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

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

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

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

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

The French KISS approach to beating the discounters

According to a report in Reuters, France is the only country in Europe where discounters have seen a significant drop in market share, slipping to 11.9% in the second quarter of 2014 from a 2009 peak of 14.9%, according to Kantar Worldpanel data.

In fact, the success of French retailers in stopping the advance of discounters in the last five years shows a way out of the crisis embroiling Britain's "big four" grocers.

Their simple formula: fewer complex promotions and big price cuts across the board.
(After all, rocket-science is so pre-2007...)

The French grocers expanded their budget product lines, cut a proliferation of promotions, simplified own brand ranges and worked with suppliers to slash prices of branded goods.

In practice, this approach in the UK would require high levels of collaboration between suppliers and retailers, given the inevitable margin hits’ impact on share prices…

However, for branded goods suppliers, since any growth of the discounters comes at the expense of brands, then helping the multiples, helps the brands.

Moreover, in negotiation terms, the price for such assistance has to be a demand for fair-share dealings, between equal partners…

Truly, we are all in this together… 

Reality Lesson-time in easyFoodstoring?

                                                                                                                                         pic: Gizmodo

In the current climate, extending the ‘easy’ franchise to food retailing seems a no-brainer….

However, given that other easyOffers have focused on eliminating the complexity and reducing the price for the consumer-shopper, it seems odd to concentrate on simplifying the retailing…

In other words, given that the target audience is pre-occupied with satisfying basic needs cheaply and quickly, attempting to test their appetites via a mock-up ‘browse-not-buy’ difficultFoodstore seems wasteful…

Instead, in a world of 15%+ High Street vacancy-rates, why not help the idea fly by developing 100 pop-up easyShops, stock them with 100 basic lines at sustainable prices, and within a week, let the consumer determine the inevitable take-off…like in most successful retailing?

The real issue for branded NAMs is the extent to which successful easyOwnlabel will impact branded sales, whereas own label NAMs need to prepare for negotiation with a guy who normally deals in easyCapital-equipment procurement, strictly by numbers…    

Lidl switches from hard to soft discounting in France - an inevitable move in the UK?

With increases in outlet size from 6,000 to 12,000 sq. ft., Lidl is offering a new range of regional products and extending its offering to include many more national brands to attract a wealthier clientele.

This is a real breakthrough for the French subsidiary of Lidl in its second largest market. According to Deloitte, it is the world's seventh largest distributor, with an estimated $87.8 billion in 2011 sales and 12,000 stores worldwide. In Germany, it has 3,300 stores and achieved a turnover estimated at €16.2 billion in 2012.

Lidl has operated their classic German model in France since 1988, and grown to 1,500 stores. It is the largest of the hard discounters (Netto, Leader Price, Aldi, Dia). But, like its competitors, it has stalled for four years in overall seventh place with a market share of 4.6%.

Whilst this Lidl move in France will provide useful insights on priority brands and eventual brand/surrogate-label balance, it gives time for UK suppliers to explore their options as Lidl UK, and possibly other discounters, embark on the next evolutionary stage in order to capitalise on the continuing flat-line conditions in retail.

Time for ALL NAMs – and retailers – to pop into a local Lidl, and reflect on where the offering – and their brands – could go, as they follow the French lead…? 

Might also be worth dusting down your EU network and monitoring progress via your French colleagues....

(Thx Joe)

Bottom Line: Aldi and Lidl are not just for Christmas

Despite the fact that 50% of the UK population have 'discovered' the discounters, and the insight is spreading across the whole social spectrum {If in doubt, why not add to the stats by going to your nearest Lidl and noting the variety of cars in the packed car-park?}, and into the upper reaches of the product portfolio (the Norwegian smoked salmon and reindeer meat are particularly good!), the key issue is permanence rather than pre-Christmas novelty.

Penetration
In fact, ABC1s (the traditional middle classes) made up just 25 per cent of discounter shoppers in 2011.
Last year that rose to 41 per cent – Aldi is no longer the preserve of the cash-strapped student stocking up for a house party.

With a combined UK market share of 6.9% (whilst in Ireland they have reached 14.3% share of market, and growing), it is worth remembering that this was not meant to happen, in the retail-sophisticated UK market...

However, the unprecedented global financial crisis has created the right place and time for the discounters, permanently...

Think about it, the savvy consumer is now in play, with a determination not to accept anything less than demonstrable value-for-money, all hard-wired into their psyche, not to be forgotten when the economy begins to rise above flatline..

In other words, it is unlikely that the discounters will sacrifice share in the post-Christmas 'hangover'...

However, if we all stick to high-end discounter alcohol, the negative after-effects should be minimal, allowing us to look forward to optimising flat-line 2014, hand-in-hand with Lidl old Aldi...

Taking pleasure at Aldi & Lidl's Irish business model

A new Mickey MacConnell song going the pub-rounds explains the compulsive appeal of the German discounters...

For non-native speakers, the lyrics are given below, courtesy of Noreen @ Mudcat.  Following which the Youtube version below should present only opportunities...  (Thanks Martin)

THE BALLAD OF LIDL AND ALDI
(Mickey MacConnell)

Well the wife she broke her ankle when she tumbled off the bike
Leaving me to do the housework, a job I never liked
And doing the weekly shopping seemed a dreadful chore to me
'Til I discovered LidldiAldi, LidldiAldi LidldiAldi Lidldidee.
Now I just can't wait for Thursdays when the specials go on view
I'm the first man to the trolleys; I'm the first man in the queue
For now I know what women mean about retail therapy
It's LidldiAldi, LidldiAldi LidldiAldi Lidldidee.

Its angle grinders and black puddings and a pot of German jam
A lump of heavy bacon and a wet suit from Japan
And a pack of streaky rashers, a crate of Russian stout
And a portable generator just in case the lights go out
Alloy wheels and windscreen wipers and a bag of Rooster spuds
An inflatable rubber dinghy to help survive the floods
Spanners, sockets and fish fingers, they're so cheap they're damn near free
At LidldiAldi, LidldiAldi, LidldiAldi, Lidldidee.

Now there's welding rods and prime organic beef to make a hearty stew
A hiking staff and spiky boots for climbing Kathmandu
Big heads of curly cabbage to make you eat your fill
Sledgehammers and bananas and a lovely cordless drill
And there's hatchets and hamburgers and there's tins of beans and peas
And a petrol driven chainsaw for cutting bits off trees
Strimmers, sabres, saws and sausages, computers and TVs
At LidldiAldi, LidldiAldi LidldiAldi Lidldidee.

Now the wife has gone ballistic, marriage heading for the rocks
With her crutches and her shopping bag now she's hobbling round the shops
And she's cut up all me credit cards, I'm sad as sad can be
No more Aldi LidldiAldi, no more Lidldidee for me.
For the shed is full of plastic shit I didn't really want
And the gardens full of furniture and the house is full of plants
And I'm living in the doghouse; Rover, Fido, Shep and me
Because of Aldi LidldiAldi LidldiAldi Lidldidee.

So no more angle grinders nor black puddings, no more pots of German jam
No lumps of heavy bacon, no more wet suits from Japan
No packs of streaky rashers, and I'll have to do without
Another portable generator just in case the lights go out
No alloy wheels, no windscreen wipers, no bags of Rooster spuds
No inflatable rubber dinghies to help survive the floods
For I am living in the doghouse I'm as sad as sad can be,
No more Aldi LidldiAldi, no more Lidldidee for me!

Every Lidl helps? - making do at the top…

The Squeezed Upper Shopping List

Lidl: Parma Prosciutto di Parma
90g, £1.99
- Ocado: Parma Ham, 85g, £3

Lidl: Vitasia Coconut milk, 400ml, 79p
- Waitrose: Essential Coconut Milk, 400ml, £1.89

Lidl: Vitafit Cloudy Apple Juice, 1 Litre, 99p
- Sainsbury’s: Copella Apple Juice 1.25 Litre, £2.80

Lidl: Deluxe British steak & ale pie, 540g, £2.49
- Tesco: steak and ale puff pastry pie, 550g, £3.50

Lidl: Barella Pesto Alla Genovese, 190g, 99p
- Tesco: Sacla Classic Basil Pesto, 190g, £2.20
(on offer at two for £4 until Jan 2)

Source: The Times, Thursday 28th Nov 2013

Problem: How can we get them back in segment, when they have lived a Lidl…?

If Poundland is good enough for Jane Asher?

Then perhaps its time to add discounters to your mainstream trade strategies...

News that Jane Asher will launch a Poundland bakeware collection should be a final indicator that suppliers need to factor budget retailing into their long-term trade strategies... The range will be rolled out across Poundland's 490-plus UK and Irish shops in spring 2014. Each item will sell for £1, including multipacks such as three wooden spoons and six silicone cases.

Asher said: "In my new Poundland range this will no longer be a problem as all the baking essentials are covered and offer amazing value for money. The range is very pretty, and comes in four pastel colours which can be mixed and matched. I've also included six quick, easy and delicious cake mixes."

In other words, a serious 'first' in celebrity endorsement for Poundland, while Aldi's Glen Orrin whisky makes an offer your cannot refuse at £55 for a 30 year old treat worth £150...

But added to share gains for Aldi and Lidl, and a prospect of flatline demand (real volume rather than political spin) for the next decade means that discounters deserve a permanent place in your long term mainstream trade strategies...

Meanwhile, if caviar is good enough for Lidl....

'Spending what you save' may not be the answer, either....

As consumers, however savvy, we all have our own approach to dealing with the global financial crisis, each determined to reduce our dependence on the buy-now-pay-later model.

However, saving-before-you-spend may not be the answer to reducing consumption.

For instance, a pal of mine recently went to the summer sales to buy a £500 suit, and spent what he saved as follows:

- £500 suit in sale @ 50% discount, pays £250
- £250 jacket in sale @ 50% discount, pays £125
- £125 shoes in sale @ 50% discount, pays £62.50
- £62.50 shirt in sale @ 50% discount, pays £31.25
- £31.25 tie in sale @ 50% discount, pays £15.62
- £15.62 singlet in sale @ 50% discount, pays £7.81
- £7.81 socks in sale @ 50% discount, pays £3.90
- £3.90 shoe polish in sale @ 50% discount, pays £1.95
- £1.95 shoe brush in sale @ 50% discount, pays £0.97

....leaving £0.97 in his money-box towards the autumn sales…..

What if consumers demanded supplier trading-terms from retailers?

An article on retailers' treatment of suppliers in today's Independent* introduces an idea that may hold the key to achieving fair-share treatment in supplier-retailer relationships.

Suppose consumers began to modify their shopping behaviour as follows:

• Telling the shop staff they are happy with the price, but need a 5% settlement discount to pay at point-of-purchase...
• Demanding a retro-rebate on goods purchased from the store six months previously...
• Requesting an advertising allowance to carry the store's shopping bag home...
• Applying a deductions' allowance for unbudgeted delays at the checkout, low on-shelf availability, 'cold' bread at the bakery, unhelpful staff...
• Expecting a contract allowance for buying a jar of own-label coffee every week for a year...
• Offering to buy a product's all five variants in exchange for a full range bonus..
• Seeking a quarterly/yearly bonus for shopping regularly...
• Requesting a listing-allowance to add the store's own label product to their shopping list...
• Demanding a de-listing allowance to cover the inconvenience of removing same when tastes change...
• Making a promo-allowance a condition of 'telling-a-friend'....
• Requiring a 'customer representative allowance' to encourage family members to tell their friends..
• Demanding a merchandising allowance for displaying product on the rear window-ledge of the car...
• Offering to fill the car-boot and all available seats in exchange for a full-load bonus...
• Requesting a collection-allowance to cover the cost of selecting goods from shelves and transporting to the checkout...
• Demanding a compensation allowance because the new jumbo-pack does not fit home-storage shelving...

[NAMs are invited to add personal experiences to the above 'shopping list'.....]

Unlikely that consumers would take a pro-active stance against business practices they deem unfair?  So thought a well-known high street coffee chain when their customers discovered their off-shore arrangements to minimise UK corporation tax payments...

* The Independent 

Aldi poised to double UK stores, how they impact suppliers and shoppers

Aldi is planning to double the number of its UK stores to 1,000 over the next 10 years as cash-strapped middle class shoppers drove a fivefold increase in underlying profit to £102.9m last year. Having entered the UK in 1990, Aldi gradually responded to successive economic downturns by gradually expanding its UK base.

“We’ve seen a shift in the socio-demographics,” said joint MD Roman Heini. “Obviously we have kept the existing customers ... so we still have the C1, C2 and D customers but we certainly now also see more A and especially B customers in our existing stores and also in the stores we have opened this year so far.”

He believes Aldi is winning customers from “basically all other retailers”. Confirmed Aldi-watchers will have already seen this pattern develop in Germany and other countries. Examples of prices and deals here.
The win/lose pattern for suppliers was set 25 years ago...

Handling Aldi in 1985… 
Twenty five years ago, given the inevitability of UK entry, my advice to UK clients at the time was to add Aldi to the customer portfolio of an experienced NAM, two years in advance of entry, with a brief to keep the board informed of how the company and competition were dealing with Aldi in Germany and other countries.

As a result, they were then ready to deal with the first call from Aldi UK, with prices, terms and a recently discontinued version of their brand packaging for launch in Aldi branches. This did not endear them to their marketing colleagues, but it did allow them to make defensible moves with the new retail model.

Mis-handling Aldi, bigtime…
Meanwhile, another client ignored the advice and promptly slammed down the phone on the first Aldi call…It was almost ten minutes before they received a call from the head of their German affiliate, demanding to know why they had been so rude to the company’s biggest customer in Germany!

Moreover, to show that there WERE hard feelings, Aldi UK put notices in their shop windows saying that as xxx company had refused to supply them with products that could be offered at lower shelf prices, they were obliged to offer better than average discounts on the competing brand…..a signal to other suppliers not to underestimate the influence (and potential) of new retail models…!

Discount stores boom as upmarket shoppers brag...

The economic quagmire has provided the perfect breeding ground for general merchandise discounters, who have expanded aggressively – more than filling the void created by the collapse of Woolworths in 2008. Analysts at the IGD predict the value retail sector will be worth £8bn by 2015.

Classless appeal
But the key to discounter success is their classless appeal. Mature NAMs will remember their first visits to Aldi Berlin in the early 1990s, and their bemusement at the shopper transport parked outside – ranging from students bikes to state-of-art Mercedes. As we all knew at the time, this could never happen in the UK….

City paying heed
The growing might of chains such as Poundland, Wilkinsons and Home Bargains means the City is starting to take notice. Stockbrokers Shore Capital believes discount retail is the fastest growing area of the whole market, with the strongest performers potential candidates for stock exchange listings or takeovers by quoted chains further down the line.

The forward working environment 
Given their arrival at critical mass in a flat-line economy, we reckon that discounters are merely at the start of a five year opportunity to gain share in the UK. NAMs need to second-guess the politicians: they have been telling us about imminent recovery for the past five years.
Having thus established politicians' credibility, with little change to EU/global economic conditions, is it likely that we can expect any real uplift in the next 5 years…?

Competition hots up...
The competitive landscape ranges from single-price chains such as Poundland and 99p Stores to general discounters such as Home Bargains and B&M Stores. But the rapid expansion of what were once regional, often family-run, companies means the retailers are now treading on each other's toes.

A zero-sum future?
This means that market will operate on a zero-sum basis with any share gains at the expense of not only other retailers but also of other discounters.
In other words suppliers have to prepare discounter strategies that are in harmony with  overall trade strategies, taking care to avoid inadvertent compromise or conflict.

This means that suppliers need to factor discounters more aggressively into their organisational structures and trade strategies, ‘permanently’…

Permanently? Bear in mind that the other characteristic is that discounters thrive in a downturn, but rarely surrender any gains in market share in a rebound… 

Economies of scale: Customers Looking For Savings From Suppliers

Yesterday’s NamNews’ item on Morrisons’ alleged demands for £500k savings from some suppliers produced our top visitor-count for the day.  
However, the issue is not whether larger quantities mean greater savings, but whether the discount demanded by the buyer matches the savings made by the supplier.

'Economies of Scale'

As you know, there are many potential sources of economies of scale, depending on the company and category in question, including:

- spreading administrative overheads over a bigger operation/quantities

- purchasing power to get better deals from suppliers of raw materials, packaging, etc

- lower costs in manufacturing - e.g. if longer runs result in lower costs per unit produced

- greater delivery quantities leading to lower distribution costs

- cross selling synergies

Any such savings will obviously depend upon your category and factory capacity/asset-utilisation levels.

The incremental sales route to fair-share negotiation

However, either way, the ‘incremental sale’ calculation allows suppliers to approach the problem from a more productive angle…

In other words, if a customer demands £500k cost-price reduction from a supplier netting 7% on the business with that customer, a ‘back-of-envelope’ calculation says the supplier needs incremental sales of £7.1m to cover the cost (i.e. £500k/7 x 100), unless you can identify and measure some real scale savings, and reduce the incremental sales requirement appropriately.

The basis of your costing-model

Any credible negotiation stance means that you will need to reveal the basis of your costing-model ( i.e. even tougher negotiation with your colleagues?) in order to be able to quantify and argue with the buyer that there is a shortfall between the actual savings and the discount demanded, an additional discount that will not realistically be covered by the anticipated incremental sales. 

Quantifying in this way may result in something approaching a fair-share solution..

Simply saying no is not an option

Q1. Why not substitute your figures and see how much extra you need to sell in order to break-even on the new deal?

Q2. Some might argue that explaining scale economies to a customer is not the job of a NAM/KAM. If so, please explain to us mere earthlings why the global financial crisis is diminishing, rather than enriching, the scope of the job…

Pound shop revolution hits the big supermarkets!

More than one-in-six products being sold in supermarkets are now priced at exactly £1 or £2, highlighting how the pound shop revolution has started to affect long established rivals.

Supermarkets, and also chemist chains, have started to rely on distinctive red stickers, and very clear £1 or £2 prices in a bid to attract shoppers on a budget, as well as those consumers fed up trying to work out complex deals.

The combined demand by pound shops and the Big Four has to be a driver of both scale and relative permanence of the £1 offer, until a prolonged bout of inflation morphs it into £2, the new £1…

Welcome back to the post-Jubilee realities, from the NamNews Team! 

Flash Sale? The New Business Mantra

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…? 

Tesco-Aldi 'head-to-head' in Ireland as a learning for UK?

In 10 years Aldi & Lidl have captured 7% of the Irish market. This coupled with the massive downturn in the Irish economy has resulted in Aldi moving into TV advertising, and Tesco advertising itself as "Ireland's Biggest Discounter", reducing prices on own-label and premium brands, and a sustained campaign building Tesco as a brand for lower prices.
According to Tesco Ireland, “People are spending less and looking for bargains. Our job as retailers is to be sellers. We have to sell our offers to the customer. Price has never been as important as it is now. The once-a-week shop has come back into fashion. Customers are now shopping around for value like they never did in the last 10 years.”
Are you ready for the possibility/probability of the similar changes in the UK market as the year 'progresses'?