Amazon signs UK deal with Mexican food company, a Morrisons opportunty?

News that Amazon UK have a deal to supply Mexican foods to the UK market, begs the obvious question as to how soon they will want to establish a Bricks & Mortar presence?

Mexgrocer.co.uk will sell 100 products, such as margarita mix and chilli sauce, on Amazon.co.uk, adding to thousands of dried foods on the Amazon site.

The online retailer has been expanding its Amazon Fresh service, which delivers fresh groceries to customers’ doors, across the US in the past year, and is believed to be considering bringing it across the Atlantic.

And, given the issues Morrisons are dealing with, coupled with the Ocado link and a market capitalisation of £5.48bn, would an acquisition be totally out of the question?

Amazon tests physical retail with ‘Kindle Kiosk’ vending machines

                                                                                                                   pic: Geekwire

Geekwire recently reported* that Amazon is experimenting with standalone, automated 'Kindle Kiosk' vending machines in selected airports and shopping malls in the US.

Whilst the machines sell everything from the $379 Kindle Fire HDX to a $20 Kindle PowerFast adapter, in addition to Kindle e-readers and covers.

The experiment signals the company’s desire to expand beyond online sales and third-party retail stores, directly selling its hardware and accessories in physical locations. It’s also notable in the context of past predictions that Amazon might want to buy Coinstar and Redbox parent Outerwall, the automated vending machine company based in Bellevue. That was pure speculation, but such a move would significantly increase Amazon’s physical footprint.

Amazon - with its low margins and love for automation - would prefer a vending machine to a brick & mortar outlet, at this stage, but as far as the UK is concerned, the current issues at Morrisons might make the grocer a useful acquisition to power Amazon's next move towards the consumer....

As far as vending assortment is concerned, whilst it’s not clear how many people will feel comfortable purchasing something as expensive as a $379 tablet from a vending machine, at $69, the standard Kindle e-reader could be an impulse buy for someone preparing for a long flight.

However, the real pay-off for Amazon has to be the subsequent sale of ebooks for new users, and obviously other impulse/distress possibilities from the rest of their portfolio...

* See 21 additional pics here

Late payment: Why three weeks free credit is too much...

The whole issue is about big vs. small, i.e. Power and it's abuse..., rather than simply supermarkets using supplier credit to supplement their cash flow. However, as current supplier payment periods are 'justified' by the fact that 'other retailers do it', and suppliers in turn try to pass the cost of credit back up the supply chain via demands for equivalent credit periods from their suppliers, it is perhaps an idea to try to correct the problem by compelling retailers to pay within an appropriate period, related to rate of sale.

Given that most food retailers turn their goods over 20 times per annum on average, and credit is meant to bridge the cash gap between delivery of goods & services to a reseller, and payment by a shopper, then it could be said that payment should be made in 2.5 weeks.... i.e. a lot shorter than current levels of 40+ days in the UK.

In practical terms, products should by grouped in bands related to rate of sale: say twice weekly, weekly, 2.5 weeks, and monthly (a product moving at less than 12 times per year, perhaps should be in another channel...).

This would then allow revised terms to cascade back up the supply chain, and thus allow at least one 'concession' to be removed from the negotiation table.....

Call me naive, but... How Tesco could rebuild trust in UK retail

Latest comments from Tesco and Sainsbury's stress the need for restoration of trust and clarity in retail, albeit at some cost to the bottom line.

Taking these at face value, it seems that the following steps might help:

• Price clarity: A major opportunity lies in wait for those retailers that strip offerings back to the basics of letting consumers know what they get for their money. Apart from an obvious emphasis on unit pricing combined with a little education ref. prices per g/ml, it means eliminating all ‘letter & spirit’ legal issues regarding promotional offers, and replacing them with genuine, transparent and defensible offerings that can be compared accurately with competitors’ alternatives, like-for-like, but also meet and even exceed consumer expectation
• Product delivery:  When a consumer opens a tin, its contents should match or even exceed the expectation created by the lid…a fundamental of branding based in part on the fact that the cost of making the first sale to a consumer is so high that profit is only possible on return visits without having to be re-sold
• Demand forecasting: As ‘experts’ in consumption, suppliers can be in a position to help refine demand calculations and the combination of this insight with a retailer’s instore on-time fully-shared expertise has to be a way of ensuring 100% zero-defect shelf availability, at minimal cost for all parties
• Trade credit: Credit was always meant to cover the gap between delivery of goods to a reseller and payment by shoppers, and was never intended as a means of generating interest on 40-day deposits. As such, given average retailer stockturns of 20 times per annum, this means paying supplier invoices within 2.5 weeks of delivery. There is even a case for paying faster for items delivered on a daily basis
• Trade investment: Post-audit recovery came about because of a combination of inadequate ‘paper trails’ of promotional agreements by suppliers, and the ability of financial programmes to search and claim for unpaid funds for six years previously.  Despite the strict letter of the law supporting this process, a retailer could show some goodwill and pragmatism by limiting such searches to a maximum of two years…
• Trade Deductions: Should not be regarded and treated a source of income, but should reflect genuine failure to meet reasonable standards agreed in advance as a condition of purchase, with perhaps some element of reciprocation for failures of on-shelf compliance...
• Organisational compliance: The above changes need to be understood and communicated at all levels within both supplier and retailer organisations, thereby eliminating the possibility of 'rogue-buyer' defenses at higher levels of management…

Tesco, with 30% market share and a need to regain custom, is in a unique position to be in the vanguard of this change..

And if it results in a temporary loss of margin, so what… In time, as shoppers - and suppliers - begin to relax into the feeling that in a Tesco store, ‘what you see is what you get’ and even more, then the result will drop into the bottom line as repeat sales come in at less cost, like with all good brands…. 

A Blink as good as a Nod in finding products instore?

                                                                                           pic: Lighting

Philips' app-based system determines the shopper's location via the flickering of the overhead LED lights

The system incorporates LED bulbs that are installed in the existing overhead fixtures. Depending on the specific fixture in which it's placed, each of those bulbs will flicker at a different distinct rate. Although that flickering is too rapid to be detected by the human eye, it can be detected by the camera of a phone running the app.

When a shopper wants to find a product, the app starts by ascertaining the person's location within the store, based on the flickering "signature" of the fixture immediately overhead. It then accesses a map of the store, and proceeds to guide the user from their current location to that of the item, presenting access to coupons where appropriate.

In fact new research shows that “missing key information used for product identification is the equivalent of being out-of-stock in a physical store”, and being unable to find the goods renders them out-of-stock, in shopper terms. The GS1 UK survey of 2,000 UK adults also revealed shopper beliefs, with 24% saying they didn’t trust online product information as much as they did the information they were given in store..

As the mobile shopper in the aisle is obviously online-instore, then accessing further product details, and being satisfied with the answers, helps the shopper to complete the purchase from a retailer they trust….

Availability, credibility, defensibility and value-for-money in a seamless, consistent multi-channel environment, is all it takes, as we anticipate a price-war to end all price-wars…

Ever hanker after the old days?

Threats for the detergents category - Bead-based washing machine could put market in a spin

And just when we thought that detergent innovation was about faster, cheaper, cleaner, along comes a solution from outside the box...

The Xeros washing machine looks like a standard machine, but washes clothes with reusable plastic beads that absorb dirt, resulting in an environmentally friendly wash that uses far less water and detergent.

Sheffield-based Xeros has announced plans for a potential £100m stock market listing that could bring its pioneering technology to the mass market. Developed by Stephen Burkinshaw, a chemist at Leeds University, the appliance is aimed at commercial laundries, but the company has already developed a prototype for domestic use and is looking to sign a deal with a major manufacturer.

As evidence of its serious intent, the group has filed 27 patents for a range of reusable polymer beads to clean textiles, synthetic fibres, plastics, leather, metal, glass, paper, cardboard and wood.

Cost reductions:
Cost Factor                            Conventional Washing Xeros Cleaning Saving
Water (litres per kg washload)                 20.0                         5.6           72%
Heat (KwH per kg of wash load                0.17                        0.09         47%
Detergent (g/kg of wash load)                  16.0                          8.0           50%
Source: Xeros site

Whilst category management usually rewards enhanced focus within the category, the Xeros innovation provides a reminder that substitution or even replacement of the category might prove more rewarding...

Are you making sufficient use of your competition?

A real pity that Youtube have taken the original clip down, but we have found an amended version, a very funny video showing how DHL sent large packages for delivery by their competitors, with the slogan 'DHL delivers faster' prominently displayed on each package, which they filmed on delivery...

Sainsbury's lower profit margins - the negative in the legacy...

Those of you with access to The Interactive Investor will find a useful article analysing and comparing Sainsbury's, Tesco's and Morrisons profit margins:

Supermarket   Gross Margin   Operating Margin
Tesco                       7.4%                 4.9%
Morrisons                  6.8%                 5.4%
Sainsbury's                5.5%                3.86%

Source: The Interactive Investor via Company reports 2012/13 averaging margins for 2012 & 2013

However, whilst the Gross Margins as quoted are fine and fit with the P&L definitions in the accounts, as you know, we have always tried to distinguish between the P&L Gross Margin, and the Bought-in Gross Margin.

In other words, most major supermarkets have approximate bought-in average gross margins of 25%, i.e. they buy for 75  and sell for 100, net of VAT. They then add some internal direct costs - each retailer is different - to arrive at the Gross Margin that they put in the P&L, hence the lower Gross Margins quoted in the article.

This approach makes it difficult to make direct like-with-like comparisons between the companies based on P&L Gross Margins. However, it is valid to compare like-with-like comparisons based on Net Profit Before Tax, and as you know these show Sainsbury's to have been making lower Net Margins over the years.

In our opinion, the real issue for NAMs is the fact that the global financial crisis has severely impacted the Big 4 UK operators, reducing their ROCE performances to between 8% and 11%, far lower than the 10-15% being produced before the crisis...(the only exception being Walmart, who continue to produce ROCE 19%+...!!, proving it can be done...)

This means that their share prices are under pressure, a pressure that will be transferred to suppliers, inevitably...