How the 2007-08 financial crisis happened - the Minsky explanation

As we are being told, the world is recovering from the global crisis – for a contrary view, ask the consumer in the street, or better still, check their shopping lists – it is perhaps time to agree the causes in order to avoid the consequences of a repeat….

If you think this might affect you personally but not the business, why not check The Grocer’s latest Top 100 grocery brands showing that in 2013, 33 showed negative sales vs. 2012, and 21 brands showed less than 3% growth, before allowing for inflation…..i.e. the Top 100 brands!

In other words, we are ‘deep’ in flatline, where any growth will be at the expense of competitors, by those players that are prepared to confront reality and act while others await a return to normal…

Opportunities await those that understand how we got here, recognise the symptoms as future warnings and get on with optimising our strengths, now.

American economist Hyman Minsky, who died in 1996, grew up during the Great Depression, an event which shaped his views and set him on a crusade to explain how it happened and how a repeat could be prevented, writes Duncan Weldon for the BBC. 

Minsky’s key ideas:

Stability is destabilising: Banks and firms assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.

Three stages of Debt, as indicators
- Hedge stage:
Soon after a crisis, banks and borrowers are cautious. Loans are made in modest amounts and the borrower can afford to repay both the initial principal and the interest.
- Speculative stage:
As confidence rises banks begin to make loans in which the borrower can only afford to pay the interest.
- Ponzi stage: 
At this point banks make loans to firms and households that can afford to pay neither the interest nor the principal. Again this is underpinned by a belief that asset prices will rise.

Therefore financial crisis, again and again and again…

Armed with this insight, and using their own judgement coupled with a basic knowledge of retail finance, the business manager NAM can treat the economy as simply part of a ‘predictable’ business context, and get on with the opportunity, leaving doom and gloom for others…

Analysis: Why Minsky Matters is broadcast on BBC Radio 4 at 20:30 GMT, 24 March 2014.  Or catch up on BBC iPlayer

DIY Cashback: Thieves dig tunnel to steal from Tesco ATM

Last Friday at Tesco Salford, a gang of some ten thieves who had spent two months digging a 50 ft (15m) tunnel to get into an ATM, got away with £80,000. The raiders tunnelled under nearby wasteland and into the shop. They then escaped back through the tunnel.

As always, running the numbers lends perspective and insight...

Apart from being just 25% of what high end footballers earn in a week, working on the basis of an £8,000 haul each (excluding expenses), one realises that, apart from the fact that austerity is now impacting both sides of the fence, the risk-reward ratio in dealing with the grocery trade is obviously becoming less satisfactory.....

Hat-tip to John Ward

The Lidl approach to traffic management?

                                                                                             pic: Brian Moore, Lidl Brighton

Ingredients of Success?

Inspiration               1%
Perspiration           98%
Attention to detail     2%

Morrisons success as price-warrior depends on the battle?

Whilst Dalton Philips price-cutting promise, on top of profit losses relating to writedowns, and negative like-for-like sales, was not sufficient to avoid spooking the stockmarket, the company remains in a strong position…

Thanks to Ken Morrison’s conservative attitude to money, the company is asset-rich and the sale of £1bn from an 80% owned store portfolio will eventually calm the shareholders, and leave a robust retailer in place.

The CEO’s promise to cut prices permanently to a level that would not have to match those of the discounters, but to be just low enough that its fresh food and quality offer would look worthwhile, anticipates one definition of the price war....

However, the issue for suppliers is where the upcoming price-war is headed…

Will the big 3 take a similar stance to Morrisons on going ‘low enough’ to compete – giving Morrisons a fighting chance - or is the agenda to match or even undercut discounter prices, product for product, and arrest their growth…?

In which case, the discounters cannot afford to go lower, and the depth of major retailer pockets will only be limited by stockmarket reaction…, with Morrisons at a distinct disadvantage, currently.

From a supplier perspective, it is vital to stick with current pricing and trade investment strategies - and compliance conditions - and effectively sit this one out…

Co-operating with the Co-op - the challenge for suppliers

Given several years of producing results like a ‘normal’ retail multiple in terms of net margin, stockturn and ROCE, and suppliers having responded by upgrading their Co-op NAMs to pro-active business managers of the account, and factoring increasing market share into trade strategies aimed at long term collaboration, yesterday’s developments on top of a catastrophic loss of Co-op banking credibility, means that the clock has been set back twenty years…minimum.

The co-operative model works well in other countries, all based on the Rochdale pioneers approach. However, the UK Co-op is a business with deep problems, a long history of under-performance, an outdated board structure and far too much debt. This latest crisis may have convinced those in charge that Sutherland’s resignation should be "a catalyst for the real and necessary change which the group must go through"…

The problem for suppliers in these unprecedented times is that they cannot afford to wait for the evolution of a new Co-op model that reflects the competitive, consumer-savvy, ROI and fast pace of retailing today.

Also, suppliers cannot hope to change to Co-op, and instead have to revert to short-term transactional management, dumbing down the supplier-retailer relationship, minimising service level, reducing exposure, and deploying talent elsewhere.

If the Co-op survives this challenge, muddles through and begins to show signs of improvement, then suppliers will begin to cautiously re-invest, using performance-based reward, and insisting on 100% compliance…

That is the price the Co-op must pay for 2014’s mis-steps….

New competition of biblical proportions in the wine category, as Miracle Machine Turns Water To Wine

Discovery News reports the invention of an urn-like device can reportedly turn water, grape concentrate, yeast and a finishing powder (for barrel-aged flavour) into wine in three days. The table top appliance @ $499 is also controlled by a mobile app that guides users through the process and helps them distinguish the correct wine for their palate.

                                                                                                 pic: Discovery News
According to FAQs on the Miracle Machine site, answers to top-of-mind questions are as follows:

Q1. Sourcing Ingredients
You'll be able to buy the grape concentrate, yeast, and the final sachet of ingredients through our website, and Amazon, once we launch. Each kit will make a different type of wine. We plan on creating a low cost monthly "wine" club, where for under $10 per month you receive several kits, enough to make a bottle of wine a week.

Q2. Cost?
The costs equate to $2 dollars to make a bottle of wine that we would expect to pay $20+ for, at minimum.

Q3. Types of wine
Initially we have sourced 6 wine types that The Miracle Machine and its app will help you make. These are a full-bodied Cabernet Sauvignon and rich Chardonnay from Napa Valley, a cool climate Pinot Noir from Oregon, an aged Tuscan blend from Italy, Sauvignon Blanc from Sonoma, and a delicate red and a steely white from Burgundy. We expect to add 5-10 more over the next 3 months

Patently an advance on converted dust-bins and ant-tracks across the kitchen floor in these austere times, but the Miracle Worker is probably worth a couple of what-ifs, and at $499, a punt?

Safeway-Albertsons merger as a way back to the UK?

Last night’s NamNews of a merger resulting from demand issues in the US economy could impact UK and EU markets...

The merger continues the consolidation that has changed the US landscape for traditional supermarket operators amid greater competition from upscale chains such as Whole Foods Market, warehouse club operators like Costco and retail giant Walmart.

Apart from the classic understatement by Albertsons chief executive Bob Miller to the effect that the ($60bn) size of the new outfit would improve its bargaining position with suppliers, the real issue is how long it takes for Safeway-Albertsons to seek growth abroad, to compensate for flat-line demand at home?

In which case they would join a trend begun by Walmart-Asda, continuing with Walgreens-Boots, followed by McKesson-Celesio, and who knows, CVS-A.S. Watson in a UK-centric move to Europe…?

And given that Safeway have  been here already, might it be worth considering a Safeway-Albertsons-Morrisons move for starters…?