Tesco - playing the waiting game

Given the amount of uncertainty in the Tesco pipeline - Product cull, SFO Commercial Income investigation and GSCOP checkout - it is tempting for certainty-seeking NAMs to await the output from each initiative before incorporating the results into their trade strategies...

This is almost as dangerous as ignoring their existence and ploughing on regardless, using the tools and skills that were designed to work - and did so effectively - when markets grew steadily at 5% in real terms!

But five years of flatline demand was never anticipated or budgeted for...

Pragmatic NAMs don't need to wait for inevitable conclusions - they take informed guesses at what will affect them and act now. They thus gain while others sit and wait.
OK, perhaps others stand and wait - looks better, but is no more productive.

Informed guesswork:

- The Tesco Product Cull - a mix of surplus products and sub-categories of up to 30,000 SKUs, eliminating those items that do not represent a sufficient point-of-difference to justify a place in the slimmed-down Tesco portfolio. If you have any doubt, consider it out...

But even if your brand is on the plus-side of marginal, consider whether it is worth trying to break through to the guys making the cull-recommendations, or is it best to devote your energies to establishing alternative distribution, before the lanes get jammed with other NAMs' cars...

- SFO Investigation - a long drawn out exercise that will hopefully result in a set of clear definitions of trade investment buckets, their purpose, their time-of-value transfer (to allow for defensible booking and auditing), and - without doubt - paid on results and in arrears...

Meanwhile, busy buyers will be tempted to pull these payments into front margin and possibly fund deep-cut prices with the 'surplus' profit.

- GCA Investigation: This will focus on Tesco's compliance with GSCOP in two areas:
Part 4 (paragraph 5) of the Code: No delay in Payments;
Part 5 (paragraph 12) of the Code: No Payments for better positioning of goods unless in relation to Promotions.

Whilst it is possible that Tesco may have been moving so fast in recent years that inadvertent breaches may have occurred, the GCA is still reliant on hard evidence of non-compliance with the letter of the Code, in order to pursue a case against a retailer.

Only when retailers and suppliers can be persuaded to define and comply with the fair-play spirit of GSCOP will the CODE become a day-to-day working tool* in the supplier-retailer relationship. The reference in Part 4 (paragraph 5) to 'payment within a reasonable time after the date of the supplier's invoice' goes part of the way, but 'on time' payment - whatever period has been 'agreed' - is still the 'letter-of-law' guiding principle for retailers...

KAMtip:
Assume that the three initiatives have panned out as indicated above, and take appropriate action now

* Making GSCOP a workable tool in the day-job for suppliers and retailers:
Why not submit your ideas to the GCA Team on what would make the Code represent fair-play? 
This would represent no 'whistle-blower risk' but could help in establishing a basis for a Mark 2 Code that might better reflect the realities of joint-partnership, with willing compliance a given....  

David Potts completes the 4-man solution to Morrisons rebirth

The combination of Higginson, Strain and Potts with hopefully silent partner Morrison, sharing a philosophy of down-to-earth common-sense retailing and their Tesco-in-common experience, constitute a grounded team that is hopefully well poised to implement Dalton Philips’ breakthrough strategy…

Appointed to pull Morrisons into the 21st Century via an injection of IT, global vision and democracy, Philips managed the five-year programme of heavy lifting, but was undone by the middle-squeezing impact of Waitrose and the discounters, at a time when a return to basics was required in retail…

In the interim, with his pragmatic approach, Andrew Higginson has reduced the Morrisons’ message to basics and will probably go for growth via a shift from back to front margin, a focus on pricing and optimisation of his familiar like-minded CEO.

The new team will build on Philips’ improvement in operating systems, and moves into convenience and online (with possibly a re-assessment of the small-print of the 25-year Ocado contract...).

Within the business, the new chairman and CEO will sound and feel like Ken Morrison, which will not only provide internal reassurance, but will also ensure a couple of years’ silent tolerance from at least one key shareholder…

Back to the future for Morrisons?
Meanwhile, NAMs need to anticipate a return to the old Morrisons, but manage a retailer that is super-charged with the benefits of a visit to a future that was found to be not all bullshit….

The Tesco Cull - where does this leave product innovation?

Time was when getting a new product listed had to overcome the ‘we don’t have rubber-shelves’ barrier, allowing us to put forward a magnanimous offer to cull one of our current lines that was patently well past sell-by…

The key difference now is that the shelf is also being ‘shortened’…by up to 30%, to be precise…

This puts us in a whole new ball-park, given that one part of Tesco (via a third party) is busy finding ways of eliminating current lines /categories, seemingly without buyer intervention, whilst the buying team are presumably attempting to operate in a ‘business as usual’ environment..?

In other words, a new product now needs to represent a spectacular leap forward, in order to make a real difference. Moreover, given that the emphasis in Tesco will be on front margin, the usual trade investment package will carry less weight.

This means that the product will probably have to succeed elsewhere, i.e. via one of the other mults, proving that it deserves a place in the market, in order to enhance its Tesco-appeal, but at the same time denying our No 1 retailer the traditional innovator’s advantage… 

Hopefully, these mental gymnastics will help NAMs to think fundamentally about the meeting of real consumer need, better than available competition, and allow them to refine a bespoke trade package that really stands out in the marketplace, and proves it in practice…

Allan, key to the Tesco fine-tune?

If we assume that much of the heavy lifting has been completed at Tesco (???), then the appointment of John Allan has to be about tightening the bolts on the Tesco rebuild.

True, the SFO and GCA issues are still in the pipeline, but if the broad procedures anticipating their inevitable outputs are not already in place, then we are all in trouble...

Moreover, pro-active suppliers will already have anticipated the outcome of the Tesco product-cull (think obvious over-laps by function, undifferentiated me-toos, products that are in the assortment because of back margin, rather than consumer demand, and slow-yielding 'experimental' products outside the core Tesco offering) and pushed on half-open doors elsewhere...

So that leaves John Allan's probable MO:

Taking some key features of an Allen-key might provide some pointers:

• The tool is simple, small and light: an essential requirement in fine-tuning...
• The contact surfaces of the screw or bolt are protected from external damage: See Contract of Employment 
• There are six contact surfaces between bolt and driver: Having ensured driver-bolt fit, little scope for slippage in addressing problems
• Torque is constrained by the length and size of the key: Hopefully, given the retail experience, little danger of over-doing the treatment
• Very small bolt heads can be accommodated: Even minor issues will receive attention, just-in-case...
• The tool can be manufactured very cheaply, so one is often included with products requiring end-user assembly: "If the tool is right, don't ask the price..."
• Either end of the tool can be used to take advantage of reach or torque: A need to bend over backwards for sensitive issues?
• The tool is L-shaped: Perfect for current flat-line environment (An L-shaped recovery involves a sharp decline in key metrics followed by a long period of flat or stagnant growth).

Finally, remembering that we are still talking about Tesco, with a variety of heritage problems that may resist first attempts, the tool can be reconditioned using an electric grinder by removing the worn-out part, and then works like new...

* Apologies to the Allen Manufacturing Company of Hartford, Connecticut...

YouTube 10th Anniversary: How the Video Streaming Site Changed your Audience Gateways..., hopefully?

On St Valentine's Day, 10 years ago, Chad Hurley, Steve Chen, and Jawed Karim, three former employees of PayPal, registered a new company devised around a simple idea: that there should be one website where people can upload and watch videos.

In an era of increasing media fragmentation, amidst falling TV viewing figures, well-targeted YouTube content provides an unprecedented means of engagement for marketers everywhere.

According to The Atlantic, YouTube is now the third most viewed website in the world, boasting over one million viewers who watch more than six billion hours of footage each month. Each minute, users upload 300 hours of video to YouTube's servers.

Whilst amateurs strike lucky with worrying frequency, it can be a relief to NAMs to realise that 29 of the site's 30 most watched clips are professionally produced music videos.

In other words, the access process is easy, but getting attention requires skillful, creative targeting and professional execution...leading the consumer to NAM-engineered fulfillment at point-of-sale...

Getting it wrong upfront will not matter, in that your YouTube output, if it even floats, will quickly sink without trace. The real pain results from seeing a competitor that has managed to strip their offering down to the bare essentials, and succeeded in touching a consumer-nerve more effectively than available alternatives, race off the shelves....

In an ocean of distracting content, in unprecedented times, the consumer wants simplicity, clarity and a way of buying optimally, with all excess removed...

What else do you think is happening at Tesco?

St Valentine’s Day passing of Nutella-man

Saturday saw the death of Italy’s richest man, Nutella billionaire Michele Ferrero (89).

His father Pietro’s great idea in the scarce post-war years was to create a chocolate-like sweet using cheaper hazelnuts, which were abundant in the countryside around Alba, instead of expensive cocoa.

He is alleged  to have been so excited at the discovery of the successful recipe that he woke up his wife at midnight - she was sleeping - and he made her taste it with spoons….

No record exists re what happened next (!), except to say that his idea resulted in a new blend where a kilo of so-called “pasta gianduja” cost the equivalent of 30 cents in today’s money compared with €1.50 for a kilo of chocolate.

Michele Ferrero’s privately-owned firm is now famous for Nutella spread, Ferrero Rocher chocolates, Kinder eggs and Tic Tac sweets, turning over €8.1bn in 2013.

‘Never patronise a child,’
Ferrero’s greatest skill was knowing what children want, and never talking down to them, a strategy that anyone with savvy grandchildren will endorse…. Ferrero started in the family business when he was 20 and was leading it by 32, growing by undercutting the fine chocolates market with products that boasted “more milk, less chocolate”.

A simple idea, consistently applied and value that is obvious to all...

A template for re-newing Tesco?

A Friday thought: Walgreens Boots Alliance = Boots Global?

Given that Alliance Boots = 1/3 WBA, it would seem that Boots is an important but unequal part of WBA.

However, the combination of AB’s global experience vs. Walgreens’ US-centricity, the fact that four of the five divisions of WBA are run by Boots management, and noting that the acting-CEO has a major 16% shareholding backing up his global vision, might cause us to conclude that we are witnessing the emergence of the only truly global H&B player in the world.

Moreover, a key objective has to be the use of Boots UK Ltd impressive results (ROCE: 26.1% and Net Margin BT: 8%), as a financial target for the £74bn group.

Besides, the more pragmatic among us might conclude that on balance, given these unprecedented times, it is probably better to have Mr. P operating inside, rather than outside the WBA tent…

When £1 morphs into £2 – the Poundland acquisition of 99p Stores

This morning’s announcement was an inevitable consequence of post-financial crisis pressures driving shoppers to the bottom layer of the squeezed middle.

But the real issue is trade consolidation.

What started as a raggle-taggle novelty retailing initiative based on suppliers and retailers finding a way of making money on a £1 version of brands, might have struggled had inflation been maintained at ‘normal’ levels.

However, pro-longed flatline demand, combined with low inflation, allowed the pound shop to flourish, but as usual, some more than others.

Suppliers' enthusiastic development of a strategic approach to the £1 channel has now made it possible for pound shops to enter the mainstream...  Mergers/takeovers will be inevitable, causing the usual issues of prices and terms dis-harmonies, just because these smaller 1-off customers were interesting, but too small to matter when it came to ensuring the national integrity of our pricing and terms model..

Impact of the Tesco-cull
Given what could be a SKU-shakeout of 30% of the range arising from the Tesco-cull, suppliers now need to reassess and optimise alternative routes to consumer, and make appropriate changes to their marketing strategies, especially as the increasingly fragmented world of TV and press advertising causes advertisers and the savvy target audience/s to embrace online/social media.

Taking the mainstream pound shops even more seriously, might help…