When online meets real world - how import restrictions are raising the bar...

With different motives, some governments are trying to slow down the development of imported online purchases.

As reported in the Financial Times, Russia, one of the world’s fastest-growing e-commerce markets, has imposed new customs regulations - submission of some original documents and credit card payment records - to hinder courier deliveries to private customers. DHL and FedEx are reported to have suspended express deliveries from abroad to individuals in Russia because of extra paperwork on all parcels for personal use, regardless of shipment value.

Currently just 2% of Russian retail sales are conducted online, but that is expected to rise to 5%, more than tripling the size of the online retail market by 2015, according to Morgan Stanley.

Incidentally, if you think the Russian restrictions are bad, Argentina goes one better, albeit in an attempt to cope with falling levels of foreign currency reserves…  Under the new rules, shoppers can make just two purchases each year from foreign online and mail-order companies. Any purchases beyond that will be treated as imports, and will require extensive paperwork such as a signed declaration to the customs office in advance, before they can collect their packages, for each international purchase.

Given their pragmatism, it is probable that Amazon will escalate their operation in Russia to restore the simplicity of its business model, and possibly an aggregator role to provide an Amazon  route into Russia for those who cannot, or will not, play in the customs ball-park…

…while the authorities have full access to internal traffic for tax purposes…

Optimising your next conference call

These conferences call experiences will probably strike a chord...

Given the potential savings on travel time, conference calls are worth getting right so why not check out Seth Godin's seven key principles?

And with a bit of the correct practice, perhaps even worth experimenting on the buyer?

Hedge Funds move on Major Multiples Store Portfolios

According to reports in The Sunday Times (p1 Business section, 26-01-2014) hedge funds have taken stakes in Tesco, Sainsbury’s and Morrisons with a radical plan to hive off their property empires.  In other words, American activist investors (Elliott, and apparently other activist funds have acquired small stakes in the three retailers) believe that, especially following disappointing Christmas results, the stock market undervalues the properties and that hiving off and flotation of the new property companies would release some of that value by appealing to a new type of ‘property-focused’ investor..

The plan is based upon a similar move last year by Loblaw.
(Morrisons are already exploring some property release, and Dalton Philips includes Loblaw on his CV...)

The ‘hidden’ value:
Retailer          Market capitalisation  Estate value   'Surplus'
Tesco                      £26bn                      £38bn             £12bn                                                                              
Sainsbury’s              £6.9bn                    £11.5bn          £4.6bn                                                                          
Morrisons                £5.7bn                     £9bn              £3.3bn

More details are available in The Sunday Times article.

Incidentally, for those in H&B, Elliott recently forced US drugs distributor McKesson to raise its bid for Celesio, in a deal now concluded.

Whilst the activist-investor route may well be resisted by the retailers, the idea of releasing value that could be part-returned to shareholders might appeal, thus propping up the share price…

However, in doing so, the retailers would lose some control, and also pick up an additional KPI based on maintaining the value of their retail properties, at a time when all three are focused on optimising like-for-like sales… However, if the hedge funds increase their stakes, then increasing shareholder value moves up the agenda, along with the aggravation...

For NAMs, all of this means that a renewed emphasis on financial performance, the value of trade investment and especially the ability to calculate and demonstrate the impact of all supplier-support on the retailer’s share price, becomes a critical requirement in the day-job…

Crossrail London excavations

'Any word on the 0715 to Cheshunt?'

Amazon Anticipatory Shipping, before you order...

                                                                   pic: Retail Wire
Following their Christmas drone-delivery idea, Amazon gained a patent last month for what it calls "anticipatory shipping,'' the Wall Street Journal reports.

Amazon, the Journal reported, says it may box and ship products that it expects customers in a specific area will want, based on previous orders and other factors it gleans from its customers' shopping patterns, even before they place an online order.

Among those other factors: previous orders, product searches, wish lists, shopping cart contents, returns and other online shopping practices.

Once in transit, the packages would theoretically wait at the shippers' or Amazon's warehouse hubs or on trucks until (and if) an order arrives. In some cases, partial street addresses or zip codes will be filled out with the remaining pertinent details — name, rest of address — completed once the order arrives.

Amazon has worked to cut delivery times as a way of encouraging more orders and satisfying customers, such as by expanding its warehouse network and making some overnight and even same-day deliveries.

Amazon didn't estimate how much delivery time it expects to save, or whether it has already put its new system to work, but the initiative clearly provides a new hurdle for those who regard Amazon as competition – and anyone who thinks that they are in the game by simply setting up an online service…

Tesco eyes Mothercare, and more?

Tesco is eyeing up Mothercare after its shares took a tumble following a shock profits warning, according to City sources quoted in the Sunday Times. It claims that Tesco had already examined a bid six months ago.

Such a move would bolster Tesco’s plan to turn its out-of-town shops into destinations. This has seen the nation’s biggest grocer buy the Giraffe restaurant chain and take a major investment in the start-up Harris + Hoole coffee business.

The key issue for Tesco is to ensure that any such acquisition would help to optimise space in their large space formats, not only generating incremental traffic, but also equaling or exceeding their average selling intensity levels of £1,000/sq. ft.  Apart from the incremental traffic/sales, by taking well known retail brands in store, Tesco will dilute the 'Tesco domination' effect, rather in the way Aldi makes itself look like a 'normal' retailer through the use of surrogate labels...

Making acquired categories work to these levels means reconfiguring the category's original offer to focus more precisely on consumer-shopper need, fully factor in online potential and piggyback on supply chain efficiencies... In doing so, Tesco will so enhance category performance that they will draw share from independent, specialist retailers...

Taking these possibilities into account, NAMs in all categories not currently optimised by Tesco now need to assess the potential for similar acquisitions, and the consequent impact on their retailer portfolio balance...

Also bearing in mind that Tesco is in no mood to take prisoners...

Lidl switches from hard to soft discounting in France - an inevitable move in the UK?

With increases in outlet size from 6,000 to 12,000 sq. ft., Lidl is offering a new range of regional products and extending its offering to include many more national brands to attract a wealthier clientele.

This is a real breakthrough for the French subsidiary of Lidl in its second largest market. According to Deloitte, it is the world's seventh largest distributor, with an estimated $87.8 billion in 2011 sales and 12,000 stores worldwide. In Germany, it has 3,300 stores and achieved a turnover estimated at €16.2 billion in 2012.

Lidl has operated their classic German model in France since 1988, and grown to 1,500 stores. It is the largest of the hard discounters (Netto, Leader Price, Aldi, Dia). But, like its competitors, it has stalled for four years in overall seventh place with a market share of 4.6%.

Whilst this Lidl move in France will provide useful insights on priority brands and eventual brand/surrogate-label balance, it gives time for UK suppliers to explore their options as Lidl UK, and possibly other discounters, embark on the next evolutionary stage in order to capitalise on the continuing flat-line conditions in retail.

Time for ALL NAMs – and retailers – to pop into a local Lidl, and reflect on where the offering – and their brands – could go, as they follow the French lead…? 

Might also be worth dusting down your EU network and monitoring progress via your French colleagues....

(Thx Joe)

Generic prescription medicine in Ireland - impact on all CPG brands?

The inevitability of the growth of generic medicines in Ireland moving from the current 5% to the UK 80% of prescriptions is being brought forward by market forces…

A Dublin pharmacy is to sell generic prescription drugs at Northern Ireland prices by introducing a radical business model likely to be closely watched by other pharmacies.

Healthwave, a recently opened Dundrum pharmacy, is promising to match cross-Border prices for generic medications. Under its scheme, people availing of the savings will have to join a subscription service with an upfront fee of €25 a year. The pharmacy will charge €4.95 for a 28-day supply of Atorvastatin, a generic cholesterol medication, which generally costs more than €10 in pharmacies in the Republic.

The scheme is aimed at the private market but could also save the State money. For instance, a customer with chronic obstructive pulmonary disease who pays €170 monthly for drugs currently has to pay the first €144, with the Government covering the rest. Under the new system the drugs would cost €100 per month, saving the patient €44 per month and the State €26.

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 that change is inevitable. See here

However, adding the fact that Hickey's pharmacy group latest results earlier this week warned of 'excessive' rent levels adding to the pressure on pharmacies in Ireland (some leases upward only, based on Tiger valuations) and possibly higher import prices on many CPG brands vs. UK trade prices, means that the Generics initiative will draw attention to net margins in Irish retail pharmacy and retailing  generally.

Over time, media and consumer pressure, combined with the economic downturn we believe will eventually cause the government to legislate for increased use of generics.

However, the real issue will be a renewed  focus on the overall cost of trading in Ireland...  In other words, an opportunity for all branded goods suppliers to examine potential or actual disparities in their pricing structures between the UK and Ireland, and take appropriate steps, now...