Tesco: A Passover Story

This week marks the celebration of the Jewish Passover. It is a festival of contrasts. Freedom and insecurity; enrichment and humility; arriving and departing all combine.  Under the leadership of Moses, the Children of Israel move from being a discordant rabble into a liberated people with national and geographic aspirations. 

Moses was an interesting leader. Of Hebraic birth, he was raised in  the Egyptian court for his first forty years and having fled, Moses worked as a shepherd. Sensitive to the condition of his people but not contaminated by its daily travails; of them, yet above them; within them, yet outside them: Moses he learnt kingship, law making and pastoral care. The perfect training ground for his ultimate task.

Like the Children of Israel in Egypt, Tesco's travails today seem without end. The Sunday Times (April 13th 2014) signalled the scale of bad news to come this week and the increasingly beleaguered positions of Philip Clarke (CEO) and Sir Richard Broadbent (Chairman) who are struggling to contain a damaging whispering campaign.

But who can redeem Tesco? 

If there was to be a parting of the waves, then look no further than Richard Brasher. Cast as Sir Terry Leahy’s second son, Brasher left for South Africa to lead Pick'n'Pay having been passed over, seeing the Tesco birthright handed to Clarke. Brasher is working his exile, building his CEO credentials. Of Tesco, yet outside it: he is gaining perspectives that will serve him well, should the call come.

Will the prodigal son return? Possibly... But only, one suspects, if Tesco lets Clarke and his people go. Happy Passover.

Amazon: Bezos the Omnipotent

Jeff Bezos' letter to Amazon shareholders last week makes compelling reading. It's not the scale of progress and success since 1997 that wows (though it does); it is the sense of future and the long-term bets being placed to maintain a sense of perpetual revolution.

This year is likely to see Amazon go toe to toe with Apple and Samsung for the smartphone market. And who would be surprised if Amazon turn up as a major UK energy provider when the current industry structure is broken up.

Whilst other retailers talk "omni-channel": reflecting their need to get to more shoppers wherever and however they shop; Bezos' take on life is totally different. He intends to reach more shoppers, wherever they are, whatever they buy. It's Omni-everything. It's a potent idea. Omni-potent.

M&S Clothes: Mirrors & Smoke

Mirrors are important when selling clothes, smoke less so. So once the air had cleared on Thursday's latest M&S results, (the 0.1% rise in like for like clothing sales and the optimistic shoots of recovery); the markets reflected and stripped 3.1% off M&S's share price.


Marc Bolland's comments regarding the success of M&S's high end ranges hints at underlying challenges in the four core "s" categories: shirts, shorts, socks and shoes.

All of which prompts a question.
The "Leading Ladies" might be sophisticated enough to entice women to put M&S dresses on; but can they help M&S knickers take off? M&S clothes. Mirrors & Smoke, perhaps.

Praise the Lord

In a world of often flagged managerial excess and multi-million pound salaries and non-performance pay-offs, Simon Wolfson's decision to share his equity bonus with staff again, along with a rise of 37p an hour for Next's lowest paid colleagues, shines as a small but welcome beacon of unexpected leadership. Recognising the success of the business depends on the work of many not the brilliance of one is a refreshing act of humility. Praise the Lord.

Tesco: Time to reset the clock

Yesterday's latest Kantar Worldpanel data brought little comfort for any of the UKs Big four retailers. The 0.4% drop in Sainsburys' share versus last quarter highlights Justin King's personal astuteness in calling time on his own leadership at just the right moment. His touch is almost as measured as was Sir Terry Leahy's departure from Tesco.

But spare a thought for everyone still at Tesco. Retail is tough when your weekly numbers are perpetually red. Missed targets drive stress and undermine confidence in equal measure. This is especially hard when you are still market leaders. You should be winning, you should feel like winners. You don't and everyone senses your pain. It is suffocating.

 

So what can they do? Tesco need a radical response and reset the clock on everyone's expectations. 

First, Tesco should explain to the markets what a great job they did historically in driving national UK coverage. Noting Asda's announcement this week of their intensifying moves South; Tesco can proudly note they are the only one of the top four UK retailers with a truly national footprint. They got there first, it has provided a competitive advantage for a period of time, but not forever.

Second, it follows Tesco should reset long-term expectations of their natural market share being somewhere between 20%-25% of the UK market. This will cause pain to the share price in the short to medium term - but it is a statement of inevitability. Tesco cannot open new physical stores as fast as others because they already have their footprint. And they can't acquire anything meaningful given their market share position. Furthermore, for all the success of on-line, the evidence so far is that it’s only a mechanism to slow Tesco's rate of share loss.

It is worth recognising for every new store opened by a competitor, as a rule of thumb, 30 pence of every pound through their tills comes directly from Tesco. So with Aldi, Lidl, Asda and Waitrose still expanding; who knows what course Mike Coupe will set for Sainsbury; and Amazon / Ocado expanding their remits: holding as much ground for as long as possible is Tesco's challenge.

Third, Clubcard needs a structural rethink.  Critics note it has evolved from being a strategic builder of store loyalty into a driver of supplier promotional investment. If the phoney price war ever starts, suppliers will be caught between the investing directly in price or through Clubcard mechanics: both may not be affordable. 

A simple switch in emphasis could prove powerful. Instead of offering schemes to let you redeem Clubcard vouchers outside of Tesco, they should work with third parties to give Clubcard vouchers to reward non-Tesco purchasing. Eat in Cafe Rouge - earn extra Clubcard points and bring the spend back in store. Likewise with Petrol: Tesco’s pump prices are already competitive- stop giving money off fuel in-store, give store vouchers on petrol sales instead.

These points are not panaceas. They bring pain.  Yet they will allow Tesco to celebrate "still above 25%" on each set of results, enable them to approach right-sizing based on a reframed future and refocus Clubcard on driving traffic in-store. Most importantly, they reset the clock on market expectations and buy Tesco some much needed breathing space. 

Asda's new strategy: EDMP

Asda, famous for EDLP (every day  low prices), launched the latest salvo in the UK grocery retail war. Presented as part of a package of 12,000 jobs over the next five years,  the underlying message was meant for Tesco: 

Walmart is serious, Walmart is investing, Walmart is coming South  and this is a five year plan bringing  40 new conventional superstores, 100 new supermarkets, 150 forecourt shops, 1,000 new click-and-collect points and greater online penetration. Ouch.

This was a master stroke of publicity for Walmart, announced by CEO,  Doug McMillon, under the approving gaze of UK Premier David Cameron, it places an ever greater spotlight on Tesco and their preliminary results in eight days time. The markets will be looking for some positive news.  EDMP? You guessed it..."Every day more pressure".

Cleaning up after retail brands

What should we make of the Robert McBride's share price hitting a five year low?

With the UK grocery price war showing no signs of abating, brands are fighting for their survival and big brands burn big bucks. And nowhere is this more pronounced as in non-food.

For 30 years, retail brands have been a pain in the neck for brand owners. With their complicated mix of value to premium products all at discounted prices to leading brands, retail brands thrive as the price value equation between themselves and major brands becomes harder to justify.

Take toilet tissue.

Asda Shades Toilet Tissue is a scale brand in its own right and has a best price per roll price of 33.3p vs Andrex at 44.4p - even allowing for Andrex having around 10% more sheets, you still save eight pence a roll. How much money are consumers prepared to throw down the toilet?


But the tide is changing. The branded empires are striking back and restoring absolute value to their assets. Narrowed price premiums make brands more desirable and leave retail brands with little room to play. Any own brand margin advantage is quickly eroded.

In the price war, every scalp matters. If you are sitting in Blackfriars or Cincinatti, you may scent blood. Expect an all out branded assault on the UK laundry, cleaning and personal care categories. It's going to get messy. Somebody will clean up. It may not be McBrides.

Tesco: Big Data, Little Evidence

If you didn’t catch the news yet, Tesco is now the world's 3^rd 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 3^rd 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 16^th 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.

Old is Sexy

Old is sexy. OMG, where is this going?...I hear you!

Here I am months away from 50 and I don't feel exactly past it, not even approaching it. But when my daughters give me looks of withering embarrassment ..."Dad, you're nearly 50..." or humorously hand me brochures for Saga holidays and sheltered housing, I hear myself protesting, Larry David-like  "I am only 7 in dog years!"

They have a point. Thinking about being 50 when you are 20 isn't sexy- it is thirty years away: there is so much ground to be covered and life to be lived. My next 30 years offers two ultimate prospects: 80 or death. Not so much me covering ground as ground covering me.

But having a point and being right are not the same . They miss the big picture, everyone is getting older. According to the UK Government 2012

"10 million people in the UK are over 65 years old.  The latest projections are for 5½ million more elderly people in 20 years time and the number will have nearly doubled to around 19 million by 2050...Within this...the number of very old people grows even faster.  There are currently three million people aged more than 80 years and this is projected to almost double by 2030 and reach eight million by 2050"

8 million octogenarians by 2050: Old is the critical demographic for everything, and it is so under-served.

Think about it. We have baby foods, baby toiletries etc. There are special foods for pets at different lifestages because their nutritional needs change. And older people? As our perceptions of ageing shift and our understanding of nutritional requirements, eating and living capabilities evolve, there is a world of opportunity for sensitive, relevant innovation.

The problem is my kids. Not personally, generationally. Look at the folk in your average marketing department  - they are in their 20s and 30s. They are young, shiny. They are interested in having children and keeping pets. They don't want to think about being 80: it's just not sexy.


The answer I think is refreshing. Companies need to be creating senior marketing teams. Instead of retiring people they should be re-hiring older marketers who can see the next 20 -30 years and anticipate it's reality and the opportunities inside. They should look at everything with older, cataract-ridden  eyes...Should foods be as crunchy? How easy to open is your packaging for a 75 year old? What is the right nutritional construction of a ready meal when you are 80? etc

As a soon to be new member of the 50+ demographic let me declare "There is still a fair bit of life in this old dog yet, (I am only 7 after all), and a little bit of cash too. And I want to live the next thirty years as positively and self-reliantly for as long as possible". The companies - manufacturers and retailers - who get this and engage will win.

See, I told you: Old is Sexy.

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: http://www.businessinsider.com/the-13-best-bourbons-in-america-2013-10?op=1#ixzz2xo1QFbBn

Sir Philip Green's Lottery Tickets

"Maybe it's an opportunity.."

Commenting on BHS's move into food retailing, Sir Philip Green said "On the basis that everyone is going into the high street and convenience, maybe it's an opportunity. If you don't buy a ticket, you can't win the lottery."

Given M&S and Waitrose have already made such a success of premium food retailing, the move into food isn't surprising. The £1 round pound price pointing is.  

Tied to brands, lower prices than the majors, Booker's supply chain and a maximum 50 BHS outlets selling food in the next six months, there doesn't seem to be a whole lot of money to be made...Hardly a lottery win.. and Sir Philp has no passion for food retailing, never has. So why jump into the UK Grocery price war unnecessarily?

Green bought BHS in 2000 for £200million and has been re-shaping it ever since. In 2006 he began discussions with Asda and Debenhams to sell BHS but market conditions were just too tough, the timing wrong. In the intervening years, absorbed inside Arcadia,  a number of stores were sold off to Primark, the discount clothing retailer. 

When Green says "everyone is going into the high street and convenience" - his "everyone" is other retailers. The real lottery tickets are BHS' outlets.

Re-enter Asda. The George clothing range could plug and play into existing BHS stores, their grocery supply chain can deliver low price food everyday....The environment is still tough but Asda are now looking for growth beyond superstores. It's all about the timing..

The "for sale" sign has been nailed over the BHS estate. Sir Philip just needs to grab some attention and prove BHS stores can sell great value food to price conscious shoppers to sell BHS to Walmart. "Maybe it's an opportunity". 
Winning lottery tickets indeed!

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 Blackcircles.com 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",

B&M: Fresher and Easier

Looking to clean up in value again....

What do you do after leading one of the world's biggest retailers? Well in Sir Terry Leahy's case, the answer is find yourself another retail venture and change the world again.

Whilst the market awaits B&Ms rumoured £2bn IPO, with Sir Terry as Chairman, the acquisition of German discount chain 
JA Woll Handels (who operate 50 stores under the Jawoll and Hafu fascias) took everyone by surprise. 
Going toe to toe with Aldi in the worlds largest discount market is audacious. What chutzpah!

Why buy? Interestingly some of their advisors believe entering a market through acquisition has more legs than starting from a green-field. You may be forgiven a rye smile. That was a very expensive lesson Sir Terry learned in the USA: Tesco's pain may be B&Ms gain. Certainly  B&Ms approach seems fresher and easier. 

PS You may have picked up on this, but if not...B&M Bargains has 375 stores in the UK and yet say less than 35% of the population live within 10 minutes of a store. That sounds like a declaration of intent. It doesn't need a maths degree to see an ambition to treble their store portfolio and a £2bn war chest post IPO will provide the liquidity to push on. 

New Chinese Takeaways..

Hot on the heels of last week's prediction of a major shift of investment East to West (Alibaba: They came from the East, www.retailiation.com March 25th),  two stories in today's Sunday Times (March 30th 2014) drive the point home. 

First, Ben Marlow's piece "Chinese giant swoops on House of Fraser" asserts Sanpower, under he leadership of Yuan Yafei, has tabled a £450m bid for HoF which will, if successful, end talk of the group going public and provide the first shoots, bamboo shoots possible, of long term stability and growth for this Grande Dame of UK retail, since the Baugur debacle.

Second, although completely unrelated Iain Dey's reports ICBC, China's largest State owned bank making a play for Pioneer, one of Europe's largest fund managers with 174bn Euros under management.

We've been eating Chinese takeaway for years, looks like China's appetite for eating out in Europe is just warming up. 食卡飽 (chia̍h kah pá) 

Who ate all the pies?

While ex footballer Danny Mills and team rush from the changing rooms to grab a rather large bite of ailing West Cornwall Pasty Company; "Just Eat" the on-line takeaway aggregator are about to float for £1.5bn.
Not hampered with having to make anything: Just Eat, provides consumers with simpler access to a broad range of fast and not so fast fooderies: Just Eat: Just Aggregates & Delivers.

West Cornish Pasty Makers, by contrast actually have stores, staff and make food - and struggle to pay the rent. How terribly twentieth century. Perhaps Danny Mills plans to leverage his football past and promote WCPC to the premier league's preferred pasty provider. Increasingly though, the choice for small food retail brands seems to be aggregation or relegation.

Whilst you may not know "Who ate all the pies?" chanted at soccer grounds every weekend, chances are you'll know who delivered them.

On-line shopping? Game On!

Mobile communications have come a long way since the early 1990s. And it sort of feels we are on a similar jouney - this time in relation to redefining the on-line shopping experience. 

Following  my blog, "Shopping? It's childsplay" www.retailiation.com March 12th) and before the announcement Facebook's $2bn+ acquisition of Oculus Rift, I had the opportunity to experience the phenomenon first hand. 

And whilst visually impressive, it did feel a bit claustrophobic - like being trapped in a diving bell. But, it is all about direction of travel - no one carries those old brick phones any more. 

Which makes me wonder whether Sergey Brin hasn't trumped Mark Zuckerberg?..With the ink still drying on the Facebook / Oculus Rift deal, Luxottica (Rayban and Oakley) announced a strategic partnership with Google to commercialise smart glasses.

In a world of technological convergence, on-line shopping will meld seamlessly into gaming and the battle for hegemony has begun. Like VHS vs Betamax, it's deja vu all over again.

The future of online shopping took serious steps forward last week. Facebook and Google threw their hats in the ring, it just leaves Apple and Samsung to make their intentions clear and who knows what Amazon and Alibaba might do. Game on!

More headaches at Tesco

According to the Cheshunt chatter..everyone is fearing for their jobs as Tesco commence another round of blood-letting. Meanwhile the acquisitions department have been told they can't contract on any new metro’s, superstores or extra’s - 

On the positive side, Tesco they are planning a few more Express stores this year versus last and have their eyes on the Co-op's Pharmacy estate. 

Let's hope there are no old prescriptions for Reverend Flowers kicking about...Hangovers and headaches abound. Still, there should be plenty of painkillers for those heads that don't roll.

AO..All Over?

On Tuesday I warned of the over-valuation of on-line companies (The New Alchemists, March 24th). Three days later there are signs the corrections may come much sooner than anticipated. 

AO the on-line retailer is under market scrutiny as rumours abound it makes more money from selling warranties than white goods. This has long been a thorny problem for electronics goods retailers and in terms of consumer perceptions is right up there with the PPI scandal.

John Roberts, the darling of the market last week as AOs shares soared to over £4 and valuing the company at £1.7bn, is under pressure to come clean on the structure of the business model. There is a deliberate and unhelpful  lack of clarity. Those who live by transparency, will surely stand or fall by opacity. The shares are down 25% from their launch high and with 1.75% in the hands of shorters there is much room for negative speculation to drive the price lower.

All of which raises a bigger question. In an on-line world that is increasingly Amazon, is there really long term space for a one category play? Rather like earlier musings on Ocado, Roberts might just be developing a neat white goods fulfilment model for someone else to wrap into their business. So whilst rumours of AOs demise are way too premature, concerns for a bursting bubble are not unwarranted.

Walmart & Visa go to court - would you credit it

Visa want to be everywhere you want to be - and along with other credit organisations, they are doing a pretty good job. Too good maybe.
Just last week, Lord Wolfson at Next observed the recent rise in UK consumer spending was due to an "unsustainable pick up in consumer borrowing"....much of this one supposes is the victory of our "flexible friends" over "fat wallet".

What then should we make of today's news that Walmart is suing Visa for up to $5bn accusing them and colluding with major banks to "illegally fix the interchange fees and inflate the network fees that Walmart and other merchants pay on Visa charge card transactions"?

Well $5bn is about one years total net profit for Visa and while victory for Walmart may see more price cuts delivered to shoppers; likely as not  it will all be recouped from shoppers through higher credit card charges. Raise the cost of credit and you'll dampen consumer demand and that will hurt Walmart too.

There is no easy fix here. Consumer wallets aren't as fat as they used to be and our flexible friends may get less flexible and much less friendly. Visa: Everywhere you want to be - everywhere that is , except Walmart.