Private Equity Giant KKR Mulling Bid For Asda

According to The Sunday Times, the US private equity giant, whose past investments include Alliance Boots, is working with former Asda boss Tony De Nunzio on a possible approach. He is now a senior adviser to KKR and the report suggested he would become Chairman of Asda in the event of an acquisition. [more for NamNews readers]

• From a NAMs-eye-view, the issue is the probability of new private equity-based majority ownership of Asda…
• …meaning sale & leaseback of outlets.
• …P&L by outlet…
• …all adding up to finance-based buying…
• …quite apart from an Amazon wanting to buy an inexpensive Sainsbury’s via the petty-cash box…

Walmart needs to cut Asda loose

An interesting article published earlier this year by Bloomberg sets out why Asda should be sold off:

Aldi & Lidl have eliminated Asda’s low price advantage, resulting in falling like-for-likes, with Asda’s sales growth trailing the other mults… (graphs in the original article really spell it out).

NamNews readers will be aware that Asda has been underperforming and thus diluting Walmart’s performance in terms of ROCE and Net Margin since its acquisition in 1999.

Normally, Walmart would have solved these problems by a combination of organic growth and acquisition of say Sainsbury’s or Morrisons, but UK planning legislation limits the building of new stores and competition legislation prevents acquisition of sizable competition.

This leaves sell-off as the only option for their UK operation.

Bloomberg estimates that Asda would be worth £8bn based on current market valuations of the other mults (i.e. @ 40% of sales).

The UK, in current competitive circumstances (Discounters, large space redundancy, seismic-shifts, ‘Brexit’ currency impact…, you name it!) would be unattractive for global players, given the probable purchase price and the need to justify the move to their respective stock markets.

This leaves private equity.

In which case, we enter a whole new ball-park, where the emphasis would shift to optimising the asset-base (stores) and financial performance (ROCE), in a 5 year time-frame leading to flotation….

This would provide a new basis for NAMs in their dealings with Asda:

• Emphasis on quantifying cost & value in all aspects of the supplier-Asda trading relationship (Margin, Credit, rotation, trade investment, NAM-advice, and deductions)
• Relating trade investment directly to Asda P&L

…and all within a 5 year window….

Publicis - Walmart's New Primary Agency of Record

According to yesterday's NamNews, Walmart has entered into what is being described as a strategic partnership with Publicis Groupe that will give the retailer “unfettered access” to all of the holding company’s agencies and resources.

In practice this means Publicis becomes Walmart's Primary Agency of Record i.e. an advertising agency authorised by an advertiser to buy advertising space and/or time on its behalf.

More than that, it gives Walmart access to all agency resources, globally, in managing Walmart’s US advertising and in-store creative giving the retailer access to resources outside of marketing, including capabilities to support corporate reputation and technology that builds relationships with customers.

In other words, think state-of-art, uniform, co-ordinated, creative  management of all communication with customers..

Add whatever it takes in terms of deep-cut EDLP to regain and maintain market share, big time, and you have a new dynamic in the market..

Asda has to be part of this…

More here

Time for NAMs to conduct some what-ifs in exploring the impacts on their categories…?  .

Black Friday: running the endgame numbers?

Whilst Black Friday presents a useful promotional and media sales surge, deep down business does not like spikes...

Asda's decision to pass on this occasion, indicates that retailers are beginning to check the numbers and are realising that Black Friday may not be worth the trouble (and cost...).

According to The Telegraph, bargain-hungry Britons are expected to spend £1.07bn on online shopping alone during Black Friday, up from £810m last year, quoting Experian-IMRG.

However, UK retailers stand to lose £130m just from handling returns of items bought on Black Friday, according to the retail intelligence company Clear Returns.

In addition, costs related to lost margins, cleaning and storing, oversupply of stock and the lost value of future custom from the shopper add a further £50m to the returns bill.

In other words, unless suppliers and retailer-partners have integrated Black Friday into a fully costed omnichannel strategy, that yields acceptable returns for the risk - think stock-shortages caused by returns-system lock-in, for a start - it is inevitable that next year other retailers will acknowledge Asda's financial pragmatism and sit this one out...

Time for suppliers to explore alternative initiatives aimed at spreading the promotional effect into a more manageable demand profile?