Tesco to build national network of online-only 'dark stores'

They are not open to the public but used to assist nearby shops unable to keep up with internet orders. Tesco already has four dark stores in London but internet boss Ken Towle said on Monday that another two would open in Crawley and Erith, near Dartford, and it was scouting other cities, including Birmingham and Manchester, for locations.

Future dark stores
Towle said Tesco's would need "tens" rather than "hundreds" of dark stores. Speaking last week, Tesco chief executive, Philip Clarke, said Tesco.com "provides all the growth we have in our core food businesses these days".

Where this is heading
Besides representing a threat to Ocado, Tesco with 50% of an online grocery market that will be worth 6% of total grocery spend by 2016 (IGD), the market leader is still at an early stage in its rebalancing of online-and physical store presence that will reflect online demand, with an increasing dark store weighting that will provide a means of reducing online overheads and help to subsidise the cost of home delivery.

In other words, it will always be difficult for online grocers to break out of the '£5-per-drop' mode, so lower-cost dark stores will help by releasing more of the retail margin to help cover delivery cost losses   (See posting below)

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