Key case Shatters Irish Upward-only-rent-reviews

Despite ‘incompatibility with constitution and expense of implementation…’, a landmark court case is potentially a major development in Irish case law which puts in doubt the ability of a commercial landlord to enforce so-called “Upward Only Rent Review” terms in pre-February 2010 leases.

Apart from refusing to allow the enforcement of the UORR clause, the Judge has apparently ordered the rent to fall to current market levels, which are more than 50% less than peak rents in 2006-8. This judgement could affect all other similar leases in Ireland, making retail rents more manageable for businesses throughout the country.

As additional details of the judgement of 25th March become available, it appears likely that the judgement will be appealed. Hopefully, common sense will prevail in abolishing UORRs, effectively removing what is a partial cause of the current high shop vacancy rate in Ireland...

Those with interests in the Irish market can access full details including the final judgement here 

What if: Pepsi and Kraft merge?

The recent stake-building in Pepsi and Mondelez – formerly known as Kraft Foods - by Nelson Peltz, one of America's best-known corporate raiders, presents several possible outcomes… These range from passive strategic shareholding, to forcing Pepsi to split its business along the lines of the Mondelez split into global snacks and Kraft grocery, to a full-blown merger of the two companies.

Given that Peltz, in the current climate, is well-known in the shareholder community as a fearless activist investor willing to agitate for strategic change and take on company boards, we can rule out passivity, whilst the Pepsi demerge option would seem like an intermediate step….

From a category impact point of view, it is probably best to explore the implications of a possible £112bn merger…

Key will be the usual pricing and terms disparity issues, causing post-merger delays as the new company works through the detail of the resulting implications at the supplier-retailer interface.  Any differences will require the negotiation of a rationalised set of trading terms and conditions, dealing with a trade that wants to go for the lowest common denominator ( and appropriate compensation for ‘immovable’ terms) within an over-riding desire to simplify their overall trading relationship with the company.

At global level, this may extend to global retailers wanting to deal with ‘one face’, a challenge to the differing account management structures in each company, apart from the additional complication of the involvement of bottlers in the Pepsi trade-mix, at global, regional and country level….

A key concern for some retailers may be resulting size of its new supplier… This means that some of the major multiples may attempt to reduce their level of dependence by creating new/increased alliances with other suppliers in the categories, with obvious impacts on different brands.

Obviously, category members will drill down to explore specifics in terms of changes in relative competitive appeal, government-forced disposals of over-lapping brands and the resulting changes in category dynamics, seeking opportunities at each stage in the merger process…

On balance, given the above ‘distractions’, quite apart from the potential issues with governments at global, regional and local level, a possible merger would appear to represent more opportunities for the competition than gains for Pepsi-Kraft, at this stage…

Hopefully, Mr Peltz can be persuaded that the potential negative impacts will outweigh possible gains in shareholder value from a forced merger, in these already over-complicated times…… 

A lesson in how to steal?

                                                                                                          video: AP on Youtube
This polite but firm hold-up of a convenience store illustrates a return to the values of yesteryear, when good manners really made a difference.

The gunman starts with developing a business relationship with the owner of the money, gets to know how much is available via a visual check of the till-drawer, explains his predicament and his need for the money. He then makes a direct request for the cash with barely a reference to the power he wields in his right hand, and invites the owner to hand over the contents of the till.

Finally, he expresses his appreciation, bids farewell and leaves the store on a promise to repay the money should his circumstances improve….

Unlike this week’s events in Cyprus…..

Reduced value packs - how it sounds to the buyer….

Given the latest Which? report showing that household brands are disguising price increases by reducing pack sizes by up to 25%, and sometimes adding a price increase, NAMs may prefer to raise the issue with buyers upfront, rather than be forced to go on the defensive when the customer makes it an agenda item…

S:     Just to let you know, we have managed to minimise the shelf price increase. We are recommending an increase of 6%
B:    …and keeping the pack contents the same?
S:     Well, not exactly… We are actually reducing the pack size by 15%.  Our research shows that the consumer won’t even notice…
B:    Hang on a second. There are a lot of savvy consumers out there, and they are even more value- conscious in the aisle…given all the price comparison tools available… and we even encourage the process instore. Are you guys doing the right research?
S:     As champions of the consumer, we are very sensitive to their needs…
B:     In reality we like to think that the consumer-shopper regards us as their champion, and given the latest Which research, they seem to need our help..
S:     Well, as joint-champions of the consumer–shopper, we feel that  the new pack represents good value for money..
B:     So, let’s take your 750g pack, currently retailing at £3-25, giving us a margin of 18% i.e. cash of £0.585 . This gives the shopper a cost per 100g of £0.43.
Reducing the contents by 15% increases the cost per 100g to £0.51, an increase of 18.6%!  Suppose we add your proposed 6% price increase, this makes the new retail price £3.45.
On a price per 100g of £0.54, that makes it a total price increase of 25.6%.  And you think they won’t notice?
S:     But the consumer doesn’t think like that..
B:    We believe it gives us a competitive advantage to help them think like that, which is why we are putting the price per 100g under every shelf price…
S:     Well, other members of the category are experiencing the same ingredient cost-pressures so they will have to follow our lead…
B:    As you may have noticed, our private label has a 20% share of category, and we have not seen ingredient cost increases of anything like 15%.. and besides, your competitors have not moved yet…
S:    But if you raise your shelf prices on our brand by our recommended 6%, you will generate additional margin of ...
B:   You don’t get it. The sales of your brand are going to fall, making even less money for both of us, thereby diluting our category margin…
S:    Perhaps you could lower your shelf-prices to maintain rate-of-sale….?
B:    Presumably you will compensate me via increased margin?
SuperNAM:    I hadn’t  actually factored that in…
Buyer:               Byeeeee…..

Adventures of SuperNAM (18)

Knowledge of football is a myth in sports gambling success

In a new study of football forecasting, the researchers compared the betting results of three groups of participants, including 53 professional sports gamblers, 34 soccer fans who were knowledgeable about the sport but had never gambled, and 78 non-gamblers with no prior knowledge of football at all. All participants placed bets on the final scores of the 16 second-round matches of the Champion's League, organized by the Union of European Football Associations.

No difference was found in the results of the most experienced sports gamblers, the most knowledgeable football fans, and the totally inexperienced. Two of the least knowledgeable actually made the most money betting....!

How does it affect the NAM?
Given that NAMs often have to take a ‘leap in the dark’ when dealing with major customers, like forecasting coupon-redemption rates in uncertain times, the role may sometimes feel like high risk gambling. In other words, it may seem that playing by ear can be just as successful as a deep understanding of the customer when predicting outcomes…, according to the football research above.

What makes the NAM role different?
In practice in the NAM role, we need to distinguish risk-taking and gambling. Risk-takers would not pass a car on a hill or a curve, nor blindly go into a business venture. They assemble the facts and evaluate carefully from every possible perspective the chances of success and the benefits which go with that success.  They understand  there are no guarantees and that the possibility exists that they could lose (Zigler/Sully).  Nonetheless, they recognise that the possible gain is so much greater than the possible loss that they deem it appropriate to take the risk.

Gambling is a far more hazardous undertaking, with the only long term winner being the person accepting the bets.

The only difference in these unprecedented times is that we are operating with deeper downsides, requiring numbers-based latest trade and customer insight in order to assess how much risk we are actually taking.
But nothing replaces the need to then take the risk…. 

NB. For those wanting more insight on how to shorten the odds, it also helps to distinguish Risk Intelligence, a purely intellectual ability, from Risk Appetite, an emotional trait, more to do with how comfortable you are with taking risks. Risk Appetite governs how much risk you want to take, while risk intelligence involves being aware of how much risk you are actually taking… ( More )

Exorbitant hidden charges 'could be consigned to history' by new up-front legislation...

The popularity of price comparison sites has influenced firms to highlight low headline prices, forcing hidden extra costs 'underground', into the small print.

In a new report by the Law Commission, cited by The Telegraph, reforms, along with airline pricing, could also affect mobile phone contracts, cancellation charges for weddings, payday loans and estate agents, with courts able to intervene to stop any unfair hidden charges.  In practice, an attempt by the law to frustrate the hit-and-run marketing tactics of those who do not understand the laws of repeat-purchase...

In other words, the law will try to put true like-with-like price comparison 'on-the-tin', theoretically making it easier for the non-savvy consumer to make an informed choice at the point of purchase...
However, the super-savvy consumer will appreciate that the ultimate responsibility still remains with the person paying the money, and remains unwilling to outsource the purchasing decision to marketers and retailers ever again.
In addition, the meat scandal has shown that even on-tin descriptions are no guarantee of the ingredients within...

While the Law continues to seek a one-stop solution to betrayal of trust, there has to be an opportunity in the marketplace for suppliers who are prepared to break ranks with 'normal industry practice' strip their offering down to basics, and strive for clarity in helping the consumer to satisfy a need via their combination of Product, Price, Presentation and Place.

Being 'in the business' such suppliers are in a position to identify where all the bodies are buried,  understand how easily the consumer is deceived, once, and can focus on formulating  a trust-based offering that truly does what it says on the tin.

This honesty will obviously result in a shelf-price in excess of 'less-honest' competing products in the category, and advertising would need to focus on explaining the difference. In effect, the supplier is thus creating a category bench-mark in the brand, educating the consumer on what they should seek-and-compare in evaluating available alternatives...

However, the consumer is still left with, and should retain, the ultimate responsibility for the decision-to-buy. The supplier simply facilitates the process, and relies upon the resulting 'tell a friend' endorsement to grow the brand, like in the old days...

What if:     Airlines sold paint

Cyprus Bank Robbery?

Settlement discount - how to negotiate earlier payment

Given the news that HMV and Blockbuster 'owed £490m' to creditors when they collapsed after Christmas, it is important that suppliers attempt to reduce credit periods in unprecedented times. Calculating and explaining the financial benefits of an appropriate discount for earlier payment therefore becomes a required skill in the NAM role…

S:   Given our need for reduced exposure, coupled with your constant requests for lower cost prices, we may be able to help each other out…
B:   Agreed, but I don’t see the exposure on your side? We are one of your biggest customers…
S:   So was HMV in the home entertainments category, yet they went bust ‘overnight’ leaving suppliers to find incremental sales of £4.9bn to cover losses of £490m!
B:   ??
S:   Another time…let’s focus on our trade partnership. As you know our annual sales to you are £14m, and you pay us in 45 days net.
B:   Those are our standard arrangements for all suppliers
S:   Let’s just focus on you and I…. Given the global financial turmoil, our company would feel more comfortable with 25days credit, a reduction of 20 days, and we are prepared to pay to reduce that risk…
B:   How much?
S:   Great you find it interesting… Let me work you through the calculation…
B:   Convince me…
S:   At the moment you pay us 365/45 times a year, i.e. 8 times a year, meaning you owe us £1,7m at any time… (i.e. £14m/8 = £1.7m)
B:   So?
S:   We want you to pay us 365/25 times a year, i.e. 14.6 times a year, meaning you owe us £0.96m at any time…(i.e. £14m/14.6 = £0.96m), a reduction of 20 days
B:   We would need a big discount for 20 days…
S:   I thought the same, until I worked up the numbers.  Let me show you…
B:   I have another meeting in five minutes..
S:   Won’t take that long. At 45 days you owe us £1.7m, and at 25 days the amount you owe is £0.96m, a difference of £0.74m
B:   Like I said, I’m busy…
S:   Say the cost of borrowing is 9% interest per year, so the cost of borrowing £0.74m for a year is £0.067m
B:   Where is this heading?
S:   I am trying to show you how little you need off invoice to beat 9% interest on your money…
B:   OK, another minute…
S:   That £0.067m represents 0.5% of our annual sales to you i.e. £0.067/ £14.0m x 100 = 0.5%
B:   ??
S:   In other words, 0.5% off invoice is equivalent to an interest rate of 9% per annum on your money!
Buyer:             Run that by me again?
SuperNAM:    No problem, and I’ll leave you a couple of slides to talk it through with your finance guys…

Adventures of SuperNAM (17)