Never miss a blog....get your retailiation first

Showing posts with label Tesco. Show all posts
Showing posts with label Tesco. Show all posts

Friday, 4 April 2014

Tesco: Big Data, Little Evidence

If you didn’t catch the news yet, Tesco is now the world's 3rd biggest continent. Having bought US big data firm Sociomantic it now has access to a database of one billion shoppers making Tesco's citizenry almost as populous as China or India. 

Acquired through Dunnhumby, Sociomantic (according to Marketing Week April 3rd 2014) “runs a programmatic digital advertising service, buying and selling online ads via an automated process” and the aim is to improve Tesco’s “online marketing to offer a better experience for consumers and advertisers”.
But does big data necessarily lead to big loyalty?
Tesco Clubcard was a 1993 brainchild of then just plain Terry Leahy and since then has grown into the UKs biggest loyalty program. Yet for all  Clubcard and Dunnhumby's efforts, like for like sales in the UK, including petrol and VAT, over the 2010-13 period grew; 2.6% (2010) 1.0% (2011) 0.0% (2012) and -0.3% (2013) respectively and the 2011 and 2012 figures include the impact of VAT rising to 20%. One can make the case “think what the numbers would be without clubcard!” – it is hardly the most compelling argument you’ll ever hear.
From little data to little dates, one date actually: April 16th and the publication of Tesco’s 2013/14 preliminaries. With Lawrie McIllwee’s imminent departure, the market is anticipating another set of challenging results.
Could this be a case of big data vanity? It’s the little numbers that keep you sane.

Thursday, 3 April 2014

Aldi: The Tinned Tomato Test

Want to know how Aldi deliver outstanding product quality and unbelievably low prices?  Simple really. Take the tinned tomato test. 

 How many SKUs of tinned tomatoes do you need in a retail portfolio? (I am not discussing Passatas, Purees or any other variation on a theme, just tinned tomatoes..I mean, how complicated can that be?). 

How complicated? Aldi have 3, Tesco have 36, half of them Tesco own brands. 

Everyone understands simplicity beats complexity in the battle for cost leadership; but quality leadership too?

Ever since Aldi and Lidl first dropped anchor, the major retailers took the view if you could match the discounters price with your cheapest on display offer, you were doing enough to hold your own. Price was the variable to match; quality was located higher up the ladder.

Hmmmm....really?  Aldi's UK website features 22 separate quality awards over the last 2 years: Cheese, Wine, Baby, Frozen - demonstrating outstanding quality can go hand in hand with portfolio simplicity and low prices. 

Category for category, the major retailers can match Aldi's quality and prices; they just struggle to do both jobs in a single product.

When Aldi's Mince Pies beat Fortnum & Mason - all historic assumptions of price / value equations go out the window: Waitrose quality at Asda Smartprice prices. WOW.

If you can't beat them, join them. Fewer products of outstanding quality will drive higher velocities, lower costs and lower prices. It will also mean fewer suppliers. And branded manufacturers better get with the programme because defending inflated brand to own label price premiums will be squeezed like never before.

Aldi - like brands, just simpler. And that's how they do it. Simple really.

PS...It's not all about Aldi....The International Wine & Spirits Competition (IWSC) 2013 awarded Lidl UKs Western Gold Bourbon a Gold Outstanding Award and and ranked it 7th in the top 13 Bourbon's in the world. 

Lidl UK Western Gold Bourbon Whiskey 6 YO
Comment: "Concentrated citrus and rich honey on the nose with lovely, light bourbon backing. Slow entry onto the palate with easy flow and deep rich fullness without being heavy. In fact moves lightly and with elegance. Lovely mature flavors with caramel, malt, corn and a hint of smoke. Hints of banana and more honey lead into fine finish."
Award: Gold Outstanding
Read more:

Monday, 31 March 2014

Tesco: Omni-Ominous

According to The Grocer "Fury at plans to axe team leader roles" (March 30th), Tesco are in discussions to remove an entire layer of in-store management. It looks a bold initiative. yet it might be a straightforward call: if you have to choose, great store service requires action not oversight.  

It is not risk free. Whatever shoppers do outside stores, once inside they expect the floors clean and clear, shelves stocked and tills staffed. Yet with sales being sliced between channels there simply isn't the budget to do the number of hours based on existing cost structures. Something has to give. 

Whilst Tesco are reportedly consulting with staff and USDAW, the main staff trades union, suppliers need to start thinking about how the changes might affect them. Any sign of reductions in in-store executional standards will lead to pressure for more supplier funded merchandising support, pushing further challenges across the entire value chain when price cuts are already looming.

The omni-channel challenge looks increasingly ominous. Omni-ominous.

Chairman of the Board

Move over Frank; there's a new Chairman of the Board.
Sir Terry Leahy is polishing the latest bauble in his portfolio. This time it is who plan to throw a spanner in the works for Kwik-Fit et al.

Sir Terry's role, apart from owning a quarter of the company, is to advise on a potential float. Of particular interest is the trial with Tesco Extra to let shoppers have their tyres fixed while they shop. This is standard practice in the USA and helps address tyre shoppers main dislikes of hanging around greasy workshop waiting rooms.

Surprising it has taken the big 4 retailers so long to get to this. They built big stores, with huge car parks. Once they started selling petrol and car insurance, it was only a matter of time until other car related services were added.

The Chairman is busy. Tyred but not exhausted: it's just Blackcircles around his eyes. If you bump into him in the Square Mile, don't be surprised if he's humming "My Kind of Town",

Wednesday, 26 March 2014

Tesco: The New Whitbread?

Whitbread PLC (according to Wikipedia),


is a multinational hotel, coffee shop and restaurant company....Its largest division Premier Inn, is the largest hotel brand in the UK with around 650 hotels and over 50,000 rooms. Its Costa Coffee chain has around 1,600 stores across 25 countries and is the world's second-largest international coffee shop chain.  Its other brands include the restaurant chains Beefeater GrillBrewers FayreTable Table and Taybarns."

It wasn't always so.

From 1742, when Samuel Whitbread formed a partnership with Godfrey and Thomas Shewell and acquired two small breweries in London, until the 2002 sale of The Laurel Pub Company, Whitbread was in the beer business. 

Indeed, at its height, between 1961 and 1971, Whitbread's output increased from 2.1 to 7.4 million hectolitres and became Britain's third-largest brewer by output.
But the beer industry consolidated and globalised. Being big in one market was not sustainable. Facing the rise of InBev (now ABInBev), Diageo and SABMiller. Whitbread sank their last pint and moved on, leveraging their leisure experiences more profitably.

And Tesco?

Dominic Walsh in The Times today (March 26th) notes that Tesco have taken a minority stake in a New York Deli Diner concept restaurant Fred's Food Construction with the first outlet debuting from Monday in Tesco's main Osterley store. And Tesco are building up a portfolio of neat eateries: Giraffe, Decks, Harris + Hoole and Euphorium Bakery: Fred's is just another name on a developing roster.

Intended as incremental devices to pull traffic in to their retail stores; they may be a much bigger indicator of Tesco's long-term future. Whitbread beware: 
Fred's might be small beer today but not even Amazon have figured a way to let you eat out on-line.


Tuesday, 25 March 2014

Alibaba: They came from the east

The West in general and the UK in particular seem to believe that our Imperial pasts provide an eternal right to global leadership. Call it our collective colonialist conscience. So when Western retailers decided to retrace the journeys of our ancestors, we naturally expected them to always succeed. Perhaps.

Compare Tesco's £85m Indian JV announcement with Alibaba's $200bn IPO. The numbers are incomparable. Alibaba's scale is staggering, the cash raised massive. Makes you wonder why Tesco are even bothering. Remembering the $57bn P&G paid for Gillette, expect the next deals in retail to be in the billions and that puts virtually every listed retailer (with the possible exception of Walmart) in play. 

The tide is turning and expect a surge of Asian finance making in roads into Western retail markets. There is only one sure fire outcome. The retailers that dominate shopping in 10 years from now, will be different names than we recognise today. Call it regime change because it is as revolutionary as anything we have seen on our TV screens.The internet has brought down governments, what's a few retailers here and there? Open Sesame...
  • 24,000 people work for Alibaba. That's more than Yahoo and Facebook have combined.
  • Yahoo's entire market value is tied to Alibaba. Yahoo currently owns 24% of Alibaba (though it's predicted to sell back 10% of that stock when the company IPO's.) Yahoo's stake in Alibaba is worth $37 billion. Yahoo's market cap is $39.5 billion. 
  • In 2012, two of Alibaba’s websites handled $170 billion in sales. That's more than competitors eBay and combined.
  • Yahoo only gets a small slice of the total sales, but even a small slice is a lot of money. In January, Yahoo reported (.PDF) that Alibaba's revenue was ~$1.8 billion for the September quarter, a 51% year-over-year increase. Net income was $792 million, up from a loss of $246 million the year before.
  • During the Chinese equivalent of Black Friday, Alibaba processed more than $5.75 billion in sales. That's 3X more sales in just one day than America saw on Black Friday — on just one company's websites.
  • Alibaba's sites account for over 60% of the packages delivered in China.
  • Alibaba has millions of registers users. In 2012, Alibaba clocked in at 36.7 million registered users from more than 240 countries. It also has more than 2.8 million supplier online storefronts and more than 5,900 product categories.
  • Alibaba's IPO could be even bigger than Facebook's. Facebook’s IPO valued the company at $104 billion, but Bloomberg says Alibaba is valued between $153 billion and $200 billion.
  • Alibaba is on track to become the world’s first e-commerce firm to handle $1 trillion a year in transactions.
  • Alibaba's Taobao is one of the 20 most-visited websites globally. Taobao lets users sell goods to one another (like on eBay) and it features nearly a billion products.
  • Alibaba has a mind-bogglingly huge frontier for growth. Analysts predict that China’s e-commerce market will be bigger than the existing markets in America, Britain, Japan, Germany and France combined by 2020.
  • There are two secrets to Alibaba's $100 billion success in its home country. It blocks China's search engine from searching inside two of its most popular web stores, Taobao and Tmall. (To understand that contrast from the norm, Google search "buy ___," and you'll see that Google will pull up product listings from sites like Amazon and Ebay. You can't do that with a Chinese search engine.)
  • By not allowing search engines to display Taobao or Tmall items in search, Alibaba makes consumers start all their searches within each virtual store. It can then rake in cash by selling search ads on Taobao and Tmall – acting more like Google in how it makes money than eBay or Amazon.
  • The company uses a unique payments system. It has Alipay, a novel online-payments system that relies on escrow. It releases money to sellers only once their buyers are happy with the goods received.
  • There’s a annual employee talent show, that's so big that it's held at a local stadium. Employees will rehearse for weeks, and Alibaba's office is filled with photos from past events.
  • The company's name really is a reference to an old folk tale. Founder Jack Ma said in an interview that he chose the name because people all over the world have heard the story of Alibaba and the forty thieves. "We also registered the name Alimama, in case someone wants to marry us!"
  • Alibaba has also dipped its toes in the loan business. For three years, Alibaba been making small loans (average size $8,000) to merchants using its sites. This practice has given it boatloads of data that it can use to help decide the company's business strategy. Its processed $600m in loans in 2012 and predicted that it would reach $2 billion by the end of 2013, with the non-performing-loan ratio below 2%.
  • Jack Ma, Alibaba's founder, has a net worth of $10 billion. That makes him the eighth richest person in China.

Monday, 24 March 2014

The Quick and the Dead: Asda swings the axe

 You know the old joke about two people who encounter a lion. The first guy starts running and his friend shouts "you'll never out run the lion" only to have hear the furst guy call back "i know, but i can out run you!"....

Well, there are two types of retailer left today: The Quick and the Dead. Having identified the challenges facing Morrisons and Tesco, the news today (The Times, March 24th)  from Leeds is that following a McKinsey review, there is a big shake up coming and up to 200 senior jobs will go.

In the face of industry turbulence and the impact of on-line competition, bricks and mortar retailers need to structurally rethink their cost model and leverage data and technology to deliver simpler, better, faster, cheaper for shoppers. Heads at the centre bad, hands in stores good!

This is going to push more work and cost towards suppliers - and they will have to adopt similar mantras to survive the financial repercussions.

Enter Virtual Reality. The opportunities to leverage ground breaking technologies to reset the clock on retail planning and operating time, costs and resource is here. The retailer who drives this technological advantage farthest, soonest, will have significant cost advantages.

It may not be possible to out-run the on-line lions forever, but there's a lot of room for survival - you just have to be quicker and smarter than your competition.

Tesco: Tata for now?

Amidst all the turbulence of its struggling international operations, that have seen Tesco leave USA, restructure its Turkish play etc;  on Friday they announced the expansion of their existing Indian service centre and franchise arrangement with Tata,  and the formation of 50:50 joint venture with Tata's  Trent Hypermarket group, to operate  12 stores across the South & West India.  

Backed with £85m of Tesco investment, it seems a mild attempt to curry favour perhaps? And with continuing speculation as to if or when India further liberalise its retail market to foreign investors, it remains to be seen whether this is a long term strategic partnership, or just Tata for now?

Monday, 17 March 2014

Thinking inside the box

Grocery retailers have spent the last twenty five years trying to figure out one question: how little space does a superstore need allocate to groceries to trade effectively? A major thrust of category management was to optimise range and space for mature, commoditised areas, to make room for new profitable areas. The thinking being, what else can we sell you whilst you're in store buying groceries?

The question has morphed into something bigger. Evidencing Tesco stores innovations like Watford, the total store mix is up for grabs, the challenge being how to transform the retail space into an altogether different communal experience. The inclusion of Giraffe restaurants, yoga classes etc offers an insight to the future: let's go out for lunch, we can pick up some shopping whilst we're there.

Digital Kills The Retailing Stars (A retrospective from 2011)

Written 3 years ago - "Digital Kills the Retailing Stars" was written in the aftermath of the collapse of Woolworths in the UK. Given all the changes kicking around at the moment, I thought it was worth dusting off and sharing. No apologies for the length....have a coffee...
Two things I didn't foresee: Tesco Hudl - an undoubted product success and the rise of pound stores.....Let me know what you think, all comments appreciated....enjoy!

Digital Kills the Retailing Stars
The future of retail as we know it is hanging in the balance. From Cheshunt to China, digital is reshaping the course of retail developments.  There are particular dynamics in emerging economies with little historic exposure to Western retailing norms and the questioning logic is “to what extent will they need and/or acquire them? “ It is different in mature economies where big box is the common retail denominator, isn’t it?

4 connected ideas are emerging and joining up the dots creates some fascinating pictures. Of course this won’t be a universal pattern but it provides a coherent sense of retailing in the post-modern phase and it is a future that is rapidly approaching.

1.    Digital Tsunami

There appears to be a digital tsunami inexorably moving, albeit at different paces, throughout the retail universe.  Plausibly, the forces inhibiting big box development in China will simultaneously sweep away irrelevant, non-value adding retail in mature markets. 

Picture a huge tidal wave overwhelming all that stands in its path. Two groups of mature retailers are already feeling the full force of this surging power: 
  • Retailers whose businesses have an easy propensity to be purchased on-line. We have already experienced and/or are in the midst of witnessing a fundamental reshaping of retail categories including Music & Entertainment, Books, Gambling, Insurance, Consumer Electronics, Travel, Property, Greetings Cards and Banking etc
  • Retailers whose business model was so fragile that any material loss of revenue was sufficient to push them over the edge. In the UK, perhaps the earliest casualty was the Woolworth’s group that collapsed in 2008/09 as their Music and Entertainment sales evaporated under the Apple / Amazon revolution, disrupting their total commerciality. And we know there are many lining up to join them like Jane Norman, Comet, Carpetright et al

This is a hungry tide and no one knows where its path will lead and how much land will be 
consumed.  But as with all seismic shifts, the landscape is being irrevocably resculpted.

2.    What happens when your greatest strength becomes your Achilles heel?#

The seeds of this question are sown in the post-apocalyptic fall-out that follows the demise of these early casualties and it comes with the realization that retailing is, de-facto, a fragile model.
For many years, major suppliers have invested time in training their own people and developing presentations to justify why manufacturers’ margins are justifiably so much stronger than retailers. Manufacturers invest in new technologies they need to fund R&D; major retailing is a scale cash business – so focus on cash generation, GMROII etc and be satisfied with low single digit margins.
The trouble is, no one considered what might happen when business starts flowing from mature big boxes? How much contraction can be tolerated before even the best retailers hit  Gladwellian “Tipping Points?”  The best worst-case scenario, sees retailers like Tesco build strong on-line propositions – but this doesn’t necessarily help.

Retailing is a “Stock, Pack, Pick, Pay, Ship” business. It moves products from suppliers to retail distribution centres (Stock) on onwards to store shelves (Pack); from shelves to shopping baskets (Pick); through the tills (Pay) and to the shoppers home (Ship).  Conventionally, off-line retailers absorb the larger part of the Stock, Pack and Pay activities; whilst shoppers bear the burden of Pick and Ship. In recent years, a good deal of technology has been applied by retailers to bring their costs down – e.g. Cross-docking, Shelf Ready Packaging, Ship to Display Pallets and Self-Serve Tills help bring down significant chunks of the cost model. ”

With on-line retailing, major grocers have to take on Pack, Pick and Ship with decreasing ability, in the face of rising competition, to pass any of the cost increases back. (Initiatives like Tesco’s “Click and Collect” – dressed as a shopper benefit, are really just attempts to put the “Ship” costs back into the shoppers pocket).  Under such conditions, even growing sales from competitors is likely to be margin dilutive. Once you start including the spiralling costs of promotions into the retailers economics, it becomes quickly evident how, even profitable, business models can be undermined by relatively small  on-line volume shifts.

And there’s another problem. Where to do the picking? If it’s a store pick based model, it is cost-additive and margin dilutive. If you go the dark-store route, it drives sales out of existing outlets. Either way, it is bad news.

Second, many major retailers expanded their businesses by entering non-grocery categories – many of which are in the previous list of digitally transformed businesses.  Whilst they looked opportunistic in pre-tsunami times, they are part of the risk to be contained from now on – and will be the first areas where business loss will be experienced.

All these factors are concerning but the real “aha moment” centres on the historic strength of major retailers; the real estate footprint. Millions of retail square footage and with it the ability to serve millions of shoppers every day from prime retail locations. 

Having spent decades building land-banks and property portfolios, it is common practice for major retailers to leverage the value of these assets by entering into sale and leaseback agreements with property developers. This takes assets off the retail balance sheets, provides investment capital and commits the retailers to long term leases with guaranteed annual rental escalation formulas.

Here is a recent example from January 2011

Prupim has completed the £125m purchase of three supermarkets on a sale-and-leaseback basis for M&G’s Secured Property Income Fund. The real estate fund manager has bought three Sainsbury’s superstores in Worcester, Truro and Huddersfield. The leases at stores are for 25 years, with RPI-linked rent reviews. Source:

But it’s not a new phenomenon. A similar article in 2004 noted

Tesco yesterday raised more cash for acquisitions by selling off 33 of its UK stores for £650m. The stores, which range in size, have been sold to a joint venture that is half owned by Tesco and real estate firm Topland. Tesco has also sold two distribution centres in the deal. Tesco's £650m cash will come from issuing bond debt, which will be secured on the rent that it will begin to pay for the properties. Tesco will rent the stores on a long leasehold and carry on running the operations, so customers will not see any change.  Topland, has done similar sale and leaseback deals with retailers Marks & Spencer, Littlewoods and Budgens. The Guardian, Tuesday 23 March 2004

Taking the UK as an example, the implication of a significant retail contraction  and the exodus of household brands from the high street, may well be falling commercial retail property value and rental costs. With commodity prices still having the potential to fuel cost price inflation, this is not a great moment to find yourself with long-leases, large stores, lots of them, increasing on-line competition and guaranteed inflation-linked rental increases.

It creates a toxic mix where major retailers may find themselves unable to operate stores profitably and unable to affordably close them. They could try and renegotiate the rents – but why would property companies who bought the assets in a much stronger climate want to deal?  Their only dependable asset is the rental income.

Suddenly, retailers’  biggest assets become a major headache, underpinning a structural erosion of the competitive model and reducing their abilities to respond to newer, trimmer more agile competitors unencumbered by these legacy challenges.

Put simply:  Big box retail in mature markets is under threat.

3.      The end of Tesco?

Really? Tesco? Game Over?? Accepting this is a rather extreme proposition, it’s worth considering what Philip Clarke, the new Tesco CEO, said to the British Retail Consortium in his key note address last month (June 2011)

“….in this digital world, great service, value, convenience, price – these things are no longer enough to win customers’ loyalty. More than ever before, customers’ decisions about what they buy are likely to be influenced by the power of brands”

This could have come straight from the mouths of AG Laffley  or Paul Polman. But it didn’t. It came from a top global retailer and its conclusions are far reaching. First, Clarke implicitly acknowledges some of the retail challenges we set out above. Second, if you follow through with this stream of consciousness, it has the potential to destabilize the Tesco model as we currently understand it.

Even aspiring to be the best retailer in the world, is not enough for Clarke. Tesco’s future is as a brand builder and he goes on to reference, by example, the importance of the Technika house brand as a lead play in Tesco’s consumer electronics business. Clarke goes further:  his new strategy for Tesco includes the expansion of Tesco services to more parts of its footprint.

So brand building for Clarke means building the Tesco retail brand, stretching it further and wider across more services and markets, whilst developing and supporting Category specific sub-brand propositions. Tesco already has its fair share of critics, uneasy about its UK market strength and others who believe that its ubiquity and utilitarian ambitions, trying to be all things to all people, risks mushing it into a mire of muddled mediocrity.

As if to push the point harder, days after Clarke’s speech, Tesco committed a major faux pas in mishandling the transfer of Tesco Bank Accounts from RBS, leaving thousands of customers without access to their funds. BBC Radio 4s Money Box programme featured the problem and despite Tesco’s best attempts to front up and downplay the issues, there was no mistaking the customer anger. Many vocalised their intention to cease banking with Tesco.

And here’s the rub. The broader your brand, the more equity management required and the more potential for fowl ups. Once your PR starts turning negative it’s hard to recover. Ask Gordon Brown.  Long before we consider the real prospects of success of Tesco taking on the likes of Samsung and LG and winning the consumer electronics war with their house brand, Tesco’s ubiquity may yet turn out to be their Achilles heel and Philip Clarke’s brand build plans, one stretch too far. So whilst, I am only half serious in sounding the death knell for the folks at Cheshunt – they have more challenges ahead of them, and tougher ones, than they’ve encountered in the last twenty years.

4.      Brands reclaiming ownership of the consumer/shopper relationship

Don’t get me wrong, I might disagree with Philip Clarke’s response, but he has put his finger on another massive challenge for today’s retail giants: “Who owns the shopper?” For the last fifteen years we have all been working with a simple governing dynamic : “retailers, having become more powerful, can and do exercise a great deal of influence over shoppers and act as,  crucial and not necessarily benign, interlocutors, in the parley between brands and consumers”.

Across the globe, major manufacturers engage with customers to protect their brand positions. P&G have long-since made an art of this and way before concepts like “shopper based value creation” were born, Tom Muccio was leading the first WalMart/P&G Global team with 140+ P&G associates based in Bentonville.  P&G decided to excel in this space out of necessity, not desire – their hearts were and will always be with the brands, consumers and shoppers.  Customers were recognized as critical arbiters of brand success. Put simply: engage or die. And if you are going to engage: engage and win.

Digital presents opportunities to stimulate fundamental shifts in the power balance in the battle for ownership of consumer and shopper relationships, enabling brand owners to reach shoppers and consumers with more precision than ever before and reclaiming a bigger stake of the profit pool.  Digital media and social networks Where historic brand communications were broad-brush and one directional, today they can be ongoing, multi-layered sets of intimate dialogues. Retail hegemony is no longer a given. The rules are there to be rewritten and P&G is keen to author them.

The shifting of vast amounts of money into digital advertising and communications is no surprise. Their desire to invest in more forward looking rather than rear view research is instructive; but it is their eagerness to understand all things retail - on-line retail via, initially Ocado in the UK , the e-store in the USA, Tide Launderettes, The Amazing Shave stores, Branded Car Washes - that represents something of a qualitatively different order.  

It is widely rumoured,  P&G would like to see c15% of their global sales operating on a direct to consumer model within a medium term span - (and why not, after all, two of their global competitors, Avon* and Amway**  have never put their products anywhere near a Walmart store). This is no thirty-minute diversionary tactic – this is game changing for the next thirty years

If Philip Clarke thinks Tesco needs to be a brand builder, perhaps P&G reckons they can regain control of their own destiny by mastering on-line retail and capturing consumer/shopper relationships in ways previously undreamed of. You don’t need the square footage – you just need great product , effective ongoing consumer / shopper relationships, backed up with stunning fulfillment. Amazon began with books and today they sell.....

The consumer relationship renaissance, commercial opportunities for suppliers and the value implications for shoppers could prove an irresistible combination as economies downshift and consumers seek ever improved value. Such innovations will suck more volume out of the established retail environment and even retailing goliaths may be toppled by digital slingshots.

Digital may not have quite killed the retailing stars yet, it has claimed an increasing number of b-listed actors, and the waters are still rising.  In 10 years we might be asking “Do you remember when Tesco had superstores? In 20 years, “Do you remember Tesco?”  And, as with all tsunami’s, by the time you see it for sure, it’s way too late.

Sunday, 16 March 2014

Retail Revolution: "Shoppers of the world unite, you have nothing to lose but your (retail) chains".

The UK retail industry is in turmoil. With problems at Morrisons and the Coop threatening their survival; Phil Clarke's speech at retail week seeking to make a virtue of freneticism. Change is in the air; a retail revolution even

The revolution is structural, multi-dimensional and polarised. It's not just mobile internet access transforming the way we "search and purch". There is a revolutionary dynamic stretching across Amazon, Groupon, Aldi right through to Poundland and Not forgetting B&M coming to market soon with Sir Terry Leahy on board. Discounting is front and centre

Talking of revolutions, last week marked the 127th anniversary of Karl Marx' death. Some of his ideas illuminate the challenges facing established retailers facing the discount onslaught. No really, they do.

Marx saw economics as the prime mover of change.  As economic power disperses, the dominant forces (thesis) are challenged by new participants (antithesis) and the outcome of the clash would be a new, higher order economic status quo (synthesis), with communism the end of history.  Historical Materialism 101, got it?

Successful discounters are anti-establishment value re-setters and all about economics. They combine high quality with unmatched value chains. Whether it was M&S putting shirts and shorts on Britain's backs and bums (by building direct relationships with suppliers and cutting out wholesalers); Jack Cohen's "pile it high, sell it cheap" mantra in 1960s Tesco or Walmart's EDLP philosophy: these were all discounting models. Their success put a good many competitors out of business, creating a new retail establishment.

Discounters also thrive on the structural disadvantage others impose on themselves. In mass retail focus and simplicity are the partners of unmatched value chains.

When advantage is lost, death is inevitable. Kwiksave UK built a business selling a limited number of major branded SKUs, from small basic outlets at cut prices sustained on one advantage: centralised distribution. While Tesco, Sainsbury and Asda were still had suppliers making minimum drops to individual outlets,  Kwiksave were securing full-truck efficiencies, within a lower cost model and passing the savings on.  Once everyone else could match them, all Kwiksave had left were small untidy stores, a limited range of brands and no price advantage. Game over.

Retail value resetting has severe ramifications. The centralised distribution revolution, the first big data enabled shift, saw suppliers remove sales force organisations and focus on national accounts, outsourcing merchandising services to field force agencies. Expect the impact this time to be no less profound, with services like category management being outsourced to specialist providers.

Karl's theories were always more appealing than his solutions. It's probably why ordinary people connected with Marks & Spencer ahead of Marx & Engels. He was wrong about communism and never foresaw consumerism. If he had, he might have reworked his manifesto, urging: "Shoppers of the world unite, you have nothing to lose but your (retail) chains".  He shouldn't be discounted.

Wednesday, 12 March 2014

Shopping? It's childsplay

Picture the scene.
There I was clicking through, doing the weekly shop. In the same room, my kids on their tablets playing The Sims, Mindcraft, or whatever...dipping in and out of games, to chat with their friends. And that's when it clicked...

However current my online skills, clicking my way to shopping glory - today's online shopping experience just won't do for tomorrows shoppers. Our kids will want their online shopping experiences to mirror their gaming experiences. Fast, interactive, intuitive - and not a click in sight or sound.

Virtual Reality is coming to retail. It feels like the calm before the storm and many retailers are exploring the possibilities of Virtual Reality technologies in areas like merchandising. This is huge in itself and can shred the time and costs implications of range review management for everyone.
But it is only the start, VR can be deployed to facilitate and support all store planning and operations activities - transforming the speed and quality of execution. One day soon, all retailers and suppliers will be collaborating in VR in much the same way as everyone works on spreadsheets today.

Follow the logic. VR can also be applied to online shopping. Transforming the dull scroll and click into a world of wizardry. Imagine constructing your own personal store a la The Sims. Promotions popping up at you as you walk with your virtual trolley along the aisles. Imagine social shopping online and sharing out the benefits of multisave promotions between players. The first retailers who apply gaming and virtual technologies to online shopping stand to reap rich rewards.

One day, my grandchildren will look at me aghast - "you used to click?" - I will smile and tell them "I still do - now it's just my back"

Tuesday, 11 March 2014

Morrisons fights back - but is it a safe way?

The gloves are off. Morrisons have declared war on Aldi and Lidl sees the race to the bottom takes another sharp fall with £500m of property sales to fund price cuts. It is hard to see how Morrisons wins this battle in the long term. Using property cash to shore up market share is a short-term strategy with any victory, pyrrhic. What happens when the money is spent? Aldi will still be there, still opening new stores. And Morrisons?

History does not always repeat itself, but there are looming shades of Safeway’s last fight. Seeking to stem a loss of customers to Tesco, Safeway invested in hard-hitting promotions. It wasn’t sustainable – and in 2005, Morrisons picked up a Southern store base, thank you very much!. 

Fast-forward 9 years. The Sunday Times (March 9th 2014) reported Sir Ken Morrison as being “apopleptic” with the current performance of the business; one can only imagine how he would feel if the retail name he spent his life building faced the real prospect of disappearing from the high street. 
If there is any fall out, a troubled Morrisons, with a diminished property portfolio, might let Sainsbury move in, move north and get mightily close to matching Tesco’s leadership position. Morrisons misery may catalyse Coupe’s coup. Ding Ding..Round 1.

Tesco and the Art of War

“Victorious warriors win first and then go to war; defeated warriors go to war first and then seek to win.” So wrote Sun-Tzu in The Art of War. What then is to be made of Phil Clarke’s latest attempts to course-correct the UK’s retail behemoth?

Tesco’s world tour into Asia, the US, Europe, etc is in full-scale retreat with the Turkish operations’ restructure, the latest acceptance  of failure. The non-crisis crisis in Tesco Polska will inevitably lead to divestment. If anyone was in doubt: the world tour is over. Tesco went big; they are now coming home.

But while they were travelling, home changed. New competitors, formats and shopping habits have destabilised the core model. Hypermarkets are struggling. Tesco can’t revamp the retail estate quickly enough, and capital expenditure cuts along with foresaking their  5.2% margin promise mean strategy is being sacrificed to tactics, most  notably  £200 million of price cuts.

This is wallpaper.  Asda had already announced £200 million of price cuts themselves and has since added another £100 million to the fire. What no one else seems to have realised, and based on pure market share extrapolation, is  every £1 of price cuts Asda initiates costs Tesco nearly £2. So Tesco’s announcement just doesn’t cut it.

And let’s be frank, if the answer to your problems is to pick a fight with the world’s biggest price-focused retailer, you are dead before you start. Walmart’s pockets are deeper globally and shallower locally: they can stay the fight for longer, and it will cost them less.

Not forgetting, Tesco is hamstrung with Clubcard. The shining star of the 1990s Clubcard may fast become Tesco’s Tazo. (remember Tazos?)Affordable in times of growth, Clubcard risks becoming an expensive gimmick  obstructing visible value delivery. Worse still, with Tesco now accepting other retailers’ vouchers, expect Asda, Sainsburys  and Aldi to start dropping vouchers around Tesco stores in areas where they aren't trading. Ouch. 

Back to the end of the margin promise and no new commitment as to where the clock will get reset. The city vultures were already circling over the UK’s big three listed retailers to leverage out their property assets. This will now intensify: the repercussions may be profound.

The first move could well be “Coupe’s coup”. Sainsburys may use the cash pile generated to buy Morrisons and put themselves neck and neck with Tesco for the number one spot. This is the last big domestic grocery deal left and Coupe has to do something bold to make his mark. But liberated from their strong property asset based underpinnings, Sainsburys and Tesco will be left with big, cost hungry, unfocused (sorry, omnichannel) businesses under ever-increasing margin pressure facing up to a world of giants: Walmart, who won yesterday, Aldi who are winning today and Amazon, who stand to win tomorrow.

In response to all of this, Tesco jobs will go; the cuts have already begun. Expensive talent is being removed and the business is increasingly in the hands of younger, lower-cost managers lacking the experience to win the fight they face. Compare this to the vast array of Princeton, Harvard, and Oxbridge MBAs now stalking the corridors of Amazon UK along with the senior, proven buying talent fresh from Tesco and Asda.

What else can Tesco do? Well...whilst there is no Chinese medicine to fix these structural shifts in retailing, there is a compelling need to adopt new ways of working and breakout of historic operating cost structures. The race is on to take leverage big-data enabled technologies and take an axe to retail back office cost structures.

This will support a delayering of centre organizations, driving back-end costs down dramatically and allow bricks and mortar retailers to reconfigure and reinvest in store service and this is the critical point of difference to online competitors.  Sun Tzu also noted, “There is no instance of a country having benefited from prolonged warfare,” and Tesco faces prolonged war on every front with increasingly formidable rivals. Interesting times.