KamBlog - Issues affecting the retail sector

Talk about speed to market?

2012-05-18T10:03:00.002+01:00

pic: http://www.foodnewsie.com

A fruit so new it is yet to be named, but described as a pear disguised as an apple, is to go on sale next week at M&S.

A spokeman said the fruit -- dubbed a "papple" -- looks and tastes like an apple but has the skin and texture of a pear, and is a member of the pear family.

Dubbed T109, the new SKU is grown in New Zealand and is a cross between European and Asian pear varieties, which resulted in a fruit similar to an apple, the retailer said.

Given the high degree of trade concentration of its native market, T109 should find the cut ‘n thrust of the UK and Irish retail scenes fairly familiar...

The bigger issue for M&S may be the product description at HM Customs, that innovative lot who like to separate their apples and pears…i.e. the new name may be the least of M&S problems…

Meanwhile, have an actirest but fruitful weekend, from the NamNews Team!

Ferrari as collateral for €2k??

2012-05-11T07:47:00.000+01:00

A Dublin property developer goes to his bank for a 10 day loan of €2k.

Following the opening stance, the bank manager offers the loan at 10% annual, + a little extra for admin, i.e. €57, effectively 104% interest, and requests security.

The property developer offers his new €450k Ferrari parked outside, hands over the keys, takes the cash and leaves the bank. The bank manager parks the car in the bank's underground car park, and later jokes with the staff about the €450k car being used as security for €2k…

Ten days later the property developer returns, repays the €2k + €57 interest, picks up the keys and is about to drive off when the bank manager asks why he was prepared to use such an expensive asset as security…and received the reply 'Now where in Dublin could I get 10 days secure parking for €57?

Moral: The same deal can have different values for each party in a negotiated agreement…

Have a dealerious weekend, from the NamNews Team!

Whistle-blowing for beginners?

2012-05-08T07:40:00.006+01:00

In the Queen’s speech tomorrow, the Groceries Code Adjudicator Bill will apparently give suppliers based in Britain and abroad the right to act as anonymous whistle-blowers.

Key aspects will include post-agreement negotiation, where retailers try to obtain further price reductions and change terms, having struck a deal, along with failure to pay within the time agreed.

Key issues:
The key issues are preservation of anonymity, itself no mean achievement on the part of government with a long record of losing and inadvertently releasing confidential details of members of the public, and gathering sufficient sustainable evidence to make a case against a major retailer.

Preserving anonymity:
The only safe route to anonymity for a supplier is to remove any reference to category or origin that would identify the whistle-blowing company. However, sufficient detail has to be included that will make it possible to categorise the complaint (here the government could help by listing a maximum of ten types of complaint, and 10 broad product categories) and invite submissions on these points).

Sustainability of evidence:
In the interests of sustainability of the evidence, perhaps the government should specify minimum conditions on whistleblowing submissions, in order to count as ‘evidence’. In practice, it is difficult under current competition legislation for suppliers to collaborate in drawing up such checklists, so it may be necessary for individual suggestions to be submitted to authorised third parties (i.e. legal firms).

The same firms might also find it useful to draw up minimal templates for submission of complaints?

Action:
Using these guidelines, a supplier with a grievance could prepare an anonymous hard copy, run it past the inhouse lawyers and commercial team/board, and post it in a plain envelope from a central London postbox.

Paranoia? If the government are really serious about this one, this is how they can attempt to over-ride the fear and impact of the consequences for suppliers that are found to have blown the whistle, naively...

Target to delist Kindle, fed-up ‘show-rooming’ for online...

2012-05-04T08:34:00.000+01:00

Target, the US mass market discounter, communicated the decision to stores last week, and underlines growing antagonism between Amazon and bricks ‘n mortar retailers, which are threatened by the online retailer’s aggressive discounting, entry into new merchandise categories and attractive shipping service.
Target reported last November that the Kindle was the best-selling tablet in its stores on the day after the Thanksgiving holiday, typically the busiest shopping day of the year.
Target has in the past complained about the practice of “show-rooming”, a growing habit by shoppers to view a product in-store and then buy it from an online seller.
Apart from threatening the stability of routes to market for a number of key non-food categories, this move raises an important issue re the relationship between suppliers and specialist retailers.

Specialist shops viability
Essentially, as you know, the purpose of specialist shops in categories such as toys, bookselling, consumer-electronics and home entertainment is to meet a fundamental consumer-shopper need to physically experience the product. When specialists’ retail prices are so out of line with alternative formats, it is inevitable that having ‘pressed the buttons’ on a piece of electronic equipment in a specialist outlet, the shopper will invariably make a purchase online at a significant discount. There is no legal way of ensuring fulfilment of the sale by the specialist retailer unless via a price differential that is so low that purchasing elsewhere is not worth the trouble.

Even the mass retailers are under pressure from Amazon
It has to be expected that as bricks ‘n mortar specialist shops cannot compete with online providers they need help in optimising their business model. The major multiples have reached market dominance by taking state-of-art retailing to new highs, in effect becoming expert shopkeepers. In fact, these major multiple retailers have set global standards in state-of-art retailing that have redefined shop-keeping, and these standards need to be met by specialist retailers in order to survive.

Role of the supplier in helping the survival of specialist retailers
In practice, suppliers need to be retail business consultants to specialist and independent shops, helping them to adapt state-of-art retailing techniques and practices to their operations. However, as the cost of this level of service would rarely be covered by the size of the resulting order, suppliers need to change their approach to calculating the profitability of some customer types. Because specialist and sometimes independent customers are ‘educating’ the consumer and ‘show-rooming’ the product, they are in fact performing an advertising function for the brand. They therefore need compensation by way of additional margin and help in becoming more effective shopkeepers.

Budgeting tip to help specialist retailers
Should we not therefore charge say 50% of the cost of servicing them to the advertising budget, and continue to call if the remaining cost is covered by size of average order?
Otherwise find a new way of show-rooming your brand and re-engaging the consumer….

Meanwhile, have a long, experiential weekend, from the NamNews Team!

Argos: the writing is on the wall-chart…?

2012-05-03T10:13:00.000+01:00

Home Retail Group's shares were down 13% yesterday, partly because of uncertainty about its ability to revive the current Argos model, combined with a decision to forgo the payment of a final dividend, and especially a fall of 9% in like-for-like sales at Argos….

As you know, investors rely on a combination of rise in share price and dividend in order to compare alternative investments. Faced with a two-thirds fall in share price, a company would normally offer a generous dividend to compensate and retain shareholders.
But not when the company has already used available capital of £150m to buy back its shares, all to no avail…..

The Guardian’s Nils Pratley gives a number of reasons for Home Retail to be cautious in 2010-2011: the group's return on capital had fallen for three years in a row, along with operating profits, as had Argos' like-for-like sales, and a chart that says it all....

Future of the catalogue-showroom format?
Another Guardian article quotes retail analyst Nick Bubb as saying that the catalogue-showroom format had "died a painful death" everywhere else in the world barring the UK. "In the US, the discount stores such as Walmart and the online giants like Amazon destroyed long ago the convenience and range advantage of the catalogue showroom. Is it only a matter of time before the same pressures prevail in the UK?"

It is obvious that Argos is in trouble because of its categories moving online, and increasing competition from other “click and collect” services. Faced with this scenario, it would be logical to radically cut the capital base ( i.e. close 50%+ of the stores). Instead the company plan to close but 10 stores in the coming year.

On balance, Argos needs to radically reform its business model, and suppliers with a heavy dependence on the company need to conduct several what-ifs on possible options for their categories in these unprecedented times, fairly quickly…

Buyer-seller corruption, a potential hot-potato for all?

2012-05-02T09:58:00.000+01:00

Yesterday’s court case involving large-scale corrupt payments to a potato buyer raises important issues for suppliers and retailers. Given the potential impact on share prices of both parties, coupled with ever stringent corporate and government monitoring in these unprecedented times, it is surprising that anyone is nowadays prepared to take the risk of being a party to corrupt inducements to buy. In other words, it needs just one person with a conscience, or a grievance, to lift the lid….

However, given that the current plaintiff was arrested in 2008, with the case having now arrived in court, it could be said that parties on each side of the seller-buyer relationship harbouring any doubts re. their version of the selling-buying process have had adequate time to reflect on the implications and take appropriate action.

The distinction between gifts and bribery
If buying decisions were made solely on objective, rational criteria, a computer would probably do a better job. Instead, given that the basic offer satisfies the key objective criteria, then a host of emotional criteria/influences/needs come into play.

Emotional needs in buying
These include needs for avoiding effort, self-esteem, (pride, self-importance, power), to imitate, to acquire money (via saving vs. making, for the company) need for possession (icing-on-cake), investigate (data), create (new), sense of duty, and especially a need for security (avoiding fear). These can include meals out, or even a bottle of whisky at Christmas.

It needs to be emphasised that such attempts to satisfy the emotional needs of a buyer are not corruption, they are merely ‘icing on the cake’ by way of celebrating a done deal, a deal which ticks all the rational, objective boxes.

Bribery defined
Bribery is quite clearly an overt inducement to the buyer to over-ride the logic of a buying decision where a supplier’s competitor is patently offering a better deal on a like-with-like basis. In other words, the supplier’s offering is equal with that of the competitor except for the additional £10k on the price to fund the bribe.

This point, the first of many, was brought out yesterday in court by the prosecution: "A peculiar feature of the corruption was that it was self-funding. [The supplier was] not paying for it, [the retailer was] paying for the corruption of their own buyer and this was achieved by overcharging [the retailer]".

Action for NAMs and KAMs
The answer for NAMs/KAM’s is always to attempt to revert to the base deal and check that it satisfies objective buying criteria (the buyer’s job needs), like-with-like, before focusing on the buyer’s emotional needs. In practice some of this process occurs simultaneously, but it remains vital that the supplier’s basic offering is defensible and transparent, always, and with 20/20 hindsight…..its the nature of the job, folks.

Touching response-rates in improving buying appetite, twofold

2012-05-01T07:35:00.000+01:00

In these unprecedented times, when every little helps, light touching of the other party can apparently impart a subliminal sense of caring and connection, leading to more successful social interactions, better teamwork and even shopping behaviour.

In a new study ranging from dating to restaurant tipping and following the waiter’s advice, passersby responding to surveys in a mall, and the percentage of shoppers in a supermarket who purchase food they had sampled, it would appear that suppliers and retailers are missing a trick by not building more touching opportunities into the shopping experience.

Impressing the researcher...
Given that the author Leonard Mlodinow is a theoretical physicist at the California Institute of Technology, with an appetite for statistical significance, even he was surprised to find a twofold increase in response rates following a light touch on the arm…

Not convinced?
Some scepticism is understandable. After all, some people recoil when a stranger touches them. And it is possible that some of the subjects in the studies did recoil but that their reactions were outweighed by the reactions of those who reacted positively.

'Over-touching'?
However, for those finding this blog-post an answer to a personal history of low-success social encounters, and are even tempted to experiment without further delay, it must be emphasised that these were all very subtle touches, not gropes. In fact, in studies in which the touched person was later debriefed about the experience, typically less than one-third of the subjects were even aware that they had been touched.

Apart from being an obvious pointer for Tesco in helping to warm up the shopping experience, there is surely an application in terms of supplier-retailer negotiation, both within and following a multilevel and multifunctional handshake routine…?

(Thanks to Andrew Sullivan)

Flash Sale? The New Business Mantra

2012-04-30T08:00:00.000+01:00

Flash sales are a time-limited offer of high discounts on big ticket luxury items. The system is a win-win for both retailers and consumers: retailers can build brand loyalty and at the same time sell surplus stock within a short span of time.

How they work
The offers are ‘abrupt’ and lasts for a brief time. It is also one of the safest deal takings. In other words you have to avail the opportunity as soon as you are offered the services. Consumers normally receive online offers including even invitations in the mail/emails, for offers averaging 50% off.
In the US, online sample sale site Gilt Groupe have launched an iPad app allowing users and buyers to access flash sales of luxury goods on its site.

Where flash sales are headed
A report by Business Insider estimate that flash sales will be a $6bn market by 2015.
Given the uniquely large supply glut in 2007, offline retailers of all stripes were likewise incentivized to convert their own inventories to cash positions, translating to even deeper discounts and fewer brand protections for manufacturers.
Into the void stepped flash sale sites to offer companies a novel strategy to off excess inventories while simultaneously creating an illusion of exclusivity.

Amazon’s flash sales
Amazon has launched a US private sale website for designer clothes, with members-only shopping and time-limited “flash” sales with discounts of up to 60%.
They opened the site called MyHabit.com last year, competing with start-ups including Gilt Groupe and Rue La La that have won well-off young female customers with their brief sales and urgent marketing.
Amazon promised a rolling series of cut-price deals – available for 72 hours each – from more than 800 brands.

Achica - an online breakthrough
Achica, the members-only home and luxury lifestyle UK website, defied the retail gloom after the fledgling company reported strong sales growth as it expands in continental Europe.
With the homeware sector being one of the hardest-hit areas on the high street as people delay refurbishment projects and trim spending on non-essential items, Achica has bucked this trend by focusing on offering premium homeware goods such as Anglepoise lamps and Le Creuset kitchenware at discounts of up to 70% via “flash” sales, typically lasting for 48 hours.

Apart from obvious opportunities in categories at the upper end of the market, how about suppliers anticipating the spread of flash sales into other categories, and pre-empting the competition, proactively…?

A euro parable: the couple with a joint account

2012-04-27T07:25:00.001+01:00

Increasing the bank-leverage of a pre-nuptial joint account by adding extra family members and strict rules of compliance can benefit all, at first…... Adding a joint credit-card guaranteed by richer family members can appear to provide a short term solution to personal financial ‘mis-behaviour’ of those family members who in return promise to mend their ways via unsustainable cut-backs…
Attempts to eject problem members can cause the bank to threaten closure of the entire joint-account, resulting in core-members having to re-mortgage to prevent collapse… If you really want to understand how close the euro is to collapse, read this fascinating parable on the FT site.
In other words, whether you are buying or selling, you owe yourself a couple of ‘what-ifs’ on the unmentionable, while others hope something will turn up, whilst awaiting an announcement from Brussels…
Meanwhile, have a real-world weekend, from the NamNews Team!

Complex mobile-payments tools a big turnoff for mobile-shoppers?

2012-04-26T09:51:00.000+01:00

Anyone who has experienced Amazon’s 1-click shopping soon becomes increasingly frustrated at the constant ‘repetition’ of lengthy account creation procedures on less sophisticated sites, akin to standing in a shop queue and not being allowed to go to the cashier without giving up your email address and setting up a password.

Lost opportunities
New research indicates that the total amount of revenue currently being lost by users exiting at the checkout stage as a result of an inefficient purchasing process is £2.4 billion – £470 million, thus removing the ‘impulse’ of buying on impulse…according to a survey carried out on 18,000 mobile shoppers for Mobile Money Network.

Mobile-payment not a discrete channel
MMN believe that mobile-payment is not a discrete channel and used properly, it is an enabler to improve sales conversion in all channels. Their ‘Simply-tap’ drives improved sales conversion for retailers by putting an instant mobile checkout anywhere a retailer has a communication with a customer.

Time for retailers to source centralised shopper-information to simplify the checkout process, safely?

Or will major retailers see an opportunity to gain competitive advantage by simplifying (a la Amazon) their own process by converting all 'attempts-to-purchase' including impulse, while others await the adoption of a common, safe and fast buying-process....?

The future is now, for you and the customer

2012-04-25T07:09:00.000+01:00

Today’s Guest KamBlogger, Jeremy Blain, Managing Director of Cegos Asia Pacific, explains how to get started, fast…

Globalisation, mobilisation, consolidation, collaboration, communities, technology, social networks, the Cloud – a lot happening in the world of business today, a lot more jargon to contend with, and a lot of it enabled by whizzy new technologies and applications.

The new workforce

Just consider….in less than 4 years half of the Global workforce will be made up of Generation Y, and in less than 8 years Gen Z will be in the workplace. They will expect to work, communicate and learn in very different ways. These are the people who are comfortable with technology and its uses. These people may be your customers and colleagues. It is up to the rest of us to stay in the game and get savvy, quickly.

Entry level jargon

So if you don’t know your Twitter from your Tumblr, your Pinterest from your Storify, your Gowalla from your Foursquare, your Doodle from your GroupMe, your elearning from your immersive simulation and if you are not yet married in Second Life or have some kind of Avatar……you may need to consider it!

Essential catch-up action, fast

To get you started there are a couple of short white papers* on new technologies to help you learn, and how to get the best out of social networks. There’s always trusty old Google to pop some of these names into. Go on, grab a coffee and explore.

You never know what you might find……or what might find you…

* See Jeremy’s free white papers:

- Learning through social and informal networks 2011

- The rise of virtual learning 2011

Jeremy Blain (jeremy.blain@cegos.com.sg)

Maths blunder wipes £170m off SuperGroup shares

2012-04-24T09:57:00.002+01:00

A routine audit last week revealed a series of forecasting and accounting errors. The most basic error was the insertion of a 'plus' rather than a 'minus' into the fashion retailer’s company accounts, which contributed to its third profit warning since October.

The news wiped around £170m off the company's value as shares plummeted 38% to 351.8p in trading on 20 April.

Thinking positively, the person responsible should perhaps be thankful that the UK financial environment is relatively benign in that, apart from the impact on the share price, no personal retribution need be expected.….

Other geographies can be less tolerant...

For instance, in the early years following the fall of the Berlin Wall, a marketing director pal working in Moscow, issued a new trade discount structure at 0900, realised during coffee break he had inadvertently approved an arithmetical error that would cost some key distributors (with strong family ties in the ‘toe’ of Italy) significant sums before a correction would kick in…..

The company immediately despatched cars to his apartment and kindergarten to pick up his wife and child, and all three were on a flight out of Moscow by early afternoon….

KAM Moral: If you make a mistake in the numbers, be the first to discover, admit and have an appropriate correction plan ready.. You are already first at Square Two, take advantage of it…

In other words, get used to approximating ‘in your head’ and develop the ability to spot figures that do not add up (remember that manual skill that allowed you to graduate from kindergarten?), and always keep your car-keys in your pocket, just-in-case….

Nestlé Wins Battle For Pfizer Unit With $11.9bn Deal

2012-04-23T08:19:00.000+01:00

Pfizer has agreed to sell its baby food unit to Nestlé, in a deal worth $11.9bn, giving the Swiss food giant a major boost in emerging markets across the world.

With 85% of Pfizer’s sales in emerging markets – the deal will complement Nestle’s existing infant nutrition business perfectly. The sale marks Pfizer’s largest divestiture since it divested some consumer health brands to J&J in 2006 for $16.6bn. The unit owns infant formulas such as SMA and Promil, and also makes Enercal supplements for adults. It has a network in more than 60 countries, and was the world’s fifth-largest maker of infant formulas in 2010.

Implications:

As the No.1 food company in many countries, Nestlé are accustomed to, and will have anticipated issues raised by anti-trust/monopoly legislation.
This step to full global coverage will enable the company to develop and sustain a fully global strategy for the combined brands in baby food.
However, given that the company will probably take its time integrating the two operations in order to secure a smooth transition for the companies and the trade (the 1988 Nestlé–Rowntree integration took several years), this may give competitor brands some time to adjust to the new category dynamics…although a couple of what-ifs this morning might be a wise precaution...

Kammed Laughter: Taking humour seriously in negotiation....

2012-04-20T09:44:00.003+01:00

Given the current financial climate, gallows humour might best describe any attempt at levity as a relief from the doom and gloom… Incidentally, looking over the precipice (doom) does not necessarily go hand-in-hand with ‘gloom’. In fact extreme, unprecedented change should be seen as a breakable window of opportunity (‘doom and boom’?) for positive KAMs, while competitors wait in vain for a return to ‘normal’…

Laughter defined

Given that laughter is a nervous reaction to tension (a comedian deliberately builds this up via the story, causing puzzlement, anxiety and even suppressed anger on the part of the recipient to a point where the tension is ideally released via explosive/convulsive relaxation of the jaw muscles, nasal passages (or worse), the only proviso being that the longer the build-up, the better had be the punch-line!

Factories have been closed down for less…..

Delicate use of humour in negotiation

In the KAM role, skilled use of laughter can be an aid in optimising a negotiated agreement.

For instance, in delivering serious news/data to a buyer, if humour is totally absent, the only way to indicate ‘more serious’ is to up the volume or emotion, even more intimidating, leaving no guns in reserve….

However, a KAM that is able to manage well-placed levity allows emphasis of serious interventions as required, thus adding to one’s control of the overall negotiation session.

Operating safely....

To operate safely at this level requires a high degree of focus on the buyer’s combination of Job or Functional needs, whilst also taking into account the complex set of unspoken emotional needs that are not supposed to, but in fact greatly influence the progress to negotiated settlement.

To achieve these levels it is obviously best to practice on those in your circle where abject failure does not result in loss of job or divorce…in other words, sharpen your skills on those you still regard as your friends…obviously avoiding those who are also your buyers…

Incidentally humour can and should be funny too...

Go on, have a ‘witty’ weekend by practicing on your friends, from the NamNews Team!

Gesture-based-marketing of Coca Cola?

2012-04-18T09:47:00.003+01:00

Forget price sensitivity by replacing cash with hugs…

A Coke vending machine was installed overnight at the National University of Singapore. It looks like a fairly ordinary machine, in the brand’s iconic red and white. But instead of it’s logo, this machine says “Hug Me,” in the logo font

Positioning this stunt at a university is a smart move in Singapore, where public signs of affection have long been discouraged, but are on the rise among the young. Coke is positioning itself as a non-threatening ally to affection demonstrating youth.

Given the fact that appetite for carbonated beverages increases with ambient temperature (a few years ago, the company tested a vending machine in Germany that had a thermometer on top, triggering a rise in price with every degree increase in temperature…), it remains to be seen whether the company have built in a facility requiring increasingly intensive hugs as the temperature rises…

In effect, Coca Cola are ‘pressing all the buttons’, in a world where buttons have been replaced by touch….
However, the real issue for others in the vending channel is the extent to which the game has just been raised in Singapore…

Flash Mobs morphing into Cash Mobs, a new force in retailing?

2012-04-13T07:33:00.003+01:00

Inspired by Flash Mobs, a cash mob is a group of people who assemble at a local business and all buy items from that business. These groups of online activists are harnessing social media like Twitter and Facebook to get consumers to spend at locally owned stores in cities around the world in so-called Cash Mobs.

At the first International Cash Mob day on Saturday 24^th March, wallet- toting activists gathered in as many as 200 mobs in the United States and Europe, with the aim of spending at least £12 each in locally owned businesses, according to the concept's founder, Cleveland lawyer Andrew Samtoy.

Essentially, this is a break-through moment, an event where a virtual society enters the real world, prepared to put their real money where their virtual/real mouths are, and actively support local shops….as their contribution to the on-going health of the community.

The need for conversion

However, it is essential to bear in mind that such initiatives are one-off injections of support, the ‘first bite’ of a new product. As you know, the ‘repeat purchase’ depends upon how well the experience matches, or exceeds expectation. In other words, for local retailers this is a windfall, an opportunity to meet and influence a target audience that wants to support local business and the community, and is prepared to spend money in the process…and tell others about their experiences (Remember, that’s how they got to the shop in the first place)

Capitalising on the trial visit

To convert these ‘trialists’ into regular customers, retailers need to ensure that their 8P Marketing Mix (Products & Assortment, Pricing, Promotional activities, Place i.e. store location, Personnel, Physical distribution & handling, Presentation of stores & products, and Productivity) more closely matches shopper need than equivalent offerings available from local and out-of-town multiple retailers. What they lack in price advantage, needs to compensated for in terms of personal service and convenience, to an extent that shoppers willingly come back for more…

How suppliers can help

Suppliers can help by revising their independent retail business model, and find ways of helping survival-mode retailers to adapt the state-of-art retailing principles established by the major multiples, and build an alternative route to consumers, as a way of realistically diluting trade concentration.

Have a pro-active weekend, from the NamNews Team!.

Asda adding retailtainment to the shopping basket?

2012-04-12T08:45:00.010+01:00

Asda plans to revamp in-store marketing to improve core customer shopping experience, following Asda 'Mumdex' research which looked at how it could support mums and their sometimes over-enthusiastic off-spring.... Momentum, an integrated marketing communications agency have been appointed to enhance Asda’s key commercial trading occasions by creating a programme of retail events to
- engage customers
- ensure the programme delivers a proven commercial return
- strategically align with objectives of Asda’s brand partners
- use their digital and social platforms to promote events to customers.

This raises the issue of the extent to which suppliers and retailers share and optimise consumer insight and shopper insight in programmes that are based upon suppliers' differentiating retailers by shopper-profile, and tailoring trade strategies appropriately.

In other words, folks, in this case, an integrated ‘digital and physical’ opportunity to optimise Asda potential for brands with profiles that are congruent with Asda’s shopper profile…
One to watch, but still a bit to go to match instore theatre in Brazil...

Tesco's strategic options, suppliers' strategic response

2012-04-11T09:21:00.027+01:00

What is this about?

Tesco’s core issue is its profit warning in January, ultimately a driver of ROCE, in turn affecting the share price. With 2/3 of its business in UK, any setback causes the company to challenge one of the basic ‘rules’ in global retailing – ‘dominate the home market’. However, any company having more than 25% of a national retail market attracts negative attention from media, politicians and ultimately shopper-voters. Within the home market, supply chain efficiency made some large space redundant unless freed-space is filled via product diversification. Meanwhile, having grown share at the expense of less efficient competitors, Tesco is now being challenged by retailers that are as good as, or better, for a share of a zero-sum, flat-line market in terms of range, quality and service, as it strives to return to the Tesco 'rule of 25'.

Finally, the early retirement of a strong unchallenged leader left at least four people who felt they should fill his shoes…

Where is it headed?

Essentially, Tesco has four complementary options:

Sell more of its current products to current users (increase basket size)
Sell new products to existing users (Clubcard data, trade up via diversification)
Sell current products to new users (use Clubcard data to profile ideal Tesco users and attract more of this profile with current products)
Sell new products to new users (high risk, given two unknowns)

They need to re-apply this formula in the UK, delivering greater perceived value to shoppers, vs. competition, and then roll this strategy out globally.
They need to re-assess their competitive appeal in the eyes of shoppers, vs. the competition in terms of range, quality and service, vs. price. The leadership issue needs sorting in order that the entire company pulls in one direction, rather than each function attempting to ‘rescue’ Tesco. This was the challenge faced and successfully dealt with by McLaurin many years ago….

How does it affect you?

Essentially depends upon category, geographical spread and degree-of-partnership, but in the short term the above strategy will put pressure on all aspects of the supplier-retailer relationship, especially price and supply-chain efficiency, as Tesco re-appraises its supplier-base vs. alternatives available

What to do about it?

Re-assess your competitive appeal to Tesco as a company, and brand within key categories, and re-engineer to optimise, where necessary
Re-evaluate your match with trade partnership criteria (Potential, Partnership, Profit and Performance)
Invest (time, money, people) in what can demonstrably help Tesco implement its strategies, and meets your ROCE objectives

Above all, insist on fair-play in all aspects of your Tesco trade partnership, a once-only opportunity…

Unprecedented Treats for Unprecedented Times?

2012-04-10T10:13:00.002+01:00

A $200,000 bottle of whisky made to mark the 60th year on the throne of Queen Elizabeth II is on sale in Singapore for a mere S$250,000 ($198,500) a bottle - and it may well find a buyer, (for a buyer?).

No doubt it's a premium sip. Only 60 bottles of Diamond Jubilee were made by the Johnnie Walker unit of Diageo PLC from a blend of whiskies distilled in 1952.

It's also a premium price for Asian aficionados at the month-long Master of Spirits II event featuring specialty wine and liquor put on by luxury travel retailer DFS Group, part of the LVMH empire of high-end goods and services.

Discerning palates, and expats' excessive longing for the old country apart, this differential vs. a spirits’ bogof at Tesco has to be a reflection of the gap building up in societies everywhere… the issue is whether this gap will continue to increase to breaking point, or whether new governments will take steps to keep the lid on via attempts to return to normal supply and demand in markets everywhere… Either way, time for suppliers to reassess trade strategies and avail of opportunities, ahead of competitors locked in old patterns…

Incidentally, should any potential expat buyers like to take a first class trip back to the UK and pick it up locally, the same package - the vintage whisky in a crystal decanter with silver trimmings, two crystal glasses and a leather-bound booklet - is priced at 100,000 pounds ($159,100) in Britain.

Three chias for new wonder-food!

2012-04-05T09:02:00.000+01:00

Salvia hispanica, commonly known as chia, is a species of flowering plant native to central and southern Mexico and Guatemala

With more omega-3 fatty acids than salmon, a wealth of antioxidants and minerals, a complete source of protein and more fibre than flax seed, the seeds have been dubbed a "dieter's dream", "the running food", "a miracle", and "the ultimate super food", by advocates and athletes.

To chia cheerleaders the seeds do no wrong. They claim chia reduces inflammation, improves heart health, and stabilises blood sugar levels. A few tablespoons are touted as remedying just about anything - without any ill effects.

"In terms of nutritional content, a tablespoon of chia is like a smoothie made from salmon, spinach and human growth hormone," writes Christopher McDougall in Born to Run, the bestselling book about an ultra-distance running tribe in Mexico who fuel their epic jaunts with the seeds. The book is credited with shining the spotlight on chia as food for athletes.

"If you had to pick just one desert-island food, you couldn't do much better than chia, at least if you were interested in building muscle, lowering cholesterol, and reducing your risk of heart disease; after a few months on the chia diet, you could probably swim home," McDougall adds.

In the UK, the seeds are only currently allowed for sale as a bread ingredient, but over the next few weeks, the Advisory Committee on Novel Foods and Processes is poised to allow chia seeds in a wide variety of products including baked goods, breakfast cereals and nut and seed mixes.

Available at Holland &Barrett Online

Have a really chiaful weekend, from the Namnews Team!

Payday Loans - an effective solution?

2012-04-04T06:37:00.001+01:00

Payday loan providers are there to serve a local need in terms of low-income consumer survival. However, attempts at justifying the 2,000-3,000% interest rates by reference to high servicing costs of small amounts borrowed, coupled with ‘high’ risk of default are inevitably attracting government attention. In practice, much of this risk is eliminated by effectively taking ownership of borrowers’ salary/wages cheques until loans have been repaid, with any default-losses well covered by the usurious interest rates charged to those who pay…. In the end, the eventual changes to legislation will be too late and inadequate-for-purpose in restraining providers that in the old days would simply have been run out of town…

An effective solution

Instead, the government should acknowledge that those members of the community in need of income-supplements between paydays should be offered government-backed temporary loans using the payday loan model. This could include taking ownership of pay-cheques/income supplements, but offering low-level interest rates, a move that could help to stabilise household finances and freeze out current payday-lenders overnight…..

Use of Fixed Charge Cover to spot a customer going bust?

2012-04-02T22:54:00.014+01:00

Given the financial turmoil of the past three years resulting in further retail casualties such as Game Group, and a number of others on the brink, it is obvious that the ‘usual ratios’ such as ROCE, Net Margin, Stockturn and Gearing may be insufficient in terms of providing early warnings of trouble for suppliers.

What makes a retailer vulnerable?
A recent article in Moneyweek.com flags up the fact that if a retailer leases rather than owns its shops, it is faced with regular fixed charges for rent that must be paid, irrespective of the level of sales and profits. Moreover, if a retailer also has fairly high gearing, the interest payments represent an additional fixed cost on the business.

These Fixed Charges are ‘Lease costs’ and ‘Interest on borrowing’ and need to be compared with the ‘available Operating Profit’ i.e. the Operating profit less Fixed charges. (these can be found on the P&L ('Interest paid' and 'Operating Profit') and early in the Notes to the Accounts ('Lease expense'), after the Balance Sheet
(NB when you find the figures, check them with your finance colleagues).

In other words, the Fixed Charge Cover (FCC) indicates the ability of a company to pay its Fixed Charges, irrespective of sales and profit performance. Failure to pay can result in liquidation.

The following analysis compares the ‘big four’ multiples in order to illustrate the calculation in practice.

Given that these are the most financially healthy retailers in the UK, other retailers could be vulnerable..

Some of the differences are interesting in that, for instance Morrisons, because it owns most of its shops, and has relatively little borrowing, combined with a good net margin, means that with an FCC of 13.3, Fixed Charge Payments are no burden to the company. However, in the case of Tesco and Sainsburys at 2.9 and 2.2 respectively, FCC is obviously more of an issue.....
Application to other retailers?

However, the real value of the ratio is in its application to most medium and smaller retailers that are running short of cash and are finding that Fixed Charge Payments are pushing them to the edge….

As in all cases of pending liquidation, those creditors that are first to spot the danger, can have the advantage of withdrawing their credit before the liquidator is appointed.
Ignoring the Fixed Charge Cover indicator?

If you still feel that all such matters are the responsibility of the Finance Department, remind yourself that if a customer goes bust owing you £150k, and your pre-tax net profit is 5%, you will need incremental sales of £3m to recover…

In which case, perhaps the application of Fixed Charge Cover analysis to your customers’ latest Annual Reports will help…?

Google's self-driving car for the high-focus NAM?

2012-04-02T07:23:00.003+01:00

For those who need high-intensity preparation and in-depth post-rationalisation of encounters with the buyer, perhaps it is time to consider Google’s computer-controlled car as a must-have upgrade?

In the video, Google's self-driving car takes Steve Mahan, who is legally blind, to a Californian Taco Bell to pick up a snack.

Google released the video to celebrate that it has safely completed 200,000 miles of computer-lead driving.

The video shows Mahan sitting in the driver's seat as the car steers itself, using radar and lasers to make sure the road is clear. The car takes him through the drive-through of Taco Bell, then to the dry cleaners, a logical destination, given the trip’s continuous sudden-shock potential…

According to Google, the passenger in a Google car can take control in three ways: via a brake pedal on the passenger side that can stop the vehicle, via an emergency stop button on the centre console that can be reached by anyone in the vehicle, and by means of the laptop the Google representative is seen holding. In all three cases, the car can be stopped, but not remotely controlled except by the driver's steering wheel, he said. No mention was made of the need to reboot fast if the car ‘crashes’ in the fast lane..

And if all else fails, a final option can be a pit-stop at the dry cleaners…

For a comprehensive selection of Google April 1^st might-have-beens...

Choose your airline carefully….

2012-03-30T09:49:00.004+01:00

Those NAMs tempted to use a value-carrier to escape the High Street doom and gloom are advised to check the airlines maintenance records before switching suppliers…

A pilot for a Chinese carrier requested permission and landed at Frankfurt for an unscheduled refuelling stop. The reason became soon apparent to the ground crew: The Number 3 engine had been shutdown previously because of excessive vibration, and because it didn't look too good. It had apparently been no problem for the tough guys on the ground back in China: as they took some sturdy straps and wrapped them around two of the fan blades and the structures behind, thus stopping any unwanted wind-milling (engine spinning by itself due to airflow passing thru the blades during flight) and associated uncomfortable vibration caused by the sub optimal fan.

Note that the straps are seat-belts ....how resourceful! After making the "repairs", off they went into the wild blue yonder with another revenue-making flight on only three engines! With the increased fuel consumption, they got a bit low on fuel, and just set it down at the closest airport (Frankfurt) for a quick refill.

That's when the problems started: The Germans, who are kind of picky about this stuff, inspected the malfunctioning engine and immediately grounded the aircraft. (Besides the seat-belts, notice the appalling condition of the fan blades.) The airline operator had to send a chunk of money to get the first engine replaced (took about 10 days). The repair contractor decided to do some impromptu inspection work on the other engines, none of which looked all that great either. The result: a total of 3 engines were eventually changed on this plane before it was permitted to fly again.

And to think we were all worried about toys coloured with lead paint!

Why not have a stay-at-home weekend, from the NamNews Team!

The Future of the British High Street: Voice of Russia Radio (formerly Radio Moscow)

2012-03-29T08:45:00.016+01:00

This is a recording of a radio discussion that will be broadcast next week involving the British Retail Consortium, The New Economics Foundation and NamNews, covering key issues and predictions affecting future viability of the High Street, from the perspective of key stakeholders.

Topics include:
- Need for commercial viability
- Role of mults, charity shops, & suppliers
- Domestic-retail balance
- Legal & Rating issues
- Banks as landlords
- Predictions ref. High St, out-of-town and online shares

FYI, Voice of Russia Radio is apparently No. 3 in the world to the BBC and Voice of America.
NB. For a priority copy of the new NamNews High Street Survival Recipe, contact bmoore@namnews.com