Thursday 11 June 2015

Back-margin funding of deeper price-cut by the Big 4?

The Telegraph today highlights a new report from Moody’s that says Tesco, Sainsbury's and Morrisons 'can't afford more price cuts', with sales and profits set to fall for another 12 to 18 months…

In other words, there has been some retrieval of customers, but the cost has resulted in margins being reduced by half since fiscal 2013/4....

However, this assumes that supplier trade investment has been used for the purpose intended i.e. in-store motivation of the shopper.

What if the retailer decides to switch a significant amount of back margin into price-cutting?

In practice this could work out as follows: Say suppliers contribute trade investment amounting to 20% of their turnover, to a retailer on 25% retail margin. This translates into 15% of net shelf price.

If the retailer decides to allocate say 5% for ‘back margin’ purposes, this frees up 10% of net sales that could be used for a combination of further price cuts and supplementing the bottom line….

This raises a number of issues for suppliers:
  • Would you even know it had happened? i.e. Have you got updated T&Cs in place for each Back Margin bucket, along with appropriate KPIs?
  • How ready are you to re-evaluate each element of your trade investment, confident in your ability to quantify the cost, and demonstrate the value to the buyer, using the retailer’s latest financials…?
These unprecedented times still have a bit to run, can you afford to sit it out?

Wednesday 10 June 2015

Tesco South Korea Sale - an urgent deep-cut to UK resurgence?

                                                                                                    pic: South Korean flag with definitions

With six potential bidders apparently in the frame, it is possible that Tesco could raise £3.9bn from the sale of South Korea Homeplus. Whilst any retreat from a retail market makes a return difficult, recent market indicators reveal that retail sales have been slowing, possibly because South Korea now has nearly one hypermarket per 100,000 people, twice the industry ideal of one per 200,000.

The real issue is the extent to which Tesco is prepared to redefine core as UK, Grocery, Physical and Online.

This means they could cut back everything – all overseas operations, non-grocery categories and any stores that fail to deliver acceptable profit – to rebuild their Balance Sheet around a 25% market share, ROCE 15%,and 5% Net Margins.

A 25% market share would mean they could operate below the radar - farmers, special interest groups, politicians etc. – generate acceptable rewards for risk, create a stable, dominant base in the UK and gradually go global again…

Just-in-time?
As the Motley Fool says: … if a successful disrupting alternative (like discounters) in a market gains traction its growth can pyramid exponentially…

In other words, Tesco’s unhelpful little discounter issue could become unbeatable tomorrow…

Tuesday 9 June 2015

When the buyer wants the smart-shirt off your back - a variation on Back-to-Front margin?

Step-improvements in supplier-retailer relationships notwithstanding, and despite high level assurances of progress from pre-financial crisis days i.e. suppliers are now 'our best friends', NAMs may be puzzled to find that on occasions, some buyers may still want the shirt off your back, literally....

However, rather than being a variation on Back-to-Front margin, this may simply be a reaction to the launch of the Ralph Lauren Smart Shirt;

Sensors attached to silver threads inside the shirt pick up the wearer’s movement data as well as heart and breathing rates, which can be monitored on an accompanying smart phone app and, potentially, uploaded to the cloud for analysis, via the shirt's removable slightly-larger-than-credit-card-sized Bluetooth transmitter.

We all know that a wealth of data is generated in the average buying meeting – not just in what is said, but who says it and the manner and tone of voice in which they say it. The smart shirt therefore represents an obvious leap forward for a buyer wanting to compensate for possible shortfalls in body language interpretation skills, and wishing to gain a competitive advantage before GSCOP adds an appendix...

NAMtip:
NAMs wishing to remain leading-edge can anticipate and circumvent this latest buying tactic by purchasing two smart shirts, wearing one in an extremely relaxed, non-pressured social situation and covertly swapping the card transmitter during handover of the 'selling-shirt'...  

HT to Tim Manasseh for pointer to article

Sunday 7 June 2015

Boots new single 2-way trip travel insurance for 115-year-olds, ideal for Ryanair travellers that need a name-change?

According to The Guardian, Boots has raised the upper age limit on its single-trip travel insurance policies to 115 years, effectively insuring anyone regardless of age, but only on a single-trip basis..

Meanwhile, the Independent reports that a passenger changed his name by deed poll because it was cheaper than Ryanair's penalty for altering a booking that got his name wrong...

I am sure both companies have factored in the possibility of a very senior citizen making an outward journey in his new name to a little-known out-of-town Ryanair airport, enjoying an unforgettable but distracting holiday before checking in under his old name for the return journey, stopping half way to the departure-gate for a mental re-boot, and then not being able to remember whether he was coming or going?

...and not forgetting the confusion at airport security....

Friday 5 June 2015

The £1 Cafe - Austerity biting, or meeting a market need?

                                                                                                                         pic: The Guardian

According to The Guardian, Fitzrovia’s new Caffix cafe is drawing in Londoners looking for an affordable lunch option by charging just £1 for all items.

From avocado and chicken baguettes to pots of curried chickpeas, quinoa salad or pesto pasta with roast beef, all cooked on site, Caffix cafe on Newman Street sells food for a fraction of the price that they would normally spend in the heart of capital.

Simple scalable idea, almost as impossible as setting up a Pound Shop in sophisticated UK retail...

Thinking of which, a possible service extension for Poundland?

Thursday 4 June 2015

For the Maturing NAM - all your daily medication in one pack!

                                                                                                       Source: PillPack Inc. via Bloomberg

According to Bloomberg, PillPack Inc have raised $50m to build a better online drugstore with a simple idea: dividing up customers’ pills by the time and date they should be taken.

Following its launch of the ‘daily’ service in February 2014, PillPack (see video here) has delivered over 1m packs by focusing on routine prescriptions and OTC products.

An obvious plus for an ageing population on an increasingly complex mix of medication, reaching new levels in convenience, and inevitable lock-in for satisfied users.

The issue for suppliers might be possible loss of the pack-to-patient connection

The only question is whether Walgreens-Boots and CVS can organise to replicate the service, cheaper…

Coming to a hall-door near you - Amazon on-box advertising!

                                                                                                                          pic: www.geekwire.com

Story here