Sofa King Silly?

After nine years and one police investigation cheeky Northampton retailer The Sofa King has been told by the advertising watchdog that it must ditch its catchphrase "Where the Prices are Sofa King Low!"

In banning the advert, the ASA have fallen foul of the Law of Unintended Consequences, in that the Internet is now awash with references to the initiative (Google Sofa King and see the 24m results for yourself) In fact I hope that Northampton traffic authorities are ‘Sofa King well prepared’ that this weekend’s inevitable shopper invasion will not pose a problem…

This all puts me in mind of schooldays in Ireland when ‘rude’ books were guaranteed massive sales boosts as soon as they were banned by the authorities…

In fact, Ronnie Drew of The Dubliners folk group used to say that instead of making the Irish language compulsory in schools, the government should ban it, thus ensuring its enthusiastic application 24/7…

Have a couch-bound weekend, from the Namnews Team!

Making Settlement Discount Work

With the major multiples collectively owing UK suppliers approx. £10bn at any time and paying on average in 43 days, this free credit represents both cost and risk. With banks unwilling to lend, retailers can be a source of finance. As cash-machines that happen to sell groceries, retailers can even be willing to pay on delivery, if the price is right

Money-saving tips from America … road-tested by penny-pinching UK consumers

Ranging from eating beans rather than meat to filling up the car early in the morning when the air is cool, and the gas is dense, the Guardian Team give twenty tips a reality-check by running the numbers and evaluating any real saving…

Impact on the consumer

Whilst not all money-saving tips will yield real savings, in practice the act of re-evaluating all expenditure coupled with comparison-shopping is bound to heighten consumer appreciation of value-for-money and cause them to reduce/postpone their ‘excessive’ purchases.

How the Buyer will react

In the same way, buyers being consumers are likely to apply the same disciplines in the day-job. Whilst it is tempting for suppliers to react via defensive mode, realistically pro-active NAMs can benefit by being able to calculate and demonstrate the financial impact of their support package on the retailer’s P&L.

Calculating the cost and value of their free trade credit can be a useful first step….  

The death of games retail, a pointer for other 'directable' FMCG categories?

Last year, according to Digital Spy, the UK games industry saw a 7% year-on-year decline in the sales of physical software in 2011, and this slump is said to have deepened by a further 25% this year. Major retailer GAME saw a whopping 90% wiped off its share price last year after a string of troubles, and this week the firm announced plans to close 35 UK stores and shut down gameplay.co.uk.

Rise of networked gaming

According to Tiga, 71% of games start-ups launched between 2008 and 2011 in Britain were focused exclusively on networked gaming over digital, mobile, online and social channels, while just 10% intended to work on both network and retail titles. Overall, 67% of the UK games development sector is working either exclusively or in part on network gaming. Tiga quote: "A lot of (games developer) start-ups are focusing entirely on digital distribution and networked gaming. There is only around 20% that are focused on retail, which really shows that the tide has turned quite dramatically in distribution."

Initially driven by the advantage of eliminating ‘packaging’ the developers are obviously seeing financial advantages in going direct…

Application to FMCG

In terms of other non-digital categories, whilst the potential for going direct may not be as great as in gaming, the fact remains that a new generation of consumers are becoming accustomed to dealing direct with suppliers, and the delivery infrastructure is falling in place to facilitate the process cost-effectively.

All that remains is attitude, and perhaps a generation gap, or two…

Action for suppliers

Perhaps the time is now right to reconsider adding a little more facilitation to the firm’s web site, incorporate micro-payments, blend in all of those one-off social-networking initiatives , dust down the ‘consumer-advice’  department and use some of that retail margin to integrate the lot, rather like those ‘amateurs’ in home entertainment that have stumbled upon the most obvious approach to monetising a one-to-one dialogue with some of the most demanding and savvy consumers around..

Or instead, perhaps upping last year’s trade spend might be more effective? 

Optimising the Value of Trade Credit

How to calculate cost to you and value to the customer, of free trade credit
Make trade credit an integral part of the negotiation process, and not just another trade term...

Store of the future: 80:20 towards 20:80 in store-level assortment?

Last week’s article on the IGD-Coca Cola research into the store of the future was the item most passed on to friends and colleagues by NamNews readers.

Key findings:

The report raised a number of issues in terms of the convergence of different trends such as shopper demand for more personalisation, with communication, promotions and deals tailored to their individual values and needs, pre-purchase advice from social media and online forums, in-store use of smartphones and ‘intelligent trolleys’, fully transparent supply chains in  terms of provenance and traceability, and environmental and social impact, with all of this information communicated on-shelf, on-pack and online through smartphones. The report also predicts that online generally will grow in prominence not only because it will continue to grow faster than the consumer goods market as a whole, but it will also form part of the wider store experience with some shoppers purchasing online and picking up in store..

Store-level assortment, the ultimate need

Essentially, we see all of this resulting in increased use of store-level assortment to satisfy savvy consumers unwilling to compromise on demonstrable value-for-money, with important knock-on impacts for suppliers and retailers.

If we assume that large stores currently offer a range comprising say 80% must-stock brands available nationally, and 20% available locally in response to historical demand, this one-size-fits-all approach will become increasingly out-of-step with market need as the above trends develop. 

How retailers will adapt their buying approach

Pragmatic retailers will want to restore the consumer-appeal of their large stores by stocking products more in tune with local need, to avoid shoppers voting with their feet in the search for satisfaction.

Superstores (say sales of £150m p.a., 450 employees with a CEO and organigram to match) will demand more autonomy, becoming increasingly unwilling to simply accept head-office response to a demand demonstrated daily in their stores by live shoppers, speaking with local accents…. They will want to optimise  increased buying expertise at branch level. 

How suppliers will have to re-organise...
In practice this means that suppliers will no longer see national distribution as a prerequisite for success in the launching of new brands, while their focus on existing  brands will concentrate on those parts of the country where brand-appeal is worth the effort. 

Equally, when successful retailers inevitably find ways of devolving increased decision-making power to local level, suppliers will need to extend their influence to branch level or risk being left out of local assortment. This does not mean a return to the days of large scale national salesforces, but rather what is required are small teams of high grade but possibly junior NAMs/KAMs operating at regional/local level, each capable of distilling corporate trade strategies, category management and marketing /promotional initiatives to local level…while their senior NAM colleagues fight for inclusion in the national 20% at retailer's head office...

For those of you taken with the idea, think one KAM business-managing 25 superstores, working 24/7, and work up the numbers…on in-house vs.outsourcing...   

Unless we all change locally in response to new local insight provided by increasingly articulate and demanding consumers, we are bound to sacrifice share to those who are already working in a ‘20:80  assortment’ mind-set, capitalising on local-niche brands, already comfortable with a mere 20% of brands having profitable national distribution

Tesco Dark Stores – a boost to their reality-store business?

With 48% share of the UK online grocery market, Tesco’s critical mass allows it to increase efficiencies via a pivotal distribution centre just opened in North London.   

The 115,000 square foot facility in Enfield is not only Tesco's fourth so-called customer-free "dark store", but is also its most automated to date, which enables staff to pick twice as many products an hour as the existing three virtual stores.

The latest site in Enfield provides a much higher level of automation, with conveyor belts dispatching trays to pickers, who have handheld devices strapped to their arms, to fulfil orders from 178 stations. In the other dark stores, pickers move around with a trolley.

Full assortment

Another difference is that the Enfield facility delivers all of Tesco's 26,000 groceries, as well as a full range of prepared foods, such as sliced cheese and meat, from its deli counters.

Less well-known is that the dark stores, such as the one at Enfield, also help to increase sales in the big stores in surrounding areas, as customers prefer less staff picking in the aisles.

Issues for suppliers?

However the new 'dark stores' raise a couple of issues for suppliers:

1. POS (Tesco spokesman: '…not the same point-of-sale advertising…' This means there could be some other form of product-prompts in the aisle, (in cases of Out-Of-Stocks?) and how might it differ from normal store POS? One idea might be to colour code shelf-edge price labels to reflect (darkness permitting!) gross margin or favoured suppliers…?

2. Role of Brand: if the brand is meant to attract the customer into the store, there to be confronted by the private label equivalent (better/cheaper than brand) and the possibility of a switch-sale, the supplier's use of shopper-marketing in the aisle can help to reduce the odds on losing a sale to a private label. The dark-store environment removes that facility…

This suggests that suppliers need to find a way of opening a 'dark-store dialogue' with Tesco in order to attempt to maintain the status quo as the business shifts online... 
This means gathering evidence via store visits.

One way might be to sneak into the store under cover of darkness?

Deductions, an Opportunity for All?

Yesterday’s NamNews report of Tesco and Waitrose allegedly charging suppliers for missed or late deliveries raises a number of issues, especially the ‘ownership’ of risk in business.

Retailers achieve average stockturns of 20-25 time a year by integrating supplier-retailer logistics systems, utilising smaller, more frequent deliveries to produce predictable on-shelf availability performances at minimal instore stock-levels. Partnership at this level is dependent upon contractual agreements (really think GSCOP had gone away?) between the parties that have built-in KPIs and penalties for non-compliance. This allows deduction-parameters and penalties to be negotiated upfront thus preventing ‘surprises’ later.
It can also facilitate a fair-share apportionment of risk in the relationship.

Why bother? 

Given that deductions can represent 7-10% of a supplier’s sales, and as net margins continue to fall, then any improvement in deductions management will not only have a significant impact upon cashflow and profitability, but will also have a major impact upon the equivalent incremental sales-profit relationship.

The numbers count

As always, adding the numbers will help to communicate the issues, internally and externally. 

For instance, for a supplier making 6% net profit before tax, on a sales turnover of £50m, reducing deductions by £1m will impact the bottom line with the equivalent of an incremental sales increase of over £16m…a 32% uplift in sales!

Why deductions occur

Essentially, the management of deductions is complicated by the lack of direct ownership, in that departments such as sales, marketing, logistics, category management and finance all have an influence in terms of cause and effect upon the level of deductions made by customers. Despite the fact that many deductions are preventable, deduction resolution is still regarded as a low status, ‘negative’ activity and in a time of cut-backs, tends to be under-resourced in terms of people, systems-support and relevant information.

Reducing preventable deductions

Leaving aside unauthorised and authorised deductions, suppliers have most to gain by focusing upon reducing preventable deductions, and given that these are mainly caused by the supplier’s ability to adhere to the retailer’s compliance process, the solution lies in the supplier’s willingness and ability to tailor their systems ‘front-end’ to the customer’s requirements, a given with invest-level trade partners committed to joint value creation. Also, given their overall responsibility for the entire multilevel-multifunctional supplier-customer relationship, it is obvious that the NAMs should be regarded as a key driver in fusing the often disparate parts of the interface.

Removing incompatibilities and 'disconnects' 

Essentially, this means leading the search for incompatibilities that cause ‘disconnects’ between the two companies’ systems, selling the solutions in terms of compliance KPIs internally and externally, and incorporating these within overall trade strategies and annual negotiated settlements between the parties.

Payoff

A key payoff resulting from faster deduction resolution for the NAM will be the ability to set promotion strategies based upon real-time performance feedback. As a result, all departments will benefit from better integration within realistic trade strategies that use supply-side and demand-side joint KPIs to move the business forward with greater degrees of transparency and defensibility. 

Board-level involvement

At a higher level, there is a need for board members of supplier and retailer organisations to drive compliance standards across the trade and facilitate the communication and acknowledgement of customer compliance requirements within their companies.

Finally, given that most deductions queries are cleared in favour of the customer, it is hopefully obvious that deductions also represent a major opportunity for retailers to ensure supplier compliance and grow their bottom line at the expense of less organised suppliers distracted by other, more exciting priorities….

For a free copy of our KamTips checklist on Deduction Reduction email me on bmoore@namnews.com