Stinking fish and small coffees - the language of bribery around the world

Well-travelled NAMs may well be aware of some of the euphemisms for bribes but a new BBC report should help to clarify the grey area of bribery and corruption. Phrases including "beans for the kids" in Kinshasa, "a glass of wine" in Paris, and "a small coffee" in most places are all signals that the buyer is ‘almost there’ except for….

However, unless your buyer is particularly outspoken and direct, then building up familiarity with bribery shorthand may help in establishing whether a NAM and buyer are in Bribery Act territory…

Bribery defined
When in doubt, it is important to go back to basics and establish a clear personal position on bribery. Bribery is quite clearly an overt inducement to the buyer to over-ride the logic of a buying decision where a supplier’s competitor is patently offering a better deal on a like-with-like basis. In other words, the supplier’s offering is equal with that of the competitor except for the additional £10k on the price to fund the bribe.

This point, the first of many, was brought out at the case against the UK potato buyer on 30th April 2012 in court by the prosecution: "A peculiar feature of the corruption was that it was self-funding. [The supplier was] not paying for it, [the retailer was] paying for the corruption of their own buyer and this was achieved by overcharging [the retailer]".

For further guidance on the distinction between gifts and bribery see KamBlog: buyer-seller corruption 

Action for NAMs
The answer for NAMs is always to attempt to revert to the base deal and check that it satisfies objective buying criteria (the buyer’s job needs), like-with-like, before focusing on the buyer’s emotional needs. In practice some of this process occurs simultaneously, but it remains vital that the supplier’s basic offering is defensible and transparent, always, and with 20/20 hindsight…..its the nature of the job, folks.

Meanwhile, if the buyer offers you ‘a small cup of coffee’ at the end of what you thought was a done-deal, best stick to the usual mug of tea, without sweetener, unless he insists, of course…

Debenhams’ Risk review (latest Annual Report 2012, P39-45)

(Download a copy of the Annual Report here)
A virtual primer on risk management, their latest Annual Report devotes six pages to defining and spelling out Debenhams’ position on risk, in terms of chance-of-occurrence and impact-on-the-business. Any NAMs wanting to optimise their trading partnerships with the retailer will need to demonstrate how their policies and process are compatible and complementary in terms of the supplier-type risks covered in the Debenhams’ report, or risk being ignored….

Know your own risk-profile
In practice, this means that the supplier needs to be clear in terms of relative risk profiles of the two organisations, knowing whether as a supplier in their category they are risk-seeking, risk-neutral or risk-averse, and pretty clear on how Debenhams views itself on the same measures, in that same category.

Incidentally, the category-specific criterion is important, given the difference between fashion-clothing and, say Health & Beauty business models. 

Risk-match with the customer
In terms of being complementary, a supplier can either have the same appetite for risk (i.e. both are risk-neutral, or be more adventurous [risk-seeking] based on knowledge of the category, where the retailer is more conservative [risk-neutral] in the same category.

Either way, framing your presentations as ways of helping the retailer to manage their perceived risks has to be a way of differentiating your offering from competitors that make a pitch in the traditional manner…

Debenhams’ Risk priorities and mitigation
See the risks identified by Debenhams on p42 to 45 that could impact/involve suppliers:

Risks:
- Consistent fall in customer spending
- Competitive pressures in existing markets
- Factors influencing the sustainability of the supply chain
- Inability to predict or fulfil customer demands or preferences
- Disruptions or other adverse events affecting relationships with or the performance of major suppliers
- Ineffective brand awareness and marketing programmes

Debenhams are clearly building risk-management into their culture at all levels. They are listing both the risk and the mitigating action in each case. Ignoring the risk-content of the Annual Report could prove to be a major ‘miss-trick’ for NAMs…, whereas seeing an opportunity to jointly manage relative risk with Debenhams, has to be a no-brainer for pro-active NAMs…

Microbrewing to micromarketing - Aldi beer festival boost for breweries

Discount supermarket chain Aldi estimates it has sold £90,000 of Scottish craft beer in five weeks during its second in-store beer festival, featuring 33 beers from 13 breweries.

According to The Herald, the retailer has sold 52,000 bottles out of 70,000 it had in stock in its 46 stores across Scotland and is on target to beat last year's beer festival sales of £93,000. The festival is part of  Aldi’s ongoing commitment to working with local suppliers, according to Richard Holloway, Scottish Managing Director.

A small initiative from a global perspective, perhaps…, but monumental in terms of pressing all the buttons locally…

More details of Aldi’s Scottish beer initiatives here

Incidentally, for traditional branded suppliers, faced with the challenges of global brand-names innovation, again the Scottish micro-breweries can show the way...

See here for a list of 50 Scottish beers with the best names (+pack-shots + ingredients + selling points), ranging from Sheepshaggers Gold - “The Best Beer Baa None”, to a personal favourite, Beet Red Beer - “You can’t beet red beer”, brewed by Barney, a pal of mine in Edinburgh….

Motorway prices and the Savvy Motorist

Motorway service areas are charging up to four times the high street price for basic food and drinks, according to new research by the Institute of Advanced Motorists.

With instances of charges up to £2.09 for a 500ml bottle of water vs. a 95p high street price, and a basic cheese sandwich costing £3.99 at some motorway service stations, as opposed to just £1.00 on a nearby high street, it would be reasonable to expect savvy motorists to carry basic provisions in order to reduce costs of using motorway facilities.

One approach might be to charge for washroom facilities, a la the old Ryanair on-board joke, but even this may reveal limits that cause the ultra-savvy driver to perhaps make less socially acceptable alternative arrangements when taken short...

To take a more positive approach to optimising the mix of holiday/guilt/pamper mode that prevents too critical a response to travel retail prices at airports, and taking note of the grocery multiples response to equivalent problems, perhaps motorway service operators should focus on enhancing the shopping experience, whilst reducing prices to a level that is just about acceptable in terms of value for money...(see Buying-mix-analysis ref competitive appeal)

This could present opportunities for NAMs to treat the service station as a retail business unit, and apply shopper marketing and category management techniques already proven in a classic retailing environment.

In applying this consultancy approach to the Motorway services station opportunity, the proactive NAM may also find it beneficial to add value by coaching the facilities manager on negotiating more realistic site rentals with the landlords, a key cost driver in travel retail...

Calculating the actual outcome of a negotiation session - the real P&L of the deal...

As we begin (!) to emerge from the effects of the global financial crisis, survival-minded suppliers and retailers can benefit from maintaining strict financial measures and controls in optimising the joint-profitability of their trade partnerships.

One area that may need attention is ensuring that deal-evaluation includes the factoring-in of all concessions, both financial and non-financial. 

The following approach may help. 

As you know, negotiating a deal is essentially a process of compromise, in that instead of simply selling product at the regular price and making our normal supplier gross margin (50%) on the deal, we effectively dilute that margin by making additional financial and non-financial concessions to the buyer.

Financial concessions:
Financial concessions could include discounts, rebates, advertising & promotional allowances etc.

Non-financial concessions:
Non-financial concessions could include advertising & display material, POS, demonstrators, analyses of Sales, Promotional and Category data, etc.

We try to dilute the negative impact of giveaways by ‘insisting’ on receiving equivalent concessions from the buyer that ideally will replace any losses in negotiation.

For this reason it is essential to convert all concessions into their financial equivalents in order to keep a running check on giveaways and receipts during the negotiation process.

In practice, it is best to develop and manage a Negotiation P&L as follows:

Deal Analysis
Total sales to the customer in this deal at list price                             £250,000
Less Gross Margin of 30%                                                                 £75,000

Net sales to the customer                                                               £175,000

Less the Price concessions we gave:
- Quantity discount 3%                          £5,250
-   Advertising allowance 7%                   £12,250
-   Early payment discount 1.5%              £2,625
-   Listing fees                                         £6,500

Less the non-Price concessions we gave
-    POS material (estimate £5,000)          £5,000
-    In-store demonstrators                        £3,500
-     Samples                                            £2,500                                                

Total given away                                                                              £37,625

Less Concessions received from the customer
-  Earlier payment                                      £2,500
- 20% increase in facings                           £8,750  (estimate 10% sales increase)                                                                                                i.e. assume supplier 50% gross margin                                                                          
-  Exclusive in-store promotion                   £10,500 (estimate 12% sales increase)
i.e. assume supplier 50% gross margin

Total received from customer                                                          £21,750    

Net amount given away in negotiation                                            £15,875 
i.e. 9.07% of sales given away in negotiation

The above application hopefully demonstrates why factoring in the non-price concessions and insisting on buyer reciprocation is vital in negotiation.

It then remains to add value and devalue to optimise concession-exchange in the process.....simple!  

Celesio sacks CEO - a two-way Opportunity window?

Today’s news that Celesio has removed its CEO, citing “different opinions of the management of the company”, coupled with a market capitalisation of €2.6bn (a snip!), represents a final opportunity for Hutchison Whampoa to bolt a global wholesale network onto its A.S. Watson/Superdrug retail arm and attempt to catch up and become a second global H&B player to Alliance Boots.

By the same token, given the abruptness of the move, and the inevitable temporary destabilising effect on Celesio, Alliance Boots have also been presented with an opportunity to race ahead in their quest for comprehensive global coverage and ultimate re-flotation…

Either way, H&B suppliers would benefit from a couple of ‘what if’ analyses (ideally with global colleagues) to explore the implications and their options ref global trade strategies....

Opportunities in Deflation-Inflation Mix as Shops Slash Margins?

Ambient foods NAMs may be encouraged at ingredient cost increases finding their way to shelf-prices, resulting in average price increases of 2.5%, according to latest figures available from the British Retail Consortium and Nielsen.

At the same time, key non-food categories have experienced significant shelf-price deflation as retailers slashed prices in attempts to drive sales in falling markets.
As an indicator of severity, non-food deflation rates were as follows:
- clothes and shoes, 6.7% cheaper
- furniture and carpets, 2.4% cheaper
- TVs, DVD players, fridges, washing machines and ovens, 4.7% cheaper

However, as most mixed-goods retailers operate portfolio businesses, in that their overall interest, and that of the stockmarket is in overall profitability, then increased food sales can become a means of subsidising losses in non-foods…. 

In addition, having ‘allowed’ food price increases, the retailer may be tempted to seek financial support from suppliers that appear to be ‘more profitable’ as a result.

Whilst experienced NAMs will no doubt draw upon their repertoire of ways of saying ‘no’ to requests for non-specific subsidies (See How to say ‘No’), it may be more difficult to explain net profit margins of 7%+ in a supplier’s UK Annual report, compared with the retailer’s 3% or less in their P&L (See How to justify your bottom line).

However, imaginative NAMs will see real opportunities in promoting ambient food as a traffic builder to enhance shoppers’ access to non-food bargain offerings, and also use related food/non-food purchases as a means of driving the impact of retailers’ sales of more profitable foods to the bottom line, and claiming credit for the strategy….

Getting the numbers right in Independent Retailer Month

Despite the obvious advantages of capitalising on the public mood in support of local retail, coupled with fuel  savings and ultimate dilution of multiples’ power, the actual return per outlet is usually too low to justify the necessary investment in independent retail.

For this reason, suppliers that rely on traditional financial measures of ROI will find it difficult to realise the full potential of local shops.

However, a simple shift in perspective can help.

Given that a local retailer can be more flexible in terms of meeting shopper needs, and with the right support can be more willing to encourage customers to engage with the product in the store, it remains for the supplier to find a viable financial formula in order to justify the investment required.

Suppliers that can take the creative leap into regarding the instore experience as part of marketing of the brand, not only making media investment more effective, but optimising a final stage on the way to purchase, with ‘hands-on’ contact providing an effective way of managing expectations, have to gain a competitive edge over those who focus primarily on the major multiples…

In other words, why not regard say 50% of the store-visit costs as part of the national media advertising budget, and thus make the sales per independent outlet vs. the ‘reduced’ instore-investment compare better with other uses of brand resources?

Independent Retailer Month provides an ideal opportunity to run the numbers on a 50/50 basis on current promo-programmes, evaluate the ROI results and take steps to focus more effort next year, while those already using this approach reap the rewards over the next four weeks….