, and every consumer ‘the Boss’

Time was when the ‘available alternatives’ in retail competition were the remaining Big 3 for any of the four major players in UK retail, and every other retailer worried about the Big 4….

Now it could be said that the consumer enjoys 100% access to any way they choose to buy, whenever they want…

This means that all retailers compete with one another, in a zero-sum game - total available demand - with international online generating worrying amounts of leakage at the edges….

In practice the variables - the bases for comparison – include:

Products & Assortment: ‘I need access to any size, shape or variant - someone will provide…’ 

Pricing: ‘I want to have this for whatever, whenever, however I choose to pay…’

Promotional activities: ‘I may need help in making my choice, but I believe nothing’

Place i.e. store location: ‘I need to be able to reach out and buy one, ideally via the nearest button…’

Personnel: the ‘people interface’ becoming a liability?

Physical distribution & handling: ‘I don’t want or need to know…’

Presentation of stores & products: ‘If I choose to visit, it had better be my version of good'

Productivity: ‘ If you cannot make money in competition with my 100% access, that’s your problem..’

Retailers no longer have any real choice, and it hurts..

This new ‘retail’ reality also raises a fundamental issue for brand suppliers: we cannot be everything, everywhere, what are the cut-off points within our current business model?

As brand suppliers, we have the advantage of a little warning re this fundamental change in consumer democratisation - the arrival of Sam Walton’s ‘consumer is boss’ realisation - via the retail turmoil occurring further down the supply chain..

Best we anticipate the changes required, before the consumer makes them on our behalf…

Missing the obvious in urban evolution?

                                                                                                                         pic via BBC
Cycle lanes for protection from cars...
Pedestrian streets for protection from cars...
and now, texting lanes for protection from cars...
Begging the obvious question: Why not ban cars?

Complex times in retail need grown-up answers - ROCE can help...

Back-margin funding of deeper price-cut by the Big 4?

The Telegraph today highlights a new report from Moody’s that says Tesco, Sainsbury's and Morrisons 'can't afford more price cuts', with sales and profits set to fall for another 12 to 18 months…

In other words, there has been some retrieval of customers, but the cost has resulted in margins being reduced by half since fiscal 2013/4....

However, this assumes that supplier trade investment has been used for the purpose intended i.e. in-store motivation of the shopper.

What if the retailer decides to switch a significant amount of back margin into price-cutting?

In practice this could work out as follows: Say suppliers contribute trade investment amounting to 20% of their turnover, to a retailer on 25% retail margin. This translates into 15% of net shelf price.

If the retailer decides to allocate say 5% for ‘back margin’ purposes, this frees up 10% of net sales that could be used for a combination of further price cuts and supplementing the bottom line….

This raises a number of issues for suppliers:

• Would you even know it had happened? i.e. Have you got updated T&Cs in place for each Back Margin bucket, along with appropriate KPIs?
• How ready are you to re-evaluate each element of your trade investment, confident in your ability to quantify the cost, and demonstrate the value to the buyer, using the retailer’s latest financials…?

These unprecedented times still have a bit to run, can you afford to sit it out?

Tesco South Korea Sale - an urgent deep-cut to UK resurgence?

                                                                                                    pic: South Korean flag with definitions

With six potential bidders apparently in the frame, it is possible that Tesco could raise £3.9bn from the sale of South Korea Homeplus. Whilst any retreat from a retail market makes a return difficult, recent market indicators reveal that retail sales have been slowing, possibly because South Korea now has nearly one hypermarket per 100,000 people, twice the industry ideal of one per 200,000.

The real issue is the extent to which Tesco is prepared to redefine core as UK, Grocery, Physical and Online.

This means they could cut back everything – all overseas operations, non-grocery categories and any stores that fail to deliver acceptable profit – to rebuild their Balance Sheet around a 25% market share, ROCE 15%,and 5% Net Margins.

A 25% market share would mean they could operate below the radar - farmers, special interest groups, politicians etc. – generate acceptable rewards for risk, create a stable, dominant base in the UK and gradually go global again…

Just-in-time?
As the Motley Fool says: … if a successful disrupting alternative (like discounters) in a market gains traction its growth can pyramid exponentially…

In other words, Tesco’s unhelpful little discounter issue could become unbeatable tomorrow…

When the buyer wants the smart-shirt off your back - a variation on Back-to-Front margin?

Step-improvements in supplier-retailer relationships notwithstanding, and despite high level assurances of progress from pre-financial crisis days i.e. suppliers are now 'our best friends', NAMs may be puzzled to find that on occasions, some buyers may still want the shirt off your back, literally....

However, rather than being a variation on Back-to-Front margin, this may simply be a reaction to the launch of the Ralph Lauren Smart Shirt;

Sensors attached to silver threads inside the shirt pick up the wearer’s movement data as well as heart and breathing rates, which can be monitored on an accompanying smart phone app and, potentially, uploaded to the cloud for analysis, via the shirt's removable slightly-larger-than-credit-card-sized Bluetooth transmitter.

We all know that a wealth of data is generated in the average buying meeting – not just in what is said, but who says it and the manner and tone of voice in which they say it. The smart shirt therefore represents an obvious leap forward for a buyer wanting to compensate for possible shortfalls in body language interpretation skills, and wishing to gain a competitive advantage before GSCOP adds an appendix...

NAMtip:
NAMs wishing to remain leading-edge can anticipate and circumvent this latest buying tactic by purchasing two smart shirts, wearing one in an extremely relaxed, non-pressured social situation and covertly swapping the card transmitter during handover of the 'selling-shirt'...  

HT to Tim Manasseh for pointer to article

Boots new single 2-way trip travel insurance for 115-year-olds, ideal for Ryanair travellers that need a name-change?

According to The Guardian, Boots has raised the upper age limit on its single-trip travel insurance policies to 115 years, effectively insuring anyone regardless of age, but only on a single-trip basis..

Meanwhile, the Independent reports that a passenger changed his name by deed poll because it was cheaper than Ryanair's penalty for altering a booking that got his name wrong...

I am sure both companies have factored in the possibility of a very senior citizen making an outward journey in his new name to a little-known out-of-town Ryanair airport, enjoying an unforgettable but distracting holiday before checking in under his old name for the return journey, stopping half way to the departure-gate for a mental re-boot, and then not being able to remember whether he was coming or going?

...and not forgetting the confusion at airport security....

The £1 Cafe - Austerity biting, or meeting a market need?

                                                                                                                         pic: The Guardian

According to The Guardian, Fitzrovia’s new Caffix cafe is drawing in Londoners looking for an affordable lunch option by charging just £1 for all items.

From avocado and chicken baguettes to pots of curried chickpeas, quinoa salad or pesto pasta with roast beef, all cooked on site, Caffix cafe on Newman Street sells food for a fraction of the price that they would normally spend in the heart of capital.

Simple scalable idea, almost as impossible as setting up a Pound Shop in sophisticated UK retail...

Thinking of which, a possible service extension for Poundland?

For the Maturing NAM - all your daily medication in one pack!

                                                                                                       Source: PillPack Inc. via Bloomberg

According to Bloomberg, PillPack Inc have raised $50m to build a better online drugstore with a simple idea: dividing up customers’ pills by the time and date they should be taken.

Following its launch of the ‘daily’ service in February 2014, PillPack (see video here) has delivered over 1m packs by focusing on routine prescriptions and OTC products.

An obvious plus for an ageing population on an increasingly complex mix of medication, reaching new levels in convenience, and inevitable lock-in for satisfied users.

The issue for suppliers might be possible loss of the pack-to-patient connection

The only question is whether Walgreens-Boots and CVS can organise to replicate the service, cheaper…

Coming to a hall-door near you - Amazon on-box advertising!

                                                                                                                          pic: www.geekwire.com

Story here

Apple Stores $4,500/sq ft/annum, strategically designed for optimum productivity

Over 15 years Apple have evolved a layout that beats all other retailers, key details at Business Insider, here

Regrettably, in case you feel inclined to pass some of these insights to your favourite buyer, let it be known that Apple are so fond of their layout, last year they succeeded in trademarking their store layout across Europe...

As a result, the ruling will apply not only in Germany, but will prevent others across Europe from replicating the interior of Apple Stores, with their distinctive symmetrical wooden benches on which electronics are laid out within a large, white space.

Fortunately no other retailer looks like this, which begs a question...

Mike Ashley planning to launch chain of cut-price high street stores – a step away or ahead of Food Discounting?

According to the Mail On Sunday, the Sports Direct billionaire has launched a new discount store MEGA VALUE, in Kidderminster, Worcestershire. Similar to B&M and Wilko, it will stock products once found in Woolworths.

The issue for those acquainted with the Sports Direct model has to be the roll-out effect on the Big 4, but also the speed with which the new venture will climb aboard and accelerate the pace of Aldi & Lidl's impact on the UK grocery market.

Apart from some tough negotiations ahead, suppliers might take some consolation from Ashley’s belief in brands, as they decide whether to ignore or collaborate with the new kid on the block.

Either way, a store visit to Kidderminster might not go amiss…?

Back to Front Margin - Then What?

Back Margin audits - Now it's your turn.

Accountancy watchdog to focus on suppliers after Tesco profits scandal.

According to The Guardian, the Financial Reporting Council (FRC) will make retailers’ relationships with their suppliers a priority due to ‘increasingly complex arrangements’ in their inspections in 2015/16. The FRC will “pay particular attention to the audit of revenue recognition and complex supplier arrangements” at food, drink and consumer goods manufacturers, as well as retailers. They plan to check a significant number of audits - of the 140 checks planned - in these sectors.

More details of scope and process are given in the FRC latest Annual Report published today, and for convenience we have highlighted key sections below, but best point your finance colleagues at the original document, here.

As indicated, this is about Back Margin definitions and how suppliers and retailers account for payments made to retailers. 

We believe that we are headed towards further clarity, meaning that payments to retailers will eventually be measured more accurately, paid retrospectively - in arrears - and based upon results achieved vs. agreed KPIs, in order to comply with strict auditing standards and process.

Action for suppliers:

• Identify and clarify all of the ways in which you remunerate the customer
• Reassess the 'buckets', clarify the definitions, measurement process and ensure the customer agrees...
• Focus on Tesco's three permitted buckets (scale discounts, rewards for display and payments re product re-calls) that will probably  become 'standards' eventually, as SFO, FRC and GCA investigations begin to report findings
• Think through internal processes re proposal, objectives, agreement (you and the customer), timing and payment (if in any doubt about the eventual accounting rigour involved, check with your production colleagues re their capital requisition process...)
• Whilst your company will hopefully escape an FRC inspection in 2015/16, auditors will obviously be increasingly conscious of the risks involved and will be more than likely operating to the above standards anyway...

The FRS Annual Report (extracts)
Section 2-4 Page 7 refers to
...Given the focus in recent months in respect of complex supplier arrangements, food, drink and consumer goods manufacturers and retailers have been designated as a priority sector for our 2015/16 inspections and a significant number of audits we plan to inspect will be from those business sectors. These inspections will pay particular attention to the extent to which the audit team has challenged and corroborated the appropriateness of how complex supplier arrangements are accounted for. Corporate Reporting Review (CRR) as part of their programme of reviews of financial statements will also be giving priority to the reporting of these arrangements. We also plan to inspect a number of first year audits to assess the extent to which changes in auditors have an impact on audit quality.

In early 2015 we engaged external consultants to undertake an extensive review of our inspection activities and how these can promote continuous improvements in audit quality. The outcome of this review will be incorporated in the FRC’s Strategy for 2016/19.

Analysis of inspection findings: Section 3-5, page 16 Future Inspections: Section 7-2, page 32: ... planning to inspect around 140 audits.... The priority sectors for 2015/16 are insurance; food, drink and consumer goods manufacturers and retailers... Our inspections will pay particular attention to the audit of revenue recognition and complex supplier arrangements.

Appendix A, page 36 Inspection Process
Our inspections comprise a review of the firms’ policies and procedures supporting audit quality and a review of the quality of selected audits of listed and other major public interest entities that fall within the scope of independent inspection, as determined each year. 

Scope in Appendix B

Fifa emerges from under the covers - a sponsorship crisis for anyone that cares about branding...?

Deep down, global football may be too big to fail, in that this could be just another crisis...

However, given that a sponsor's nightmare has to be the possibility of the star succumbing to drugs, booze or worse, Fifa, by exception, can be no exception.

In sponsorship, nothing beats the speed with which a sponsor slides from under a problem package. The obligatory public responses of some of the biggest brands in terms of expressing concern, disappointment, have to be code for 'lets work out the best way of getting out of here, fast...'  And as demand usually determines prices of advertising in sports sponsorship, those that decide to weather it out, will find some consolation in reduced rate-cards...

Players, themselves conscious of personal shelf-life limitations, will also focus on how they can distance themselves from the fall-out...

Leaving the consumer, that docile recipient of unprecedented brand-based revelations over the past few years, to vote in the only way possible, with their feet...

Meanwhile, as the US authorities have already said, this is only the beginning...and no amount of blethering will make a difference...

Secrets of Pound Shop Success?

Source

The Londis, Budgens, Premier Combo - a new kid on the block?

Representing approximately £830m in incremental sales, taking them to 9.4% of the UK convenience sector, and building on their supply chain efficiencies, Booker’s acquisition of Londis and Budgens has to represent a quantum leap for the Group.

The strategic link with Musgraves also offers two-way synergies, whilst the increased buying power ‘can’t hurt’ on Booker's side of negotiation table.

The issue for suppliers has to be the speed with which they can review their trading strategies, terms and conditions (prices & terms disparities) and negotiate some compromises in the small window afforded by the inevitable competition issues resolution…

In terms of re-negotiation, suppliers need to re-assess their relative competitive appeal to Booker, given the new combo above.

From a shopper perspective, it might also be worth re-mapping the relative competitive appeal of Londis, Budgens and Premier from the perspective of the consumer-shopper.  To accelerate the process, see our Buying Mix Analysis tool

That then leaves preparation of a settlement point that reflects your perceived pulling power with the 'new Booker', and goes some way towards closing any prices/terms gap, before Booker does it on your behalf...

For a free HIM infographic re shopper insights see here

Methinks, in these unprecedented times, we need to question too much….

                                                                                                                         pic: Jonathan Streeton

Asda's 3.9% fall in like-for-likes - why Walmart won't go over the top...

News of Asda’s Q1 results might cause suppliers - and rival retailers – to expect a ‘decisive’ price-cut response financed by Walmart, in these times of unprecedented moves by the mults.

However, joining a couple of extra dots could indicate otherwise.

For instance, comparing relative financials of Walmart and Asda could provide some clarity:

Walmart (2015) Results 
Net Sales               $482bn +1.9% YOY
Net Income             $24bn
Net margin              5.1%
ROCE                   17.9%

Asda (2013, latest results available at Companies House)
Net Margin              3.9%
ROCE                   12.1%

Neither of these companies want to increase Walmart-Asda profit differentials...

Also, Walmart – and Asda – don’t do knee-jerk, so the response to the Q1 shortfall will be a price drop sufficient to 'restore order', but sustainable in the long term, and probably financed by the UK operation, meaning it will not be an over-the-top initiative.

That being the case, coupled with yesterday’s economic news of -0.1% ‘negative inflation’, could mean that we are in for a calm period of sustained flat-line demand…

…where growth will come at the expense of less-alert competition..

'Docking' the long tail, a product-cull too far?

Given that the UK’s largest retailers appear to differ re the need to cull 30% of Tesco’s range (Sainsbury: “…customers tell us they can buy things in our shops that they can’t buy elsewhere.” vs. Tesco: “…20% of SKU's in an Extra store are only selling 1 pack per store per week”.), and as Dave Lewis is the one currently wielding the docking-knife, it is perhaps more important for NAMs to anticipate a 30% reduction in SKUs and plan accordingly…

• The issue for suppliers is where the end of the long tail starts…
• Combining this idea with the 80/20 rule, suppose 18,000 of Tesco’s 90,000 SKUs account for 80% of their in-store turnover, then 30,000 SKU de-lists may not be sufficient...

Action: At the very least, major retailers should check at what point in the tail, weekly off-take does not justify the space allocated…

• …and given that the cost of retail space online is irrelevant, the remaining SKU’s could be added to the online portfolio, or de-listed…Perhaps a final compromise for de-listed NAMs?

Finally, if Tesco manage to gain a competitive edge via product-culling, how long before others follow, or sacrifice share?

(BTW, NAMs that have enjoyed a less sheltered childhood will be aware that docking a working dog’s tail was a fairly common practice in the old days, the actual method being the only ‘bone of contention’, whilst adding a whole new meaning to ‘cross-docking’….) 

The NAM-Suitsy - A pyjama onesie when 24/7 is not enough...

                                                                                         pic: Greg Ferenstein, The Ferenstein Wire

Joining the commercial income dots: moving to full disclosure?

Given the latest news of Asda slashing prices to maintain/increase its position of 5% less than the other mults, knowing that any growth in flatline has to come at the expense of direct competition, coupled with Tesco’s ending of their 32 year relationship with auditors PwC, itself a reminder that the SFO are at work investigating how Tesco’s £263m profit overstatement was caused in part by how retailers book trade investment, all adds up to a need for retailers to disclose the contribution made by commercial income to their final results.

Indeed the recent criticism of Sainsbury’s for not following Tesco and Morrisons lead in making these disclosures, with little sympathy for protestations of ‘commercial sensitivity’, means that the SFO will probably conclude that disclosure will be mandatory...

However, better if all retailers anticipate legal developments and make these disclosures on a voluntary basis.

This leaves Asda, which, being US-owned, and ultimately subject to a changing tax regime where issues of global taxation will drive more open reporting at local level, will inevitably conform re disclosure of commercial income in the UK.

The rest of the trade will probably fall in line to avoid possible raising of their profile at the SFO…

Auditing will become more precise, in terms of accounting for, and booking of, such revenues.

This means that stakeholders will need to anticipate that all CI ‘buckets’ will be defined more precisely, have clearer objectives, appropriate KPIs and will be measured with more precision. In other words, we are headed towards payment in arrears, based on actual boxes sold…

Time for suppliers and retailers to anticipate the obvious and start accounting now…

Post-election promises?

Tesco Soft Drinks Supply Aggregation - another type of Cull?

Refresco Gerber’s recent deal with Tesco to produce all of its own label Soft Drinks could be an effective way to rationalise Tesco’s part of the  carbonated and non-carbonated Soft Drinks category.

It could also be a new approach to Tesco's management of some categories...

With little or no axe to grind, this move to a single producer will simplify the elimination of product overlap and products with peripheral advantages, in one stroke….

All products could be produced in harmony, reflect scale economies and allow new product introductions that will fit with a co-ordinated optimisation of the ENTIRE category, an ideal blend of brand and private label, tailored to the needs of Tesco shoppers - the ultimate in category management?

In which case, could it be time for suppliers in other categories to consider the extent to which all/most of the Tesco own label products in their category could be similarly aggregated under one branded/own label supplier?

If so, might it not be an opportunity for a brand-only supplier to dilute their principles and actually pitch for the Tesco own label business in their category?

...and if you don’t, who will?

Sainsbury's space productivity, getting into the space behind the headlines

Whilst the headline numbers provide some indication of the unprecedented pressures on Sainsbury’s and the other mults, in “...a marketplace changing faster than at any time in the past 30 years…”, working NAMs can derive usable insight by digging deeper into the detailed results issued this morning. (Sainsbury’s Results: 52 wks end March 2015)

Having written its space down by £900m i.e. 7.5% of a £12bn portfolio, Sainsbury’s have focused City attention on sales productivity i.e. Sales and Profit per sq. ft. per annum

See page 15, JS Results:
2015 Sales/sq. ft./annum       = £1,027
Op Profit/sq. ft./per annum   = £32.6

In other words, for the coming year Sainsbury’s have to be very receptive to supplier initiatives that drive Sales and Profit productivity.

For NAMs, this means calculating the ex VAT consumer sales generated in Sainsbury's by your brand footprint per annum – think number of facings x on-shelf backup stock x number of stores x SKU footprint - will give you a figure at least twice Sainsbury’s £1k/pa.

OK, they still have to carry all of the in-store waste area – non sales space like aisles etc.) - but it will still be possible to demonstrate that your brand is a high net contributor to Sainsbury’s major KPI for 2015/16…

However, your real contribution is via your brand's ability to improve on Sainsbury’s operating profit/sq. ft./annum.
(Sales per sq. ft. will keep you listed, Profit per sq. ft. will keep you in the inner circle…)

As you can calculate from their latest figures (page 15), Sainsbury’s are currently generating operating profits of £32.6/sq. ft./annum, i.e. 9p/day!

Your brand’s footprint, with its retail margin of 25%, trade investment of 20%, and 30 days credit has to be generating a lot more than 9p/sq. ft./day for Sainsbury’s…
(Why not grab an envelope and try it out, using your figures? – for precision, take off 15% to cover handling and shrink)

Space productivity is one of the biggest issues for the mults this year, your brand can help…  

Application to Tesco?
Incidentally, applying the above to another mult that occasionally makes the headlines, why not dig a bit deeper into Tesco’s recent results?

Page 3 & page 40 Results:
2015 UK Sales/sq. ft./annum               = £1,030
UK Trading Profit/sq. ft./per annum   = £11.04  i.e. 3p/sq. ft./day!

BTW, given that you are on the Tesco page, why not find some gems for your overseas colleagues in Asia and EU markets?

2015 EU Sales/sq. ft./annum               = £254
EU Trading Profit/sq. ft./per annum   = £5  

2015 Asia Sales/sq. ft./annum             = £298
Asia Trading Profit/sq. ft./per annum  = £17  

Tesco's 3-in-1 Opportunity for Suppliers

A brief examination of Tesco’s latest results, the 52 weeks ended 28th Feb. 2015, show interesting differences in their trading margins for the UK, EU, and Asian businesses.

Whilst the Tesco overall trading margin is 2.2% - itself too low for a City that would prefer at least 4% - it can be seen that the results are significantly different for the three geographies. This would suggest that global suppliers will need three different strategies to optimise the profitability of their overall Tesco relationship.

In other words, Tesco’s three retail businesses have to be viewed and managed as separate SBUs to optimise the overall global potential for your brand.

In practice, with trading margins in the UK at 1.1%, the EU at 1.9%, and Asia at 5.7%, Tesco clearly have a need for three different but complementary strategies:

UK: With Tesco’s ex VAT sales of £43.5bn, coupled with Sainsbury’s and Morrisons expected falls in profits this week, maintaining market share at the expense of competitors via deep price-cutting, has to be a priority for the major multiples.

Given these margin pressures, the temptation for Tesco to transfer ‘excess’ back margin to front margin, may be difficult to resist. In addition, suppliers' willingness to invest in the trading partnership via lower trade prices in exchange for long term commitment to Tesco’s customer-centric policy, may become a negotiating point.

Obviously, 100%, zero-defect service levels and availability have to be a given, from now on…

On balance, suppliers need to come to terms with structural – i.e. ‘permanent’ – changes in the market, and make fundamental decisions re the relative importance of the mults vs. discounters, and Tesco in particular, to their UK business. Having made these decisions, calculating and demonstrating the impact of your trade investment and retail margin on Tesco's trading profits has to be a must…

EU: With ex VAT sales of £8.5bn, Tesco needs to both increase its EU geographical footprint, and grow share in key countries.

Essential for suppliers to ensure that EU colleagues conduct harmonised dealings with Tesco in order to avoid compromising trading relationships in either territory. It is also important that prices and terms are defensible vs. other retailers, in the event that Tesco decides to sell off low margin local business.

In addition, given the move from individual teams for Czech Republic, Hungary, Poland and Slovakia to one regional team focused on buying and operational synergies, there will be more emphasis on investing in the customer offer. Suppliers will need to match this CEE re-structuring, if only to ensure their fair-share levels of investment in Tesco’s customer offer….

Asia: With ex VAT sales of £9.9bn, and a trading margin of 5.7%, it is obvious that Tesco will resist selling off their Asian interests to help re-build their global balance sheet. Instead, it is possible that they will try to increase their regional foot-print, possibly at the expense of some trading margin in the medium term.

Given the potential scale advantages of 24/7 retailing, South Korean restrictions on opening hours means suppliers need to focus on increasing store productivity during permitted times. Restricted demand due to economic conditions in Malaysia and Thailand means that a focus on availability, service and targeted price reductions is essential in order to optimise the productivity of available traffic, without compromising the bottom line.

On balance, it is time for Tesco suppliers to step up and be counted, time to decide if your biggest customer is going to make it via their 3-for-1 global policy.

Signs are that despite these unprecedented times, they will lead a comeback in retail, meaning this is a real opportunity for innovative suppliers to think long-term and join Tesco for the return journey…

Aldi's version of gift-with-purchase?

Over €15m worth of cocaine - the biggest haul ever in Berlin - has turned up in boxes of bananas delivered to Aldi supermarkets in and around the capital, according to police.

This apparent foray upmarket by the discounter was an obvious mistake in a shipment from Colombia to Hamburg, and was in no way intended to stimulate repeat purchase and encourage customer loyalty…

Tesco's latest trading profit: What your trade investment is now worth to Tesco UK

Given all the recent big numbers coming from the UK’s No.1 retailer, your £10k trade investment may seem paltry….

If, however, it is being treated like a pittance, it might be worth pointing out that, based on its latest UK trading margin* of 1.1%, £10k is equivalent to ex VAT sales of £909k…

A point to ponder over the long weekend?

*...52 weeks ended 28th Feb. 2015 - UK Sales ex VAT = £43,573m, Trading profit = £467m.
£10k = 1.1% of equivalent sales i.e. £10k/1.1 x 100

Making Tesco's £6.4bn loss a winner for you

According to The Motley Fool, some City analysts now believe that Tesco’s accountants inflated the company’s loss, to get as much bad news as possible out of the way now, and flatter figures going forward.

In practice, their £2.3bn write-down of the value of currently trading UK stores means that Tesco is now very focused on ways of driving sales and profits per store. As you know, they determine the value of a store by calculating its future cashflows, so if you can demonstrate that your brand-footprint's sales are significantly greater than £1,000/sq ft/annum, this has to be a plus.

However, Tesco's real gain has to be the additional net margin represented by your brand.

Typically, say Tesco have an average 25% gross margin that nets to 3% in a reasonable year. With store running costs of about 15% including say 2% shrink, this leaves 10% to cover central costs and profit. This means that your brand's 30% gross margin, with average handling costs and shrink, could reach the bottom line as a conservative net 5%...

Day to day, your brand's 'surplus' profit intensity will help Tesco off-set some of the long-tail products' short-falls and also finance some of the 20+% space redundancy in large outlets.

But the real leverage has to come from demonstrating that you are a net contributor to Tesco's inevitable turnaround..

Incidentally, given that a further £2.4bn was written off stores trading outside the UK, it might be worth extending your insight to overseas colleagues..

Meanwhile, why not feed your actual Tesco Gross Margins into the above calculation and really open up that buyer-seller discussion?

NAM Deadline-app......?