Starship-robot home delivery – a new threat for the mults?

     ‘Step aside, old guy’                                                                   pic: Starship Technologies

Former Skype co-founders have announced the launch of auto-buggies that are capable of carrying the equivalent of two grocery bags, and complete local deliveries within 5-30 minutes from a local hub or retail outlet, for £1.50 a drop, 10-15 times less than the cost of current last-mile delivery alternatives.

Thus in one stroke, they will become the latest market disruptor, meeting consumer needs to shop smaller, faster and more conveniently, with a delivery cost that undermines the traditional £20 cost that causes major retailers to lose £15 on a £5 delivery charge…

Starship Technologies is currently testing and demonstrating prototypes and plans to launch the first pilot services in cooperation with its service partners in the US, UK and other countries in 2016.

Customers can choose from a selection of short, precise delivery slots, and during delivery, shoppers can track the robot’s location in real time through a mobile app. On arrival only the app holder is able to unlock the cargo. Integrated navigation and obstacle avoidance software enables the robots to drive autonomously, but they are also overseen by human operators who can step in to ensure safety at all times, and where necessary converse with pedestrians.

Forgetting for a moment all the reasons why robot-delivery is not going to work, move into just-suppose mode and survey the post-success scene:

• Reductions in traditional home delivery charges…consumers already twitchy
• Mults/Ocado adopt robot-delivery, possibly leasing from Starship Tech?
• Or mults leave the small-delivery field and focus on ‘big deliveries’
• Just think applications in other categories/services…and don’t expect Jeff Bezos to sit this one out…

One thing is certain, the ‘fundamental re-structuring’ of the grocery market still has a mile to go…

Action for suppliers:
Starship Technologies are unlikely to attempt the additional risk of setting up of product-aggregation hubs and will probably form alliances with a wholesaler/s and/or possibly a major multiple..

If a wholesaler, expect that wholesaler to grow, and become more profitable and powerful.

In other words, time to reshuffle your customer portfolio deck, again!

Lidl - for a cut above the rest!

Lidl-Brighton 31-10-2015
Jamon Iberico de Cebo  £99.99

Amazon Fresh - losing to win vs. Tesco?

We all know that the last thing UK mults need is loss-leading online competition, the only real growth area currently available, in an medium where shelf-space is not an issue....

Given that Amazon are feeling their way forward with a fresh offering in London and Birmingham to Prime members and have traditionally been prepared to operate at a loss to build share, they represent a very real threat to the major mults.., initially in major conurbations where Amazon's dense coverage is a major strength.

Add to this the fact that home delivery can cost £20/drop vs. the maximum charge a consumer will tolerate is £5, and the scale of the threat can be appreciated.

With their 50%+ share of online grocery, Tesco have most to lose, but any Amazon Fresh success will obviously also impact the other mults.

The issue for suppliers has to be the extent to which the mults will try to recover losses via traditional brands as they try to compete in a new online reality...

Walgreens Boots Alliance take Rite Aid - another global step..

Yesterday’s bid for Rite Aid will obviously impact the US market, but UK and EU NAMs need to place this move in a global context in order to anticipate the impact at local level.

For those that need reminding, in a few short years, Stefano Pessina transformed a small family business into Alliance Boots, a European drug retailing and wholesaling powerhouse, through a series of takeovers. In 2007, he took the company private in an $18.5bn leveraged buyout with KKR & Co. At year-end, KKR still owned about 4.6% of Walgreens stock.. And this successful integration and revitalisation of an iconic UK brand, without missing a beat (in contrast with Kraft's acquisition of Cadbury...).

WBA-Rite Aid will result in a company with annual sales of £65bn and a Mkt Cap = £68bn.
Compare this with Tesco annual sales £69.7bn and £15bn Market Cap…
(apart from the additional scale of WBA, this Sales/Mkt Cap comparison indicates the degree of Tesco's fall from grace, and the need for H&B suppliers to re-balance their customer portfolios...)

Given that the WBA merger has been one of the private-equity firm’s best-ever deals, making it well over four times KKR’s initial investment, the private equity group will want to stay at the table...
In other words, KKR are unlikely to miss out on funding further deals proposed by Mr Pessina…  

In defending the bid, Walgreens and Rite Aid would be likely to argue to regulators that they compete not just with other traditional drugstore chains, but also with companies such as groceries and club stores.

Finally, according to the WSJ, Mr. Pessina hasn’t been shy about his desire to do big deals. “We can clearly see the need or the opportunity for horizontal and vertical consolidation in our industry”

Joining some of the obvious dots, we should assume that SP is still working to a global agenda, growing by acquisition, targeting anything in healthcare and beauty, but also competing with grocers and warehouse clubs, anywhere…with appropriate funding on tap via KKR and the stockmarket…

Watch this space…

NAM Implications:

• Scale? At $100bn sales, almost as big as Tesco global...!
• Synergies? $1bn savings in year one is just the start ...
• Negotiation? First agenda item has to be prices & terms disparities.
• Preventive action? Suppliers have six months to remove anomalies, while WBA are distracted by the inevitable government scrutiny.
• Amplify? Worth sharing with global colleagues for a co-ordinated approach?

VW and the never-ending cycle of corporate scandals - how Darwin can help

According to the BBC, after Libor, payment protection insurance, phone hacking and every other scandal, nothing appears to have been learned to stem the tide of bad behaviour from some of the world's largest companies.

And now VW has been caught cheating on emissions tests, having been caught and fined in 1973 for dodging similar tests.

Research by Cass Business School’s Professor Andre Spicer indicates predictable post-scandal behaviour:

First three to six months: high activity, scapegoating, calm restoration, removal of people, evidence, stories and reminders…

More detail in the original article re failure to learn from mistakes via a focus on getting things done rather than how results are achieved, resulting in a culture that encourages recruitment of similar individuals with the same views, rather than a policy of diversity…

Stephen Carver, a lecturer at Cranfield points out that Darwinian survival is not survival of the fittest - he never said that. It's the most able to adapt. And that means diversity…

Impact on the brand
However, we would add that a fixation on complying with the letter, rather than the spirit of the law probably causes more damage in the eyes of the consumer. Considering the years spent building brand equity – that reassurance that it is not necessary to second-guess the quality – or the quantity – in the tin, the essence of branding…

Also we all know that FMCG marketing is built on the premise that the cost of introducing the consumer to the brand and achieving initial trial is so high that it is only on second or third purchase with less spent on having to ‘educate’ the consumer, does the  brand begin to make a profit.  Destroy that trust – by short-changing on contents vs. expectation – and then suffer the cost of re-building that trust.

For instance, if we accept that when a consumer’s needs are exceeded, they tell a friend, when disappointed, they tell ten friends, it might be said that a brand re-build costs ten times the cost of introduction.

Exaggeration?
Why not try it for yourself, sometime…?

When the buyer wants even more – an opportunity for a partnership re-cast?

As you know, with Walmart and most probably Asda wanting extra help from suppliers to cover rising, but surely not unanticipated business costs, it is possible but unwise to simply say 'No’.

Better to treat this as an opportunity to go back to fundamentals on each side of the table. This is a bit like when a buyer makes a new demand immediately following the conclusion of a deal, such as ‘…and you will deliver to each branch’, a very old trick – so old, we used to call it the ‘quivering quill’ or sign-off demand – that destabilises the balance of a fair-share deal just negotiated.

The key here is to assume exaggerated shock or anger – if you have not anticipated the move and are really shocked/angered, your negotiation technique may need more fundamental remedials – and even go so far as to act as if you are about to terminate the interview - such as screwing up the draft plan. Apologise for having assumed a deal had been reached, and take the discussion back to the buyer’s ideal world requirements of a partnership with you and your company.

These are obviously extremely high-stakes moves, so you will obviously have placed the entire relationship in context, calculated the cost and value of each element, and will be acutely conscious of the fact that losing the Asda business means a factory closes…

The benefits of pre-interview planning means you do not have to prepare and respond to these moves ‘on the go’.

The key is to prepare right things… 

Full analysis and action in October issue of NamNews

Amazon prepares for your Christmas shopping.....

                                                                                                                             Ralph D. Freso/Reuters
See 15 pics, (worth 15,000 words?) here

Call me naive, but... How Tesco could rebuild trust in UK retail

Latest reports in The Guardian that over-complex supermarket pricing is being targeted by UK government to ease price comparison will probably end up in the usual letter-of-the-law observance, forgetting that consumer trust is based on the spirit-of-the-law.

Providing consumers with true bases for like-with-like comparison needs the combined efforts of suppliers and retailers with a common aim of rebuilding consumer trust, the essence of branding, both retailer and supplier.

Given its presence at the point-of-purchase, and at 29% market share with most to lose, I believe that Tesco - and its major suppliers are in a position to take the following steps:

Price clarity: A major opportunity lies in wait for those retailers that strip offerings back to the basics of letting consumers know what they get for their money. Apart from an obvious emphasis on unit pricing combined with a little education ref. prices per g/ml, it means eliminating all ‘letter & spirit’ legal issues regarding promotional offers, and replacing them with genuine, transparent and defensible offerings that can be compared accurately with competitors’ alternatives, like-for-like, but also meet and even exceed consumer expectation

Product delivery:  When a consumer opens a tin, its contents should match or even exceed the expectation created by the lid…a fundamental of branding based in part on the fact that the cost of making the first sale to a consumer is so high that profit is only possible on return visits without having to be re-sold. Tesco is in a unique position to add like-with-like conditions to its purchasing criteria, and delist brands that are found to have used content reduction to disguise a price rise…

Demand forecasting: As ‘experts’ in consumption, suppliers can be in a position to help refine demand calculations and the combination of this insight with a retailer’s instore on-time fully-shared expertise has to be a way of ensuring 100% zero-defect shelf availability, at minimal cost for all parties

Trade credit: Credit was always meant to cover the gap between delivery of goods to a reseller and payment by shoppers, and was never intended as a means of generating interest on 40-day deposits. As such, given average retailer stockturns of 20 times per annum, this means paying supplier invoices within 2.5 weeks of delivery, with recent moves to 14 day payment for small suppliers a good start. There is even a case for paying faster for items delivered on a daily basis

Trade investment: Post-audit recovery came about because of a combination of inadequate ‘paper trails’ of promotional agreements by suppliers, and the ability of financial programmes to search and claim for unpaid funds for six years previously.  Despite the strict letter of the law supporting this process, all retailers could show more goodwill and pragmatism by limiting such searches to a maximum of two years…

Trade Deductions: Should not be regarded and treated a source of income, but should reflect genuine failure to meet reasonable standards agreed in advance as a condition of purchase, with perhaps some element of reciprocation for failures of on-shelf compliance...

Organisational compliance: The above changes need to be understood and communicated at all levels within both supplier and retailer organisations, thereby reducing the possibility of 'rogue-employee' defences at higher levels of management…

Tesco, with 29% market share and a need to regain custom, is in a unique position to be in the vanguard of this change..

And if it results in a temporary loss of margin, so what…

In time, as shoppers - and suppliers - begin to relax into the feeling that in a Tesco store, ‘what you see is what you get’ and even more, then the result have to drop into the bottom line as repeat sales come in at less cost, like with all good brands…

HT to Wayne Robinson for Guardian link

Gambling on loyalty Cards - insights by Steve Gray

In response to our post on Loyalty Cards, Steve Gray has added the following insights:

• There is inherent value in the loyalty programme itself - millions of consumers like collecting points (Clubcard, Boots, Nectar etc) and go out of their way to do so. The programmes more than wash their face for the retailers who deploy them
• They also create a valuable asset for their owners : Nectar was sold for around £450m, if ever Tesco sold Clubcard (as opposed to dunnhumby) it would be worth something similar or more
• There is, as you say, additional value from the data - it can be used to deliver a more personalised shopping experience (via range, promotions and personalised offers)
• Currently, supplier-partners aren't really able to help retailers to "build a comprehensive picture" as they tend not to have any useful data on individuals (supplier data tends to be anonymised research from small sample groups). This might change as brands start to invest more in direct to shopper programmes, more retailers enable digital coupon redemption and sales tracking other than via their closed loop programmes

* Its high time the plastic was replaced by a phone or by linking to the customer's debit or credit card - not a technology barrier but slow uptake as few retailers have people who know how to get this done easily.

Gambling on 'Loyalty' Cards........?

Given Tesco's difficulties in selling Dunnhumby, it might be useful to assess loyalty cards' risk/reward relationship...

Retailers who expect loyalty cards to build consumer loyalty are missing an important trick. Loyalty cards simply provide access to possible consumer need via a record of purchasing behaviour, within a context of key data on the named cardholder. The gamble is not whether the retailer can cover the cost of maintaining the card, but rather whether the organisation can creatively drill into the resulting data, discovering and distinguishing real need from ‘want’ and then organising resources to manage and meet consumer expectations, cost effectively.

In fact, loyalty is the long-term result of meeting and exceeding consumer expectations consistently and to the satisfaction of named individuals, better than others. Whilst it can be safer for traditional marketers to conceal the consumer within the anonymous confines of a market segment, real-world marketing seeks out and responds directly to named individuals, actually welcomes the encounter with a real consumer, strives to establish an increasingly enriching dialogue, and thus provides a means of validating category assumptions, creatively.
The high cost of establishing and maintaining this level of interpersonal contact demands that the consumer be sufficiently satisfied to willingly come back for a repeat purchase, with minimal encouragement (i.e. cost).

In practice, the loyalty card completes the jigsaw of the consumer purchasing decision, helping the retailer to complete the full circle, back to the Mom’n’Pop grocer who stayed in the game by playing the loyalty card intuitively, limited only by personal memory capacity and being ‘open’ to consumer-need opportunities, 24/7. This flesh and blood family grocer earned and protected his access to 500 families via a keen sensitivity to total need, delivering a tailored response in a carefully monitored environment, resulting in a slow demise.
So too, loyalty cards provide a means of helping to restore the human touch at store level, helping to eliminate the anonymity of the shopping experience, and ensuring repeat visits by satisfied users, with minimal drift to other providers. Whilst a data-based retailer can attempt to meet consumer needs unilaterally, partnership with like-minded suppliers can help the customer capitalise on the combined equities of brand and store.

By definition, a supplier who enters such a relationship without full commitment, all the way to the point of purchase, contributes brand equity as a means of attracting consumers into the store, only to have them succumb to the attractions of store franchise in the aisle. In turn, the retailer is at risk from poor execution of the total store offering in that each time the consumer encounters the face of the retailer at checkout, any inconsistency in personal performance versus expectation is in danger of eroding that newly acquired store equity.

The supplier-partner can help by assisting the retailer in building a comprehensive picture of the brand’s named-consumer, combining consumption behaviour with the retailer’s knowledge of how that consumer behaves in store, monitoring in-home satisfaction and helping to encourage the resulting repeat visits to the store. Having cooperated in sharing experience within the supply-chain, it is time for both parties to repeat the process within the demand-chain.

In the meantime, this ‘useless piece of plastic’ can be a passport to the heart and mind of a named consumer and, carefully managed, can underwrite a long-term revenue stream.

Unless one is gambling everything on a quick win...............?

Tesco's Price Promise revamp: simple, immediate, and a fair–share pointer for retail and supply?

Deep down, Tesco’s 5-point Brand Guarantee breaks some new ground for all stakeholders:

• Instant discount at checkout – eliminates frustration of delay, next time memory-lapse, sense of lock-in
• Own Label exclusion – eliminates difficulties of true like-with-like comparison of brand and ‘equivalent’ own label
• Minimum 10 item basket: attempt to re-encourage ‘bulk’ shop?
• Large stores + online only: Fine for once/week+ shoppers, but is it enough to re-attract daily, closer, smaller shoppers?
• Only Big 4 match: Eliminates price as a differentiator vs. other mults in large space, but still at a price disadvantage to the discounters

The Big Issue will be the extent to which other mults target large space as a separate market, competing via other parts of the retail marketing mix (see slide for options), but maintaining price parity….  However, if other mults break ranks and drive down prices, the appeal of large space retail may grow, at the expense of the discounters.

Meanwhile, Tesco’s move demonstrates a major step forward in transparency at point-of-purchase, the beginnings of a fair-share dialogue with the savvy consumer that will hopefully encourage other mults to follow suit, with branded suppliers perhaps adding a little more than expected to the tin to cement the process…

…and fair-share supplier-retailer dealings an added bonus? 

Gambling on 'Loyalty' Cards........?

Given Tesco's difficulties in selling Dunnhumby, it might be useful to assess loyalty cards' risk/reward relationship...

Retailers who expect loyalty cards to build consumer loyalty are missing an important trick. Loyalty cards simply provide access to possible consumer need via a record of purchasing behaviour, within a context of key data on the named cardholder. The gamble is not whether the retailer can cover the cost of maintaining the card, but rather whether the organisation can creatively drill into the resulting data, discovering and distinguishing real need from ‘want’ and then organising resources to manage and meet consumer expectations, cost effectively.

In fact, loyalty is the long-term result of meeting and exceeding consumer expectations consistently and to the satisfaction of named individuals, better than others. Whilst it can be safer for traditional marketers to conceal the consumer within the anonymous confines of a market segment, real-world marketing seeks out and responds directly to named individuals, actually welcomes the encounter with a real consumer, strives to establish an increasingly enriching dialogue, and thus provides a means of validating category assumptions, creatively.
The high cost of establishing and maintaining this level of interpersonal contact demands that the consumer be sufficiently satisfied to willingly come back for a repeat purchase, with minimal encouragement (i.e. cost).

In practice, the loyalty card completes the jigsaw of the consumer purchasing decision, helping the retailer to complete the full circle, back to the Mom’n’Pop grocer who stayed in the game by playing the loyalty card intuitively, limited only by personal memory capacity and being ‘open’ to consumer-need opportunities, 24/7. This flesh and blood family grocer earned and protected his access to 500 families via a keen sensitivity to total need, delivering a tailored response in a carefully monitored environment, resulting in a slow demise.
So too, loyalty cards provide a means of helping to restore the human touch at store level, helping to eliminate the anonymity of the shopping experience, and ensuring repeat visits by satisfied users, with minimal drift to other providers. Whilst a data-based retailer can attempt to meet consumer needs unilaterally, partnership with like-minded suppliers can help the customer capitalise on the combined equities of brand and store.

By definition, a supplier who enters such a relationship without full commitment, all the way to the point of purchase, contributes brand equity as a means of attracting consumers into the store, only to have them succumb to the attractions of store franchise in the aisle. In turn, the retailer is at risk from poor execution of the total store offering in that each time the consumer encounters the face of the retailer at checkout, any inconsistency in personal performance versus expectation is in danger of eroding that newly acquired store equity.

The supplier-partner can help by assisting the retailer in building a comprehensive picture of the brand’s named-consumer, combining consumption behaviour with the retailer’s knowledge of how that consumer behaves in store, monitoring in-home satisfaction and helping to encourage the resulting repeat visits to the store. Having cooperated in sharing experience within the supply-chain, it is time for both parties to repeat the process within the demand-chain.

In the meantime, this ‘useless piece of plastic’ can be a passport to the heart and mind of a named consumer and, carefully managed, can underwrite a long-term revenue stream.

Unless one is gambling everything on a quick win...............?

IGD Big Debating points to ponder over the weekend?

• Convenient vs. Convenience store the way forward
• Big Space Redundancy: ‘Buy too much, Takes too long’
• Click & Collect, with value add-on services, makes a difference?
• Realistic reality-checking does not mean pessimism…
• Customer-centricity needs to accommodate customer diversity
• Can we tolerate individual loss-making channels within a holistically profitable model?
• (Two hours before the first slide… Powerpoint beware..?)
• Loss of consumer trust – retrievable or simply a feature of savvy consumerism…?
• Back to basics, but in a modern way?
• ‘Chinese consumers save 50% of their income…..’
• Retailers & Suppliers: ‘Consumers won’t notice’ – serious?
• Retailer price-matching can seem like ‘cartel behaviour’ to consumers…
• Forget politicians, ask man in street for the real level of inflation…
• ‘You never hear a child cry in Poundland’ – a pound request is an easy win for parents
• ‘We sell products for a £1, not £1 products’
• ‘Consumers are the smartest on the planet, give them right offerings in superstores and they will come’
• ‘Sorry…..’

A chronological view from the back row of the IGD BIG DEBATE 2015…

Tesco's new trading terms - a fundamental step towards fair-share dealings?

In an issue-packed day where most delegates had cause to re-set their business priorities, and test the limits of their networking skills in a pool of 650+ potential contacts, the IGD’s Big Debate presented a fundamental opportunity to update suppliers’ UK market context with the help of speakers that were prepared to face up to market realities and indicate their ways forward….

Nothing beats hearing it live, but a good second best (apart from a lost networking opportunity) can be achieved via a combination of the IGD’s Events App and reports from a packed press gallery.

Although spoilt for issue-choice, for me a pivotal item was Dave Lewis announcement of Tesco’s new trading terms.

Full details here, but essentially, Tesco has pledged to deliver a simpler and “fairer” business model for suppliers, by standardising their payment terms and settling bills from small and medium-sized firms quicker. 

When you consider that Tesco’s average days credit period is 42 days, which at say 5% cost of money and trade creditors of £5,076m (end Feb 2015), is worth £253m per annum, you will appreciate the pain this represents, given this morning’s announcement of a 55% fall in profits to £354m.

Whilst the new terms represent a major step towards fair-share dealings for Tesco – and a pointer for other retailers? - this is hopefully but the first move in acknowledging that trade credit should not be regarded as a source of working capital, but merely a way of covering a cash-flow gap between supply of a product and receipt of cash from a shopper. 

If that is the case, then Tesco need to budget for an eventual move to approximately 5 days average trade credit…

If this initiative catches the imagination of the public and thereby contributes to Tesco’s recovery, then other retailers will have to follow suit, or suffer loss of share…

However, whilst this will undoubtedly help suppliers, the real consequence will be the public-opinion spotlight then turning on major suppliers’ use of up to 90 days free credit from their ingredients, packaging and services suppliers…

Time for all suppliers to anticipate the obvious and begin their profit re-sets now?

Still think Amazon can add little to fresh retail?

Tesco’s Carlsberg de-list – just another overcrowd inevitability?

Whilst both parties understandably remain silent on the specific reasons for de-listing most of the Carlsberg range, it seems obvious that the brand’s scale and importance required a carefully calculated decision.

We are patently not privy to the specifics, but here on the outside, NAMs need to explore possible rationale/scenarios as a basis for identifying the implications for their brands, and taking evasive action, where necessary...

Consumer need has to be a starting point
Logically, when compared with available alternatives, Carlsberg was deemed to have less relative appeal than other brands and own-label, from the perspective of Tesco shoppers.

In practice, this meant that Tesco shoppers believe that the brand’s combination of Product/performance, Price, Presentation/Promotion, and Place is less appealing than other members of the category.

Whilst the Carlsberg marketing team might beg to differ, the fact remains that their consumer-appeal message is not reaching Tesco, or did not survive the BCG assessment.

Retailer need comes next
Here Tesco must have assessed the brand’s combination of Product/on-shelf performance, Prices & Terms, Presentation (how well the offering is put across, at all levels) and Place/availability, all compared with available alternatives in making a decision based on relative competitive appeal.

Whilst this can be a relatively simple process, it has to be kept in mind that Tesco is changing radically in most aspects of its decision-making-process, with a different balance of traditional and new influencers in the mix, all operating under an intense City spotlight… 

At some stage, Tesco decided that Carlsberg was deficient, and made the de-list move.

Why this matters for NAMs
The issue for NAMs is not only the possibility of their brand becoming a casualty of the Tesco re-set, but also the inevitability of this culling process being applied by other retailers in an overcrowded, insufficiently differentiated market, as they strive to optimise their relative competitive appeal, with no facilities for taking prisoners.

The answer has to lie in making a fundamental assessment of your brand’s real pulling power with the consumer, and integrating this with an effectively communicated trade offering that emphasises your advantages, and eliminates anything that dilutes its appeal, before the buyer does the inevitable…   

Jet.com: the new 'Aldi' of eCommerce?

A new US-only website, launched in July, Jet.com is offering another option for price-sensitive online shoppers: simply visit its site and it will guarantee the lowest prices across some 10 million items.

The site also offers a variety of tricks Jet.com shoppers can use to save even more, including filtering by “smart/cheaper” items, opting for a different form of payment for extra savings, accepting combined packs, slower delivery, or even agreeing not to return an item in exchange for a discount.

In other words, Jet.com are aiming at Amazon's market, but betting that online shoppers will be willing to trade high service levels for lower prices...

The business model works on a combination of a $50/annum membership fee and a real-time trading system that suggests economies such as 'combinable' products, new shipping options and price updates - cheaper! - as the shopper packs the basket, all resulting in lower prices (can you imagine the impact on B&M shopping if this facility could be incorporated into self-scanning in the aisle?).

Incidentally, given that Mr O'Leary plans to make Ryanair the Amazon of travel, aspiring to go the Jet.com route might make a better fit, and represent less of a culture-shock!

More on Techcrunch

Where are the UK Mults headed in your portfolio?

With Mike Coupe reporting better than expected results (1.1% drop in Q2 sales, and profits 19.5% down on the previous year) for Sainsbury's, coupled with Morrisons 2.4% fall in like-for-like Q2 sales, Asda's 4.7% fall in Q1 underlying sales, and fingers crossed for next week's Tesco wheel-tightening, NAMs have to ask themselves where now for their four largest customers...

Having to struggle with a perfect storm of a fundamental shift in buying behaviour - smaller, cheaper, closer, more frequent - coupled with a war on waste, and cash-strapped consumers 'making do', the mults are barely holding their own, as they experience market share drift to the discounters, convenience and online...

However, it is the structural impact of increasingly redundant large space retailing that represents the main threat.

Given their inability to trade out of the problem, the mults will have to address the issue of increasingly excessive space by progressive sell-offs of redundant outlets, fast enough to reduce the capital base (improving ROCE) but slowly enough to avoid a collapse in market values..

Meanwhile, NAMs have to keep in mind that most discounter growth will come at the expense of brands, unless branded suppliers can find ways of optimising the discontinuous relationships required in dealing with Aldi and Lidl.

In addition, those that survive the Tesco product re-sets need to anticipate the inevitable knock-on removal of overlap in other retailers as they also attempt to simplify their offerings and shore up their balance sheets.

All of this means that all stakeholders need to go back to fundamentals, before someone does it on their behalf...

In practice this means stripping your offering down to the bare essentials that satisfy consumer need, make you better than available alternatives, and allow you to demonstrate a positive, but tailored contribution to each retail player, even the mults...

Aldi Online - a contra-move that breaks the discounter-rules?

News that Aldi are going online appears to be a complete break with its traditional platform:
- Limited range
- ‘Bare-bones’ shopping experience and service
- Resulting in no-frills prices that are 15% lower

Going online pits it not against Tesco and the mults, but in direct competition with the high-service, unlimited range standards set by Amazon:
- 1-click ordering
- Returns as easy as 1-click
- And dense local coverage that drives down delivery cost

All of these go against Aldi’s core strengths…

The Dandy Lab - a merging of retail and technology

On your next store-visit to Spitalfields, why not try something really different by dropping into Dandy Lab, a new tech-enabled menswear store that stocks a small and exclusive selection of 'Made in Britain' cult brands?

NAMs will not be fooled by the superficial similarity to an innovative 'mens' outfitters that includes a selection of floppy handkerchiefs and crafted cuff-links appealing to the 'Dandy' elements of our nature.

The 'Lab' is where things get a bit more interesting. There's the 'Story Wall' - an interactive display allowing you to scan a product, which in turn activates a video with information that helps you get inside the tin, revealing details of its provenance, performance capabilities and the craftsman who produced it. The Story Wall, coupled with photographic analysis of your needs, helps you achieve that integrated look. In addition the technology gives you an insight into the story behind the products, the amount of work that went into its production and where your money goes. See more, including slideshow at Timeout

Finally, as you leave the store, you can share the results, including your photograph, with colleagues and buyers via social media, thereby adding to the productivity of your store visit...

Seriously, the Dandy Lab appears to be a genuine attempt to elevate shopping experience to new tech-enabled levels. They have set themselves high hurdle-rates by focusing on our most resistant gender...on the assumption that male-conversion will make the winning over of time-scarce savvy females a push-over...

I wonder...

...a thousand words?

..a journey barely started...

Tesco scraps 24-hour opening at two large stores - portfolio lessons for NAMs?

In the way that companies portfolio-manage brands by developing a mix of established with new products, and NAMs manage a mix of embryo and mature customers, the strong carrying the weak, so too retailers tolerate varying store profitability providing the national totals of sales and net profits are acceptable.

Thus Tesco, faced with pressures on national performance are probably re-assessing store-level viability based on individual branch P&Ls.

Whilst the obvious short-falling branches have already closed, or are on the waiting-list, marginal cases are obviously being tweaked as a last chance move.

Opening hours reduction obviously provides such an opportunity.
Tesco's original strategy of opening 24/7 was always a better option than guessing in advance whether an area around a store was likely to yield sufficient night-time traffic, given the ease of reducing the opening hours to match demand, via first-hand pragmatism.

So there should be no surprises here.

The question is where this leads, in that it seems inevitable that, should the new opening-hours window not translate into sufficient  improvement in the  bottom line, the knives will be back, in terms of executing a store-portfolio 're-set'.

In other words, Tesco will again bite the redundant-space bullet, starting with store closures, and searching for alternative usage of instore space where the outlet is retained in the portfolio.

This means that Tesco have the courage to cut, and continue to cut, until a sufficiently healthy retailer remains...(ROCE 15%, NPBT 5%, Stockturn 20+...)

And this in turn has to be a way forward for suppliers that need to shore up their bottom lines via a vigorous re-assessment of brands' and customers' portfolios, re-labeling as invest, maintain or divest in recognition of stages of business unit life-cycle evolution, and investing accordingly.

The alternative has to be continuing as usual and relying on a new owner to do it on our behalf...

How to get above-average insights from managing averages, via data animation...

A key issue for action-driven NAMs in unprecedented times is how to derive meaningful and actionable insights from well-intended but over-simplistic averages currently produced by ‘internal’ research.

A major problem with this approach, and a great deal of business reporting in general, is that it presents senior management with a host of averages:

category average margin
average space in store
average basket size
average customer spend
average shelf life etc.

We know these are important measures - the buyer keeps reminding us - but as measures, they have gone too far. In other words, they are a starting point, but we need to find ways of getting behind the averages, and data animation can help.

Guy Cuthbert, of Atheonanalytics, in a fascinating article, starts with a retailer’s average gross profit margin and shows via exploration and visualisation of underlying data, how to discover and communicate far more about the richness of shoppers' buying behaviour, helping us move towards the goal of any commercial analytical exercise – the oft-requested “actionable insight.”

In his graph-by-graph process he drills down and visualises by Customer Segment, Product Category, Sub-Category, Individual Customer, and converts a 2-variable scatter-plot to a 3-variable bubble-chart. He then adds total Profit (or Loss), using colour for this fourth variable, to highlight the variability in cash impact of the customers.

We are then in a position to loop back to the original question posed by the buyer – “How can we improve profitability?” – via a simple visual explanation of profitability, which can be explored by Customer or Product, and a recommendation to review customer discounting policy in the light of long-term customer value.

In other words, the data animation process has helped us move away from Averages of Averages, and provides a reasonable balance between simplicity and complexity, yielding actionable and communicable insight, far better than the average....

Peanut Corporation of America owner sentenced to 28 years

The ex-peanut company mogul was convicted on counts of conspiracy, obstruction of justice, fraud and other crimes in relation to the 2008-2009 salmonella outbreak which caused death of nine people and sickened more than 700. The incident caused one of the largest food recalls in US history. The QC Manager received 5 years and a food broker, 20 years, as parties to the conspiracy.

The key issue here is the escalation of accountability to the highest level in a company, along with the key players involved, and appropriate levels of punishment.

This development has to cause other companies and their teams to re-visit responsibilities re legislation and impact, everywhere.

Whilst in this case there appears to be no doubt as to culpability, it would be a pity if it caused business leaders and their teams to be over-cautious in terms of innovation and optimising resources in the marketplace.

Success in business is still about responsible risk-taking, working within existing rules and regulations, and this success will result from playing within the full ball-park, in full knowledge and observance of the legal and moral limits, while competitors seize this excuse for risk-avoidance in the centre of the pitch…

UK mults maxed out on space, losing 1m sq ft, a first cut in a decade

According to Financial Mail On Sunday, this represents a 1% space reduction, a long over-due combination of close-downs and sell-offs, in response to structural changes in the market.

Eight years of falling profits and flatline sales, combined with increased online efficiencies and consumer insights, have caused major retailers to re-assess their assortments. They have realised that, whilst overlap and duplication can be tolerable sources of back margin in good times, these surpluses become liabilities in a persistent downturn…leading to major range re-sets such as Tesco’s 30% SKU cull, in turn revealing that in large stores, upwards of 20% of retail space can be surplus to requirements….

The same navel-gazing by major mults has revealed that 80% of sales are made by 20% of the range, with ‘20% of SKUs selling but one pack per week’ in some cases.

Why the hesitation in making the cuts?
‘Normal’ businesses faced with these excess space issues would quickly sell-off unprofitable stores, but UK retail is special. As you know, the price of prime retail space is driven by sales/sq. ft. but no other business (except global Apple @ £4k/sq. ft./annum) can sell £1,000/sq. ft./annum.

Moreover, by applying a 2% depreciation rate per annum to their stores, retailers are saying that their assets have a 50 year lifespan - a 50yr lock-in - all leading to the fact that any sell-off of spare space could be at a loss, or drive down property values…

Whilst in good times, assumptions of 50 years of unchanging market conditions was understandable and even re-assuring, with the benefit of 20/20 hindsight, the structural changes resulting from closer, smaller, faster and more frequent shopping can be seen as inevitable, fundamental, and permanent… (in City terms, anything longer than a year is ‘permanent’ i.e. see long term debtors in the balance sheet..).

Limited options for B&M retailers
Thus it can be seen that Bricks & Mortar retailers have limited options available in attempting to restore historic levels of profitability, making online development - a major and compelling route back to profitability for the mults - even more appealing. And besides,online, space is not an issue, a place where long tails are irrelevant, and selling 1SKU a week, even a month, is still ok…

All that matters is exceeding consumer expectations 24/7 in terms of availability, speed, accuracy and contents of the tin…