Tesco Bank - a double-edged sword for retailers?

News that Tesco is only months away from breaking into mainstream banking with current accounts signals the arrival of real competition in the banking sector.

This is a real opportunity to heighten savvy consumers' awareness of value-for-money applied to banking services, helping  consumers to understand that voting with their feet can be an option in banking as well as all other aspects of their consumption.

Tesco tactics
The introduction of 'grocery tactics' like multi-buys, bogofs, money-off offers and, heaven forbid, loyalty points on debit cards, will all help to break down what remains of traditional banking 'mystique'.
Moreover, the inclusion of user-friendly like-with-like comparisons will encourage consumers to develop and use a basic level of numerical skills in choosing financial products, without having to second-guess the provider.

Traditional banks that do not follow suit will lose business to those that are not afraid to clarify their offerings.

The opportunity
There are 15 million Tesco Clubcard holders of whom 6.5 million are loyal and regular users. Tesco needs to converts only a fraction of them to make a sizeable dent in the other banks’ business.

All Tesco have to do is run an efficient, value-for-money service that delivers no-quibble financial products that just exceed expectation, at fractionally less than what it  costs elsewhere...

In the process, Tesco might usefully benchmark itself against the Coop Bank, a competitor that is perceived to have emerged from the global financial crisis with its reputation untarnished.

But...

The sting in the tail is that having sharpened their ability to assess value-for-money and gained more confidence with the numbers, the savvy consumers will then apply this incremental savvy to their regular shopping, and thereby raise the retail game in the high street.

A really incremental gain for Tesco, if they play their cards right...

Premier Foods - the split-up options

Following Premier Foods appointment of a new COO with a brief to help see the grocery and bread businesses managed as two distinct divisions in recognition of the different “opportunities and challenges” facing each business, it might be useful for NAMs to explore the options and possible actions available to the company. This could add insight on how the company will manage the trade and also help you anticipate the impact on competing brands.

Essentially, the company needs to increase its perceived value in the market and thus raise its share price. This will not only give it more autonomy but will also make it easier to sell all or part of the operation at the appropriate time..

The emphasis will therefore be on improving its Return On Capital Employed (ROCE), a driver of the share price.

Step 1
The first step has to be a split of bread and groceries, given that they are totally different business models.

• Bread is a fast moving, high rotation (daily), high wastage (10+%), short shelf life (days/weeks) and narrow margin business, especially supply-side, whereas
• Grocery is slower moving, low rotation (2 monthly), lower wastage (2+%), long shelf life (1-2 years), more generous margins supplier and retailer

Bread: Premier need to strip out cost, sell-off non-core parts, simplify and explore possibilities of sharing the distribution burden

Grocery: Here they need to continue emphasis on a limited number of power-brands and sell off anything non-core

Step 2
The company will then be in a position to apply the ROCE principles to what remains on the two businesses.
ROCE = Return on Sales  x Sales/Capital Employed  i.e. improve the margin and speed up the rotation of capital (factories + stocks, debtors and cash)

Companies are either in a narrow margin, fast rotation business, or they are in a higher margin, slower rotation business. This is why splitting the bread and grocery businesses is a long overdue no-brainer….

Step 3
First they need to focus on improving Net Margin by

• Increasing their selling prices and sales (more advertising on fewer power-brands, up-skilling the negotiators)
• Reducing the levels of discount and promotional expenditure ( did I suggest it was going to be easy?)
• Reducing the levels of sales and distribution costs (hence hiving off the bread business, and need for special vigilance on trade funding and compliance)
• Driving volume, especially bread but also grocery power-brands ( move to more responsive social media )
• Changing the product mix to focus more on higher margin items, (consumers permitting…)
• Minimise ‘specials’ in terms of tailor-made deals/trade arrangements of any kind, (they just cost more…)

Step 4
Then comes increasing the Rotation of their Capital by

• Driving the volume of sales as high as possible, using existing or lower levels of Fixed Assets (factories, plant), + Current Assets (stocks, debtors and cash)
• Getting paid faster via settlement discounts, ‘delisting’ any financially unstable customers
• Improving sales forecasts i.e. if they forecast 100% and achieve 95%, then 5% of sales become ‘passengers’ with their costs shifting onto the 95% that are sold, thereby hitting the bottom line
• Generally, improving their ability to convert business cost into revenue…

These moves will drive the overall ROCE, increase the share price, and make each or both of the companies easier to sell, if necessary.

If all of this seems a bit theoretical, why not watch this space over the next six months? You will then be looking at historical moves, whereas some of the above points may help you anticipate and take appropriate action NOW, when it really matters…

What next for the Tesco NAM?

Given yesterday’s long-heralded results, it might have occurred to Tesco NAMs that their best option might be a discrete pitch for the JS account management role. Better, however, to try to place Tesco’s results in perspective before making irreversible moves.

Essentially, for the past ten years Tesco have been going-for-broke in trying to achieve global presence, at an obvious cost to their UK business. The City have never really looked beyond the UK scene in assessing their potential, seeing overseas initiatives as high risk and costly.

Basis of global retailing
In the process, Tesco lost sight of one of the basic principles of successful global retailing – maintain profitable dominance of the home market. Otherwise, domestic issues arising from a major share and the resulting pressure on special interest groups become over-distracting in terms of pursuing global presence.

Putting Tesco in today's context
We have to remember the following:

1. The world is currently undergoing one of the most fundamental changes and unprecedented upheavals ever experienced, affecting the fundamentals of capitalism, let alone buying and selling…everywhere
2. The embryo savvy consumer has morphed into a mature adult determined to settle for nothing less than demonstrable value for money, in most places
3. The younger generation have bypassed ‘naïve’ mode and are coming ready-equipped with the views and technology of mature-savvy, with no baggage (think how few are watching TV or partaking of ‘mainstream’ anything…)
4. January’s profit warning has forced Tesco to re-balance its business model, re-focusing on UK performance
5. So, it has cost £1bn, and hit the bottom line, big deal…(Have you been into your local newly-focused Tesco lately, where even a little has helped…)
6. They still have 30% share of the market, almost double the net margin of JS and the scale to make a difference to savvy shoppers...the ones who count...
7. Rest-of-world business has always represented issues for Tesco, and in the current global climate, they are coping better than most (seen Carrefour's results lately?)
8. The US is proving to be a slow burn, and draining global profits at £78m per annum, a small price to pay to establish their presence in one of the world’s most challenging markets. Tesco still represents ‘small & fresh’ in a market that tends to be ‘big & stale’, and needs to scale back, cut costs and achieve break-even, knowing that if they pull out now, no future CEO will ever stick her neck out and try again….
9. Tesco have managed (by luck or judgement, who cares?) to avoid the big Euro-countries that are participating in a slow train-crash, with unimaginable consequences...(forget MSM, read the blogs)
10. Meanwhile their CEE, and Asian businesses are ready to capitalise on any whisper of an upturn…and the UK abounds with opportunities for NAMs to help Tesco innovate, like never before...

In other words, no need to dust down the CV yet… 

Return on Investment in Business Trust, the real payoff?

At a time when our trust in the banking and political systems has all but been destroyed, and major retailers are struggling to meet City expectations, we are at a place where the letter rather than the spirit of the law defines business relationships, with the ‘small print’ confirming for many that we are all now on our own.

In an age of uncertainty, we therefore have to be mindful of both the letter and spirit of our agreements in formalising any initiatives. In other words, we need to establish basic business trust in an atmosphere of unprecedented suspicion and even fear…

The need for robust contracts
It goes without saying that in order to observe the spirit of a supplier-retailer ‘fair-share’ agreement it is critical to have a robust written contract as a basis for monitoring any inadvertent straying from what each party thought they were buying into when the deal was struck…the ‘gentlemen’s agreement’ has perished not for want of gentlemen, but because business stakes and costs have now reached unprecedented heights…

Why trust saves money
Essentially, if we do not invest, build and maintain a minimum level of ‘trading trust’ in the early stages of a supplier-retailer relationship then the extra work involved in second-guessing our trading partner’s intentions comes straight off the bottom line. In other words, like networking in these unprecedented times, the current business climate does not allow for the gradual, instinctive building up of the necessary levels of trust. Instead, taking trust as a desirable and essential outcome, we need to methodically accelerate the process, upfront.

Just the beginning…
Thus, from a position where trust started as a means of avoiding wastage of time and money in the early stages of the relationship, a way establishing our trust-credentials,  mutual trust becomes an increasingly important, indeed vital ingredient over the lifetime productivity of the supplier-retailer partnership...


In fact, in my first brand management job, I appointed a Belfast firm as our agent in Northern Ireland for our only product, K2R Stain-remover. Following intensive negotiation, we agreed on a comprehensive Agency Contract and commenced trading. One night a few years later, the agent rang me mid-evening to let me know that a liquidator would be appointed at 0900 the following morning, but meanwhile, if I could organise some transport….?
Even I knew that the liquidator’s first act would be to chain the front gates, at which point everything inside would belong to the government.  
I made a few phone calls and managed to have our £4,500 stock picked up before midnight.
There was nothing in our Contract covering early warnings, but implicit was an understanding that we would trust one another to do the right thing, when necessary…I have remained forever grateful for the insight...

In other words, by investing in the spirit of the relationship, the resulting overall Return on Investment in trust can provide a real payoff for all stakeholders.            
Trust me, folks,  it works…

More here
How to build business trust with major retailers here

Playing with your Clubcard data at Tesco?

                                                                                        pic: Tales from the playroom
Tesco plans to develop 'products and games' to give Clubcard-holders 'simple, useful, fun' access to their own data, to help them 'plan and achieve their goals'. The retailer's aim is to build personalised access to customers' own 'data capability plans'.

The issue for Tesco has to be the impact of this new access and awareness on consumers, negative and positive. Latest legislation gives consumers access to their personal data, but this is inertia territory, with relatively few bothering to check how much a retailer knows about them.
This is a long way from deliberately turning a spotlight on the extent of that data, especially if it hits some of the main stream media on a 'slow news' day....
Making positive use of the insight via permission marketing seems more productive.

Pragmatic use of personal data
Many years ago, when data-storage costs were prohibitive, direct data-based marketing was focused on specialist B2B targets like doctors. At the time we  happened on ‘lifetime value’ by accident, in that medical students were picked up on Day One at medical school, and left the database via the graveyard. Regular visits by medical ‘reps’ coupled with script-tracking gradually enriched the database over time.

Using the insight
This data-source was used as a basis for targeted mail-shots, personalising the message as much as we dared at the time. In order to optimise the persuasive effect, we focused on medical needs both functional and emotional, selected appropriate features of our brands and connected them via a benefit statement. Rep feedback and script-output then validated the process….

This meant making very selective use of the data on record with the sole objective of meeting doctor-needs.
We seldom felt the need, or dared to let the doctor know that we knew he had red hair…

Tesco might benefit from imposing the same self-restraint and emphasis on their use of Clubcard data…

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…!

KAMs' Highs & Lows

Early in a career, KAMs have to decide whether they want a roller-coaster ride or prefer a gentle see-saw at the quiet end of the playground.

Apart from the excitement, the former takes courage and can be more rewarding, but the latter no longer carries any guarantees….

Facebook gets physical...via new gift service to sell real goods

According to the FT, Facebook has launched a gift-service that allows users to send novelty items to friends, via revenue-sharing agreements with its partner-retailers.

The Amazonian elephant in the room…
However, despite the advantage of background personal insight, Facebook missed a big retrospective-trick by failing to anticipate the need for physical location details and not requesting personal addresses when members’ originally registered with the social network. Furthermore, given Amazon’s 1-click innovator’s advantage, Facebook is condemned to forever playing catch-up to the online retailer’s speed, efficiency and database…

Fulfilment issues for trade-partners
Given that volume-gifting will be mainly low-priced novelty items, partner-retailers face the triple whammy of securing addresses, 'instant' shipping of low-value items and awaiting their share of revenue, in a world where fast single-step purchase is king…

For suppliers, the issue becomes one of being able to anticipate the volume and speed required should a novelty gift-item catch on big-time with the Facebook community (for openers, think hundreds of millions…fast!).

Overall assessment
Better for Facebook to revert to virtual, and find digital gifting-options that meet the same needs…(or even partnering Amazon…). This could represent a real opportunity for service-suppliers to evolve ways of digitising their offering via Facebook (i.e. ‘Have a Guinness on me for your birthday!’ NB. an example only…nothing beats the real cash-based shared-experience !)

(but meanwhile, no harm in Facebook seeking ways of harvesting physical addresses from their vast connected-community, just-in-case…)