Tesco £40 minimum delivery spend, an each-way bet on basket-size?

Their new £4 surcharge on orders below £40, in line with Asda and Sainsbury’s, means that Tesco are crossing fingers that a sufficient number of core £25-users will either pay the surcharge or raise their order-quantities to £40+…

In practice, they are taking the basket-size route to fulfillment-cost amortisation vs. the blanket-distribution approach of Amazon i.e. delivery density – try tracking your next Amazon parcel and be impressed by the number of local deliveries your driver makes en route to your door.

The Tesco numbers look like this:

Order size £25
Tesco gross margin say 25%, i.e.       £6.25
Delivery charge, say £4                      £4.00
Delivery surcharge - £4                       £4.00    
Approx. cost of order fulfillment say £20.00

An improvement, but Tesco still loses say £5.75 per order

Order size £40
Tesco gross margin say 25%, i.e.  £10.00
Delivery charge, say £4                 £4.00
Delivery surcharge - £4                   £0.00    
Approx. cost of order fulfillment say £20.00                                          

Tesco loses £6 per order (i.e. needs incremental sales of £24 to cover the loss)

In fact, apart from increasing the base delivery charge, Tesco’s only route to break-even is via its gross margin i.e. say 25% of goods sold. This means they would need to increase the minimum basket-size size to £64, to break even on a delivery.

If Aldi enter the home-delivery race, my bet would be on them taking the localised delivery-density route, if Amazon don’t beat them all to it….

Kingsmill is back on the shelves at Tesco - Life after Re-set?

News in This is Money that ABF has managed to persuade Tesco to take back its key Kingsmill 50/50 bread, a blend of white and wholemeal flour, indicates that in the right circumstances, some re-set moves can be reversed.

Given that Finance Director John Basson could only make minimal reference to the move: ‘The Kingsmill bread line was taken out of Tesco but we are not going to get into the detail because it was a sensitive commercial agreement’, it is reasonable for NAMs in other categories to assume that Kingsmill made a successful, demand-based case for re-instatement.

Given the scale of the initial cull, it was always obvious that a 30,000 SKU reduction would mainly focus on product overlap and duplication and miss some gems in the process. What is encouraging to discover is that there are ways back in, for products in genuine demand, 'packaged correctly'...

If you are still awaiting the re-set email from Tesco it might be wise to revisit your current Tesco listings, re-assess SKU appeal and prepare for a fast response.

Our guest-KamBlogger Wayne Robinson offers three ways forward:

1. Lurch into analysis mode...deep diving in to category data...ranking ros...etc It's not only the market/consumer data that will be swaying decisions about products on the shelves; there will be a financial element to this too.
2. Use your research and insight to bring products to market that are focused on consumers' needs and have a true usp that add value to the category...otherwise known as innovation. In other words, try to identify the 'gems' in your assortment
3. Channel diversification. No manufacturer should be overly reliant on any one customer. In other words, anticipate the obvious and try to optimise other routes to consumer, for products that are worth it.

Finally, it is worth bearing in mind that whilst some shops will be casualties, Tesco are unlikely to close down aisles, meaning there will be new opportunities for real innovation, as Tesco attempts to optimise redundant space...

'packaged correctly'? It can be assumed that a key criterion for a brand's success in a financially driven demand-based Tesco, has to be an appropriate combination of shelf-price, margin, support and credit period. In other words genuine consumer appeal, in a suitable financial package....

Retailers have yet to truly connect with mobile shoppers - traditional retail missing another trick?

An article by Samanta Edwards over at The Wallblog examines new research on mobile-shopper optimisation (Window on Connected Shoppers - a free 20 page report on converting connected shoppers into buyers).

With one in three of the 30% of smartphone owners that have used their smartphone to shop in the last month, only one in ten of them regularly use apps as part of the purchase process – suggesting that retailers are failing to provide the right content.

In fact, according to the research, in-store smartphone users utilised their devices for:

• sharing ideas (47%)
• comparing prices (29%)
• product information (20%)
• sharing photos, taking pictures as a reminder, store location and browsing (with no intention to purchase) were all cited by 17% of respondents

As always, the problem is not that most retailers are missing the mobile trick, but that a select few (Apple, Schuh) are setting and making new standards in customer-connection work, and have to grow at the expense of old-fashioned retail competition, especially in the case of in-store mobile purchasing...

In other words, these physical retailers have managed to get live mobile-consumers into their stores, and are failing to see that online completion of the mobile journey is still a retail sale....

A 3-in-1 sign of the mobile times?

                                                                                    pic: B Moore, Greenwich High Street, 8-07-2015

Offline limits to online growth: Is click-and-collect 'cannibalising' retailers?

Given that the cost of fulfilling an online order is approximately £20, and market willingness-to-pay appears to have an upper limit of £5 per delivery, it is obvious that a retailer loses £15 per online order.

Charging for Click & Collect merely addresses the 'front end' of this problem in terms of covering some of the real cost of the 'final mile'. It also means that John Lewis introduction of a  £2 charge is possibly adding to the problem by giving the impression that a home delivery option is worth the difference - £3...

Meanwhile, for a Bricks & Mortar retailer in a virtually zero-sum flat-line environment, any scale advantages will be neutralised by increasing redundancy of physical space.

With Click & Collect growing at 20-30% per annum, the real issue for retailers is that the growth of their online business not only cannibalises their regular in-store sales but also causes them to lose more money as online sales increase.

In a flat-line demand environment with market share increases having to come at the expense of the competition, it would appear that major physical retailers are in a race to the bottom in terms of profitability.

Meanwhile, Amazon and other pure-play online retailers will grow at the  expense of physical players until a point is reached where even their growth is limited by consumers' refusal to pay adequate rates for order fulfillment.

For suppliers, this means that having managed to take the GSCOP-route out of the extremes resulting from dealing with the Big 4 multiples, we may be unconsciously accepting the even tighter harness of the online route to consumer...

In other words, with the benefit of hindsight, it might be wise to anticipate, prepare for and negotiate fair share dealings from the start, rather than require a Mk.2 GSCOP rescue sometime in the future...

Retail queue optimisation - or how to burn a mink coat safely...

                                                                                                    pic: Kim Stallwood

According to The Telegraph, the UK population is losing the ability to form an orderly line, in that companies are developing new technology to make queuing more efficient or eliminate waiting altogether.

In fact, dedicated tennis fans join the famous (or infamous) Wimbledon queue every year and, for many, waiting in line has become almost as enjoyable as the tennis itself.

However, this may become increasingly exceptional.

In fact it is estimated that British retailers lose almost £4,000 a day because people are put off making purchases by queues.

The article goes on to detail initiatives by John Lewis aimed at to shortening queues for "click & collect" parcels, sensors embedded in trolley wheels, Barclaycard Anywhere’s device that eliminates the need for receipts and cash protection in-store, and provides a number of pictorial examples of potentially redundant traditional UK queueing…

Speaking of which, despite having a low tolerance limit for any form of queueing, I did spend 15 minutes in a sale-queue outside a major London store, back in 1979..

A neighbour of mine had decided to queue for 5 days to secure a mink coat reduced from £795 to £79, which she planned to burn in an animal rights protest.

Details here & here

I was working in Oxford St on Fay's fourth day and decided to join her in line and keep her company for a while. She was delighted to see me (!) as she apparently had some technical issues to resolve i.e. how to ensure the coat burned quickly. I assured her that my expertise was limited to retail buying and selling, but decided to practice my listening skills for a moment…

I asked her what she planned and she told me about a bottle of petrol she had about her person, intending to sprinkle it liberally, etc.

I cautioned her that unless she intended to make the ultimate sacrifice, perhaps draping the coat over a nearby wire waste-bin (pic) would suffice…thus ensuring a 100% success in terms of media coverage, and my little place in history…

For the NAM in a hurry...

See the Cargo-Runner, and how it works, here ( BBC )

Are your media strategies keeping pace with market realities?

                                                                    Pic: B Moore: Olympia 27-06-2015