Amazon should buy Ocado, says Cantor Fitzergerald analyst

One of America's top technology analysts has said that Amazon should buy Ocado, describing the online retailer as having one of the “most advanced technology platforms” for grocery delivery in the world.

In fact, KamBlog readers will have come to this conclusion on 14th August 2012  when we wrote that Ocado’s banking issues represented ‘an Amazonian window’, and again on 26th November 2012 ‘Amazon-the-grocer moves from 22,000 to 150,000 products since July 2010’, making the M25 ‘market’ a natural test-bed…

Why now?
According to The Daily Telegraph, the Morrisons’ deal has put companies that have eyed Ocado for much of the past three years back on “red alert”, including Boots, Amazon and Carrefour, who are considering a licencing deal (a networking tip for your continental colleagues?).

Cantor Fitzergerald analyst Youssef Squali said: “We believe an Ocado deal would bring much more automation to grocery delivery within Amazon and accelerate AmazonFresh’s roll-out across the US.”

Amazon has been testing Amazon Fresh in Seattle for six years and recently expanded it to LA. It is thought to be considering entering 20 US cities.

Why it matters?
The real issue is not the fact that Amazon may be contemplating the inevitable, but that given some pointers, a NAM can be trained to recognise early signals in the market. In fact, by joining up the dots (or having them joined for her),  a NAM can sometimes have at least six months ‘warning’ of a customer move.

This time-advantage has to provide an opportunity to anticipate or even implement a strategic response while competing NAMs are surprised on the day, and have to resort to a reflex re-action…

...and the facts, figures and opportunities are all around us (especially in retailer's latest Annual Reports), all for the want of knowing what to look for, coupled with a creative ‘what if’, or two, combined with the potential synergies arising from a NAM's day-to-day relationship with the customer… 

In fact, ignoring what a retailer says about its finances has to represent one of the biggest and most dangerous tricks a NAM can miss…

Managing the post-rescue Booker-Makro relationship..

As one of our most popular NamNews items yesterday, reports in The Grocer of alleged demands by Booker from suppliers for lump sums/terms-harmonisation raise issues for suppliers.

It may be worth running through your financial options rather than resorting to simply saying ‘no’ and possibly jeopardising a potentially productive relationship..

No one expects you to simply give in to every request for additional monies, but being able to explain ‘why not’ can perhaps build your status in the relationship, leaving the customer to pass on and try a less-skilled supplier further down the line…

Essentially, if you are in the business of fair-share defensible dealings with customers, then anticipating and managing demands for correction of pricing and terms disparities following a merger of two customers will be part of your regular routine, using your normal tool-kit.

However, given the unprecedented times, a reminder of the process when two customers combine operations, may be of value:

Your business relationship with a customer will have the following ingredients
- Gross Margin on sales by the customer
- Credit period
- Settlement discount
- Trade funding
- Deductions

Gross Margin:
This should be the same for all customers that perform the same/similar function in re-selling your product. If different, it would be wise to clarify and be able to justify the additional services provided by the customer that enjoys the larger trade margin. Inability or unwillingness to do so will inevitably result in forced harmonisation upwards, or even de-listing. Handling the issue properly could result in the newly-combined customer adopting the additional services across the business.

Credit Period:
It is a no-brainer that a newly merged customer will want the same credit-period as its new partner, and if a defensible rationale does not exist, expect a demand for harmonisation to the longer credit period, with possibly a two-year back-haul ‘to recover the benefit we would have enjoyed’….  It would be unwise not to have calculated the cost of credit in advance for each of the customers and worked out the impact of ‘harmonisation’, before the customer asks…

Settlement discount:
If you operate a settlement discount to encourage early payment, hopefully it will stand ‘like-with-like’ comparison between the two customers…?  Ideally the discount will pay the same rate for the same reduction in payment periods. Why not check it out on our settlement discount tool and work out the inevitable customer demand in advance, rather than in the heat of a ‘demand’ session?

Trade funding:
If, like most suppliers, you operate 20-25 trade-funding ‘buckets’, it would be wise to check out ‘who gets what, and why’ for each of the two customers, quantifying cost to you and value to the customer in each case (our latest version of NamCalc covers 33 trade calculations). In practice this means working out the incremental sales required by the customer to generate the lump sum equivalent to what you give in trade funding…i.e. a customer with a net margin of 3% needs incremental sales of £33k for every £1k you invest in their business… (£1000/3 x 100)

Deductions:
These depend on service level, contracts and the ability of the customer to measure  and claim for real loss.
Best to clarify your options ‘just-in-case’ and if tempted to procrastinate, remind yourself that in the US, deductions can represent up to 7% of a supplier’s sales…

‘Lump sums for rescuing Makro’:
In taking over Makro, a commercial decision was made within the normal constraints of the takeover process i.e. it was not possible to consult with suppliers in advance, so presumably all costs were factored into the agreed price at a known level of risk that did not include incremental help from suppliers….  In the same way, as Makro drifted downwards, most suppliers will have assessed the risk and cost to them of the company going bust and will have factored this into their trade strategies.

Only if the takeover of Makro results in genuine incremental business for the supplier, will additional payments be negotiable…

A supplier that has completed the calculations outlined above will be better prepared than most to handle the resulting session with Booker…

[Incidentally, if you have not had a request yet, it may be because of your position relative to other suppliers on the radar…. So a 'what-if' on the above options may be worth a moment of your time?
If you are stuck on any aspect of the application, why not give me a call?]

'Try it first' perfume service boosts sales for The Fragrance Shop

The days of unwanted perfume or aftershave presents sitting on the bathroom shelf may be coming to an end after The Fragrance Shop launched a “try it first” service, designed to boost online sales. It provides customers with a free sample of the purchased fragrance, meaning they can test it before opening the full bottle and return the fragrance for a full refund if they do not like it.

The Fragrance Shop credits the scheme with helping them show a 15% increase in sales to £81m in the year to March 31, with a click-and-collect online ordering service accounting for 17% of sales.

Representing what can be the final hurdle for the 'new user' savvy shopper, this initiative gives The Fragrance Shop a clear competitive advantage over traditional, albeit upmarket purveyors of fragrance, by removing the 'risk' element in making a decision to invest in a product where the reassurance or even 'permission' of other stakeholders/partners may be required to endorse or even authorise a purchase.

In other words, trial and discussion in the comfort of the home become an active part of the buying process, especially for online purchases..

A pointer for savvy C&T suppliers who might gain an advantage by supplying a small sample (or two) in each pack.....?  

€1m revenue at tuck shop with captive audience

How they hit the numbers in Dublin’s Mountjoy jail-shop
Figures just released indicate that whilst sales revenues dipped by 7% to €1.2m in 2012, profits increased by 17% to €124k, making a Net Margin of 10.1%. Annual sales per shopper worked out at €2,268 per shopper, based on an average guest-list of 540 members, with high levels of store-loyalty, and little evidence of promiscuous shopping behaviour.

How do they achieve these results?

• Availability: with a shopper mix that includes murderers and other individuals prone to violent expression of their needs, zero-defect availability records are second to none…
• Shopper behaviour: In common with other retail, the shop can not only track customer movements before and during the shopping process, but has the additional advantage of being able to predict future location of the shopper 24/7 with a high degree of certainty…
• Shrinkage: given the degrees of shopper expertise, it is not too clear if shrinkage levels are equal to, or exceed international  averages
• Tight offering: despite latent demand for basic DIY tools and general outdoor gear, categories are limited to toiletries, cigarettes, tea bags, biscuits, and other items
• Database: the company database possesses degrees of customer insight a normal retailer could die for…including finger-prints, DNA samples, previous ‘form’, membership of affinity-groups, etc
• Payment: perhaps understandably, no money changes hands between the prison-officer manning the hatch and prisoners; all purchases are made ‘on tick’, with no reported instances of any difficulties in enforcing payment on due-dates, via cell-visit, if necessary…

NAM precautions
NAMs conducting store checks in ‘The Joy’ should exercise caution at all times and would be well advised to supress any inclination towards aisle-rage, queue-jumping and even gentle interrogation of fellow shoppers…

Moreover, dressing down for a store-check is not advised in order to avoid any possible misunderstandings when attempting to leave the facility…

Meanwhile, just-in-case, have a get-away weekend from the NamNews Team!

Why cash is making a comeback

Despite increasing reassurances by the banks (!) as to their safety and reliability, the rise of contactless payments and chip-and-pin has gone into reverse. New figures reveal that more of us prefer to use hard currency – whether because our accounts are empty or because we prefer the security of coins and notes.

According to a new report from the Payments Council and Link, which runs the UK's cash machines, the volume of cash payments rose by 200m in 2012, reversing the year-on-year decline over the past decade, with more than half of all our payments in cash, reflecting its easy use and its wide acceptance.

Whilst many prefer the anonymity of cash payment, remembering also to take the batteries out of their phones, or leave them at home, don't drive a car, or avoid walking past their daily allocation of 300 security cameras, and obviously ignoring the potential advantages of a 24/7 alibi, a key advantage of paying in cash means that we are continually confronted with the state of our personal finances. This helps to sharpen our savvy-consumer skills when paying with our ‘real money’…

NAM application
In the same way, NAMs who quantify and convert all concessions into cost and value, capturing the resulting impact on their company P&L, can  more easily demonstrate the value to the retailer in terms of both bottom-line result and incremental sales. This has to represent a major advantage over those who continually add cash & ‘non-cash’ concessions to their offering with little attempt to match and trade their way to a fair-share result.

Like the cash-paying savvy consumer, negotiating with real money automatically builds in the need for KPI achievement and compliance in order to provide all stakeholders with demonstrable value-for-money, besides being a constant reminder of our ability to make a profit or loss, via the use or abuse of 'our money'…  

Stores charging shoppers a 'showrooming' fee

Reports of stores charging* shoppers up to $25 to TRY ON clothes in a backlash against the time-wasting trend for 'showrooming', raises some issues that might respond to some creative thinking tools:

Suppose a NAM ran the store?
This creative leap hopefully removes all the prejudice relating to 'how we have always done it' and takes a fresh view, hopefully from outside the business. A NAM in charge would switch the emphasis from selling the goods to helping people buy..., taking into account the existence of competition from a shopper's perspective.

Given that most shoppers already think that online provides a cheaper alternative, a NAM would see the danger of simply adding to the cost of reality shopping, making the price difference even greater. Instead, the NAM-retailer would perhaps explore options re absorbing the additional cost of 'try-ons' by linking the purchase to the shop's online facility, and failing that, a payment from the supplier.  If the same product were  available via alternative online retailers, then an introduction-fee arrangement could be agreed, perhaps in return for reciprocal direction of online shoppers to the showrooming facility, thereby converting a 'dithering shopper' into a sale, to the benefit of all..?

With the NAM's experience of the upfront effort and advantages of a long term relationship with the customer vs. a transactional sale, the potential lifetime value of the shopper would be automatically factored into the instore-encounter, at operating level, one-to-one, and not left at mission-statement level....

Showroom owners are right in counting the additional costs and potential wastage of a 'try-on' customer, but they miss a trick in not seeing the total value of having a real person appear in the aisle, already in the market for a purchase, ideally with the wherewithall (money) and highly susceptible to the personal conversion-skills an online provider can only dream about..

A NAM would not have to be told twice... 
[ For NAMs that need reminding, we are always available to help :) ]

* Press article here

Generic inevitabilities in Ireland

New pricing system for generic drugs to be implemented this year aimed at significantly reducing the cost of generic drugs.

The Irish Medicines Board is drawing up lists of interchangeable products for 20 substances most commonly prescribed. This has to be the start of a process that will give the county the benefits of a 90% reduction in the cost of some medical treatment.

This inevitable move could have been predicted by anyone choosing to compare the prescription-drug/generic-drug pricing structure wherever a state-funded medicine system is in operation. In fact, readers of KamBlog will have had 9 months to anticipate this morning's announcement in the Irish Times.

In October 2012 we wrote:

Radical changes overdue
With generics = 5% of the €1.85bn drug bill in Ireland vs. 80% in the UK (Dail Questions: Reilly, 25th Oct 2012), and generics prices in Ireland = 2% less than branded prices but 12 times UK generics prices, we would suggest it is inevitable that:

The government will legislate to increase generics usage to something approaching the UK %. Prices of generics will then be forced down to levels comparable with the UK (think legislation or encouragement of parallel importing, or both).

Consequence
In other words, on current levels of consumption, a 50/50 split of generics and branded, and generics pricing being reduced even by 50%, the annual drug bill will be reduced to €1.4bn, minimum… More here

However, the real issue has to be the benefits for a NAM of realistically facing up to the inevitabilities of market developments, conducing a couple of ‘what ifs’ on the probable consequences, taking a couple of appropriate actions to minimise the damage and then reverting to the day-job and making ready for the next engagement with Tesco…

Have an inevitable weekend, from the NamNews Team!

Shop window coverage of the G8 summit...?

                                      Flanagan’s – a former butcher’s in Belcoo Pic: Bryan O’Brien
Hundreds of thousands of pounds have been spent on a Fermanagh facelift in Northern Ireland as the county prepares for the G8 summit in just under three weeks’ time. More than 100 properties within range of the sumptuous Lough Erne resort which hosts the world’s wealthiest leaders, have been tidied up, painted or power-hosed.

Just a few weeks ago, Flanagan’s – a former butcher’s and vegetable shop in the village of Belcoo– was cleaned and repainted with bespoke images of a thriving business placed in the windows. Any G8 delegate forgetting to wind down the rose-tinted limo-window on the way to discuss global capitalism would easily be fooled into thinking that all is well with the free-market system in Fermanagh.

But, as anyone outside the venue knows, the facts are different…..

In a high street in any other part of the UK, disguising empty shop windows can be a means of encouraging the consumer to spend, instead of being put off by reminders of ‘triple-dip’ flat-lining…

Covering shop windows close to a G8 summit becomes a political statement….

However, our world leaders know more than we the political realities and consequences of their decisions and hopefully the sight of Flanagan’s will generate more than a sound-bite on arrival at the Lough Erne resort....