Home Delivery charges - a one-way subsidy?

Given that picking, bagging and making a home delivery costs supermarkets up to £20, the £5 charge actually represents a subsidy for the service.

This leaves the retailer with four options:

• Absorb the loss: impossible on current retail margins, especially as the online/physical shop ratio increases?
• Charge more for instore purchases: An increasing an unacceptable burden on those that want/need to shop instore.
• Charge £20 per delivery: a significant turn-off for many online shoppers?
• Or radically increase the minimum order size: a likely mismatch with real shopper need?

Going for scale
Some retailers may see significant scaling up of home deliveries as a possible solution, with the milkman’s street-agreements as a way forward (in the final days of home delivery of milk, dairies agreed solus access to individual streets in order to make individual milkmens’ routes profitable), a practice that might cause issues with the competition authorities, nowadays…

A radical business model?
However, for radical thinkers, the way forward may be via a significant scaling down of store sizes and numbers to better match a shrinking need for physical presence as online increases. With less physical overheads, the average retail margins of 25% could be used to fund home delivery, thereby evolving a new retail model that fully acknowledges a future balance of online and physical retailing.

Otherwise, Amazonian third party online retailers will emerge to take up the space, profitably… 

Time & Money - optimising the connection

A client once had the problem of the Board spending too much time in board meetings.
Questioning revealed that having spent an hour deciding whether the outside fire-escape stairway should be painted red or silver, the Board waived through a £1m trade-funding budget in five minutes….

Solution:
Even more time was spent agreeing the total annual cost of the combined annual packages of the Board, and the resulting cost per minute in board meetings. Once agreed, however, the agenda items were prioritised and allocated timings in terms of cost and value, making each session a little more productive.
WalmAsda however, did even better by removing all seats and conducting the board meetings stood up…

How Poundland makes its millions - the brand-issue for suppliers and retailers

Monday's Poundland item in NamNews resulted in over 250 downloads, indicating a high degree of NAM-interest and perhaps curiosity re possible 'trick-missing' in some cases.

Given that the Telegraph article was also the subject of a 30-min prime TV programme (see 'Dispatches: Secrets of Poundland’ on September 17, Channel 4, 8pm) poundshop optimisation raises important issues for suppliers wanting to maintain their brand equity.

Coping with inflation
In order to maintain the £1 price-point, suppliers and pound-shops have reduced pack-contents over the years. This is about consumer expectation, not the letter of promotions' legislation. As you know the original idea of branding was to persuade the consumer that the contents were safe, consistent and matched or even exceeded the expectation created by the advertising.... Think of the impact on a loyal user of having the contents of a £1 Family pack reduced by 50% in five years.
We all know why it happens, but we need to focus more on the impact

Extra-value packs 
Pound shops sell a number of well-known brands with “50% Extra Free”, or even “100% Extra Free”, on the packaging. i.e. a pack of eight bars for £1,while the mults offer the same eight bars for £1 also, without the flash.   Again a potential bad taste...

Consumer perception as driver
The issue is not about morality or even the letter of the law, but is more about the negative impact on consumer perception, a serious dilution of hard-won brand equity.
In the process we risk converting a savvy consumer into a cynical shopper that nowadays has the incentive and means to express their opinions via the internet...

The way forward
Brand-owners need to meet trade needs, but not at a cost to brand equity. Brand equity has to remain sacrosanct, its all you've got... Also, the retailers face the same challenge in preserving shop brand equity whilst responding to shopper demands, a possible basis for joint consultation?

It all goes back to trust in business, the basis for everything, and worth a lot more than a pound...

Boots breaks the 'silence' as it agrees deal with China firm

Alliance Boots, under the terms of a strategic alliance agreement signed yesterday, announced that it will acquire a 12% stake in Nanjing Pharmaceutical Company Limited, through a private placement, for a total consideration of approximately £56 million (RMB560 million), making it the second largest shareholder with Board and operational management representation.

Boots China profile
Nanjing Pharmaceutical Company Limited, which is listed on the Shanghai Stock Exchange, is the fifth largest pharmaceutical wholesaler in China with sales of around £2 billion (RMB20 billion) in 2011.
Alliance Boots first entered the Chinese pharmaceutical distribution market in 2008 through its Guangzhou Pharmaceuticals Corporation joint venture, which operates in complementary geographies and continues its successful development.

A powerful stepping-stone...
In all, with this latest move Boots is aiming at gaining a 20-30% share of the Chinese pharmaceutical distribution market. Apart from the inevitable appeal of adding a retail element in China asap, this major wholesale step is a clear indicator that even without the Walgreens’ tie-up, Alliance Boots is determined to pursue its policy of increasing its global reach and scale.

This will not only make it more influential in the Walgreens-Boots mix, but will be another step in making the company one of the most connected and centrally-run health & beauty operations in the world, at least in the short and medium term, say five years.

Impact on suppliers
This increasingly scalable company will continue to be heavily geared in a global economic environment. As a result there will be increasing pressure on the company to provide an exit strategy for its stakeholders via re-flotation.

All of this adds up to increasing power and influence in its relationships with suppliers, a position that will inevitably cause it to bring issues like prices & terms disparities, and especially absolute cost-prices to the negotiation table.

Action
It hopefully goes without saying that any supplier wishing stay in the ring needs to factor the full global profile of W-B into the mix, fast.
….and if anyone, anywhere in your company still needs convincing of the obvious, why not run the numbers on Walgreens-Boots owning even 20% of global Health & Beauty retail & wholesale, with power to match…  

Jim Sinegal, Costco CEO & Founder, my personal memories

Watching broadcasts of last week's Democratic Convention, I was surprised and pleased to see a speech by Jim Sinegal that brought back memories of meeting him 20 years ago.

At the time, many of my long suffering clients had been barely tolerant of my constant references to the inevitability of this new business model, the membership warehouse club, entering the UK and undermining the wholesale trade.  Eventually in 1992, I rang Costco's home office in Seattle, explained my interest, and asked to speak to someone who might add some insight. I was transferred to CEO Jim Sinegal, who politely asked what I wanted to know....

Despite many years of working in the US, I am still astonished at their ease of access to key business people, especially in the retail trade.

Anyway, the call went well, and Jim said that if I was prepared to come to Seattle, he would give me some time. The following week I was shown into his office for what turned out to be 4.5 hours of the most down-to-earth and practical description of a business start-up I had ever experienced. He outlined his simple philosophy of demonstrable value for money, the need for tight cost-control, an obsession with the numbers, financial KPIs and performance at his finger tips, and how he had set up Costco on these principles. And all of this without a hint of arrogance, simply an obvious pride in achievement.

At lunchtime he offered to drive me to the nearest Costco branch and show me how it worked in practice... As we got into a new state-of-art Mercedes, he explained that his wife had given him the car as a birthday present that morning, and he was obliged to accumulate some appreciative mileage before getting home that evening....

At the Costco branch, Jim wandered around the aisles, exchanging first-name banter with staff and customers alike, quoted rates of sale and profitability of random SKUs and 'specials' and generally illustrated most aspects of his business model by example. I asked if I might take some pics, and was met with a polite refusal, one of their golden rules...

Throughout the session we exchanged views on the contrast with the European retail and wholesale trade, typical 'trading norms' and dynamics, key players and their philosophies and obvious gaps in the market.....

I was left with a firm conviction that Costco would make a big impact on the wholesale market in most countries.....

A week later a small parcel arrived special delivery, containing 50 x 35mm pics covering most aspects of a typical Costco branch which added much colour to my increasingly stark warnings to clients...

One year later, Costco opened in Thurrock....

reEpricing while you wait?

The fast-moving Internet pricing games used by airlines and hotels are now moving to online retailing via a new generation of algorithms that are re-pricing products on an hour-by-hour and sometimes minute-by-minute basis.

A goal is to maintain the lowest price-even if only by a penny-so that their products will show up at the top of the search results by shoppers doing price comparisons.  The most frequent changes are for consumer electronics, clothing, shoes, jewellery and household staples like detergent and razor blades.

Retailers find that changing prices more frequently can boost sales dramatically, but requires a lot of attention. First they set the software to beat their competitors by a certain percentage. Then they set a floor price below which they will not go.

For consumers, the result is more volatile pricing. Once the low-price vendor for a particular item sells out, rivals selling the same product can immediately lift their prices without fear of being undercut.

In effect, retailer Epricing is making the world's most modern market into the most old-fashioned, taking us all back to the laws of supply and demand, with lessons in pricing that can optimise our more traditional routes to market.....24/7.

Who Needs Training?

CEO asks Sales Director: "What happens if we invest in developing our people & then they leave us?"
Sales Director: 'What happens if we don't, and they stay?""

Adapted from Sarah Ouakim via Jeremy Blain with thanks

If Airlines Sold Paint…

Given Ryanair’s imminent bid for Aer Lingus, coupled with many homeowner’s desire to avoid some painting chores by flying away for the weekend, we felt it might be interesting to link airlines and paint with a lesson in pricing for those NAMs that never like to forget the ‘day-job’

Customer: Hi. How much is your paint?

Clerk: Well sir, that depends on a lot of things.

Customer: Can’t you give me an approximate price?

Clerk: Our lowest price is our introductory special at $12 a gallon. After that we have dozens of different prices up to $199.

Customer: What’s the difference in the quality of the paint?

Clerk: Oh, there’s no difference. It’s all exactly the same stuff.

Customer: Well, in that case I’ll take your $12 paint.

Clerk: Well actually the $12 variety is only available on our website. If you want to buy it here at the store you’ll be charged an additional $20 Customer Convenience Fee

Customer: So if I go home and get it off the website, its only $12?

Clerk: That’s correct sir – plus a Credit Card Usage Fee of $6 and then there’s standard Shipping and Handling of $15.

Customer: What? So in other words buying online would cost me almost exactly the same as what I’d have to pay here in the store?

Clerk: I suppose so, but if you buy it here you get to use it immediately. Online purchases take ten business days to get to you – unless you pay the optional $25 Express My Paint Fee.

Customer: You’ve got to be kidding me!

Clerk: Well no sir, but it’s academic anyway as right now the $12 paint is completely sold out in both places.

Customer: That’s BS. I’m looking at shelves full of the stuff!

Clerk: Ah, but that doesn’t mean it’s available for sale. We sell only a certain number of introductory priced cans on any given day. Oops, look at that! It just became available again – at $17.50.

Customer: C’mon! You mean to say it went up while I’m standing here?!

Clerk: ‘Fraid so. Inventory control changes our prices all the time.

I strongly recommend you purchase your paint as soon as possible as it could go up again. How many gallons do you want?

Customer: Well, maybe three gallons. No, make that four, I don’t want to run out. I assume I can return anything I don’t open?

Clerk: Certainly sir. The $12 paint is non-refundable, but if you return it within 48 hours you will be entitled to a $5 credit towards the future purchase of another gallon of the same color at the same or higher price.

Customer: That’s crazy. In that case I’ll just give any unopened cans to my brother as he’s planning to repaint his home soon.

Clerk: Sorry sir, no-can-do! Our terms and CANditions – that’s a little in-house joke – prohibit paint transfer. It is strictly for the use of the original purchaser.

Customer: But wait a minute, I hadn’t spotted those “Paint Sale – $9.99* a Can” signs over there? That sounds like a much better deal.

Clerk: Ah yes, that’s from our low cost paint division. The asterisk denotes that the cans are actually half-gallons and the price is based on a minimum purchase of two. There is also an additional Environmental Fee of $5 per can, a non-refundable Can Deposit of $3.50, a Paint Facility Charge of $5 and if you want more than one color, the second has a $25 surcharge and the third is $50 extra.

Customer: This is utterly ridiculous. To hell with this! I’ll buy what I need somewhere else!

Clerk: Well sir, you may be able to buy paint for some rooms from another store, but you won’t be able to find paint for your connecting hall and stairway anywhere but here. And I should also point out that if you want Uni-Directional paint it is priced at $249 a gallon.

Customer: I thought your most expensive paint was $199!

Clerk: That’s only if you paint non-stop all the way around the room and back to the point at which you started. Stairways and hallways are considered one-way exceptions to the rule.

Customer: So, if I buy the $199 paint and use it in my hallway what are you going to do about it – send some goons in to paint over it?

Clerk: Wow, I believe you’re getting it now sir. But no, please, that would be plain silly. We’ll simply charge you a Direction Adjustment Fee plus the difference to $249 on your next purchase.

Customer: Next purchase? No way! I’m out ‘a here

Clerk: At Skyhigh Paints we never forget you have a choice, so thanks for shopping with us. Have a nice day!

Have a price-sensitive weekend, from the NamNews Team!

Credits: latest version found here
Appears to have originated in Travel Weekly, October 1998, by Alan H. Hess