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

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

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

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

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

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

Could I suggest three ways?

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

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

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

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


Wayne Robinson - wayne@wayne-robinson.uk

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

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

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

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

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

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

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

Tesco Soft Drinks Supply Aggregation - another type of Cull?

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

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

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

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

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

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

...and if you don’t, who will?

Tesco culling: anticipating the obvious?

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

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

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

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

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

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

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

Tesco - playing the waiting game

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

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

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

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

Informed guesswork:

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

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

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

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

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

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

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

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

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

Allan, key to the Tesco fine-tune?

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

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

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

So that leaves John Allan's probable MO:

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

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

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

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

When £1 morphs into £2 – the Poundland acquisition of 99p Stores

This morning’s announcement was an inevitable consequence of post-financial crisis pressures driving shoppers to the bottom layer of the squeezed middle.

But the real issue is trade consolidation.

What started as a raggle-taggle novelty retailing initiative based on suppliers and retailers finding a way of making money on a £1 version of brands, might have struggled had inflation been maintained at ‘normal’ levels.

However, pro-longed flatline demand, combined with low inflation, allowed the pound shop to flourish, but as usual, some more than others.

Suppliers' enthusiastic development of a strategic approach to the £1 channel has now made it possible for pound shops to enter the mainstream...  Mergers/takeovers will be inevitable, causing the usual issues of prices and terms dis-harmonies, just because these smaller 1-off customers were interesting, but too small to matter when it came to ensuring the national integrity of our pricing and terms model..

Impact of the Tesco-cull
Given what could be a SKU-shakeout of 30% of the range arising from the Tesco-cull, suppliers now need to reassess and optimise alternative routes to consumer, and make appropriate changes to their marketing strategies, especially as the increasingly fragmented world of TV and press advertising causes advertisers and the savvy target audience/s to embrace online/social media.

Taking the mainstream pound shops even more seriously, might help… 

The Tesco 30% product cull: key issues arising

News first reported in The Grocer on Friday 30th January, of a cull of up to 30% of SKUs stocked by Tesco raises important issues for NAMs.

Given Dave Lewis marketing background, and an outside agency, Boston Consulting Group working to a brief, the starting point has to be the needs of the consumer-shopper.

Possible candidates for culling have to include:
- Obvious over-laps by function, and undifferentiated me-toos
- Products that are in the assortment because of back margin, rather than consumer demand
- Slow-yielding 'experimental' products outside the core Tesco offering

However, given the 30% culling target, it is unlikely that the above steps would generate sufficient numbers of discontinued SKUs, so it will probably be necessary to eliminate entire sub-categories to achieve the numbers...

In which case, candidates could include any sub-category that fails to reach Tesco's 25% average Gross Margins and ideal Net Margins of 5%. Other criteria could include minimum space productivity levels of 1,000/sq ft /annum. Finally, as regular store checks of Tesco Extra will reveal, those sub-categories that have been progressively reduced over the past three years in terms of instore presence, such as home entertainment software (CDs, DVDs, and games) and books, have to be due for re-assessment...

Also, if we add the idea of the long product tail in large space retail, accounting for insufficient sales levels, redundant space in-store arising from the onset of the 'squeezed middle', and reputed to be of the order of 20% of the selling area, any culling of assortment could generate additional redundancies in store space...

Private label - a special case?
Again, given the brand-marketing background of Dave Lewis, and the help of an agency tasked with meeting consumer-shopper need, profitably, we  would suggest that Tesco's private label will be granted no special privileges in the culling process. Accordingly, private label SKUs will have to fight their corner vs. established brands in order to justify their on-shelf facings...

Finally, given the presence of independent consultants, and the 'non-involvement' of buyers, NAMs will not be able to use the traditional supplier-buyer relationship to directly influence the process...

Accordingly, it will be necessary for NAMs to revert to the satisfaction of fundamental consumer demand within core Tesco traffic as a criterion for justifying their brand's presence in the assortment.

In practice, this means making an objective re-assessment of the appeal of their brand vs. alternatives available to the target consumer within the Tesco environment.

In addition, given Lewis' shift in emphasis from Back to Front margin, it is vital to re-assess and re-engineer their trade offering in order to optimise the appeal of the total offering vs. available alternatives, as viewed through the new Tesco lens..

Then find a way of getting the revised offering onto the Tesco table, before the cull shortlist is finalised...

In other words, an unprecedented set of assortment decisions is being made by Tesco using commercial logic based on demonstrable consumer demand and aimed at providing a simple choice for the consumer-shopper.

Suppliers would be well advised to adopt a similar approach...