namnews - july 2017 namnews │ july 2017 │ 1 whilst revenue management evolved in the late...
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www.kamci ty.com NamNews │ Ju ly 2017 │ 1
Whilst Revenue Management evolved in the late Seventies as a way of maximising revenue from
airline seat sales, for a number of FMCG organisations, Revenue Management really began its
surge forward in 2009, a year after the global financial crisis changed everything.
The impact of unprecedented market confusion and uncertainty on suppliers’ and retailers’ P&Ls
is now evident. Whilst this has caused many to resort to short term fire-fighting, such circumstances
represent real opportunities for those that can adapt to business change, while others await a return
to ‘normal’…
For those wishing to optimise their investment in Revenue Management, it is perhaps useful to
place key changes in the market within a Revenue Management context in order that suppliers better
understand the pressures on retailers and thereby pitch supplier Revenue Management initiatives in
ways that enhance their appeal to retailers by emphasising positive impacts on their latest P&L.
In terms of where major retailers are now, it is evident from latest annual reports that UK net
margins have fallen to 2% from highs of 5%+. This means that there is currently little, if any profit
surplus available to pay down debt, a major priority for the multiples. In addition, several years of flat-
line growth combined with low net margins means that UK retailers can only grow at the expense of
competitors, who are also under serious financial pressure. For instance, if sales go down by £1, it
means that the retailer loses two pence of profit each time.
In addition, with average gross margins of say 24%, it means that a lost sale of £1 loses the retailer
24p in gross profit i.e. a 12x multiplier of the 2p net profit. These are seriously distracting issues for
retailers accustomed historically high levels of retail profitability.
Moreover, in the ‘good old days’ when big was best, it seemed logical to build 100,000 sq. ft.
‘palaces’, designed to last forever. In fact, an annual depreciation charge of 2% means a 50 -year write-
down, in practice a 50-year lock-in to the space.
Given that multiples were able to generate sales of £1,000 per sq. ft. per annum, the relatively
recent discovery that 80% of sales are generated by 20% of a retailer’s SKUs meant that product culls
were necessary in the short term. However, the longer-term impact of the 20% space redundancy
caused potential dilution of the retail standard KPI of £1,000. This means that any alternative use (i.e.
instore theatre) of the redundant space has to generate £1k/sq. ft./annum. This space KPI also means
that the obvious option of surplus stores sell-off is compromised in that no other retail model can
achieve UK multiples’ ‘norms’, apart from the fact that placing too many shops on the market at one
time could seriously dilute property values, and thereby devalue retailers’ Balance Sheets.
Add to this the threat of online with Amazon offering a range comprising over 300m SKUs, and high
entry level standards of 1-click ordering, returns as easy as ordering and fast zero-defect delivery of 4
hours to 1 hour within the M25.
Finally, add the discounters, Aldi and Lidl, who grew sales at 19.2% year-on-year and achieved a
combined record market share of 12% in the 12 weeks ending 21 May 2017 (Kantar Worldpanel). The
research group found that 62% of the UK population shopped in an Aldi or Lidl store during the 12-
week period, compared to just 58% last year – meaning an additional 1.1 million households visited
either of the two chains.
Meanwhile, many suppliers have embraced the operational applications of Revenue Management
as a way forward. They have developed the ability to drive better visibility, control, decision-making
and collaboration across their organisations, the entire cross-functional teams, through the use of tools
like Exceedra*.
It is against the above retail reality back-drop that Revenue Management-ready suppliers need to
attract the attention of seriously distracted retailers, by positioning Revenue Management not only as
a way of directly contributing to a retailer’s sales, but also a means of improving their net margins. In
doing so, a supplier’s Revenue Management team could provide a new and complementary way of
relating supply and retail, adding a collaborative richness to their joint aims.
In terms of on-shelf execution, shelf-edge e-pricing will be an essential enabler. This final link in
the chain will need to be positioned carefully, in order to minimise the media-driven ‘surge-pricing’
negatives already causing issues with the consumer. Instead, suppliers will need to begin the massive
education job of convincing the consumer that demand-driven pricing is beneficial.
Reality-based Retail Revenue Management will make that possible….
* For a free White Paper: How can Consumer Goods organizations develop a best in class Revenue
Management capability
Global Newsletter for
National / Key Account Managers
in the Retail / FMCG Sector
NamNews I s sue 6 – J u ly 2017
Published by EMR-NAMNEWS Ltd. www.kamcity.com
@ Copyright EMR-NAMNEWS Ltd.
All facts and figures in this newsletter are
presented in good faith and on the basis of information before us at the time of
release. In consequence, no advice,
interpretation, or implication should be
acted upon without taking the normal commercial precautions.
A Reality Check for Retail Revenue Management? By Brian Moore ([email protected]), Retail Consultant and CEO of EMR-NAMNEWS & KamCity.com
NamNews │ July 2017 │ 2 www.kamci ty.com
KAMTIPS
OTSW, the Key to Optimising Revenue Management in Retail
Why OTSW? Given that Opportunities and Threats exist outside the business, are independent of the business and are
transient, in that an Opportunity-window can close as a result of the intervention of a more agile competitor, it seems
more logical to start a SWOT analysis with an assessment of Opportunities and Threats, and then proceed to Strengths and
Weaknesses.
It follows that identifying and scoping out Opportunities for Revenue Management, and factoring in possible Threats, can prov ide
a practical basis for benchmarking a supplier’s current state of Revenue Management-readiness in terms of optimising
Opportunities in retail.
Given the already negative impact of ‘surge-pricing’ on the savvy consumer in terms of perceived mal-manipulation, it is vital that
suppliers hoping to capitalise on Revenue Management first focus on building and maintaining credibility with the consumer-
shopper. This means that anything that even looks like shrinkflation has to be avoided because of its effect in diluting brand
credibility. Think of the impact of a thought like ‘If they are cheating me on quantity, what are they doing to quality?’ on a consumer
already suspicious of the fact that variable pricing is somehow manipulation to their disadvantage, added to the possibility of being
short-changed on quality… Revenue Management in retail will succeed by effectively managing consumer expectation by
continuously ‘delivering more than it says on the tin’.
We see four retail Opportunity options for Revenue Management:
1. Current Products to Current Customers, optimising existing store traffic
The degree of supplier brand profile & shop traffic profile congruency will determine the success of Revenue Management on shelf.
In other words, people who know and use the brand, who also know what they are accustomed to pay, probably represent the best
option, of the four ways of optimising Revenue Management in retail.
This option needs predictability of pricing for the benefit of the consumer-shopper, but these price-moves will also be known to
competitor retailers, who will either align with , or price against the ‘surge-price’.
Build consumer confidence in the brand, such that when they open the tin, it exceeds expectations rather than disappoints, be aring
in mind the ‘tell a friend’ x digital multiplier (i.e. via analogue media: ‘please me and I tell a friend, disappoint me and I tell 10
friends’. Introduce social media to ‘tell a friend’ and the impact is limitless. Tailor Revenue Management initiatives to store traffi c
profile, brands’ profile congruency, and focus on whatever makes that retailer unique to that shopper.
2. New Products to Current Customers (i.e. Products that are new to them)
Current users of our products know and trust our brand and company, will probably forgive a few ‘mistakes’ i.e. fail quickly.
3. Current Products to New Customers
Conduct in-depth profiling of current customers in terms of their use and experience of our current and ‘new’ products. Use this
profile as way of identifying similar, non-user consumer-shoppers and take them through Ansoff stages 1 & 2 above.
4. New Products to New Customers
Bearing in mind that they don’t know our product, and they don’t know our company, tread carefully… In practice, feed in you r
best products to start.
Threats for Revenue Managers include:
As with any application of a process that is capable of making a real difference, Retail Revenue Management has to be navigated
through a hostile environment comprising regulatory/legal/political developments, cultural/social change, technological chang e,
apart from the usual issues of trade concentration/power/internationalisation, and competition (innovation/substitution/wealth/
risk-policy) - If you want details of Threats to Retail Revenue Management, please email me on [email protected].
Having dealt with Opportunities and Threats, keep in mind where retailers need to be in terms of ROCE 15%, Net Margin 5%,
Stockturn 25 times per annum, Sales/sq. ft., Gearing 30%.
With your help, Retail Revenue Management can help retailers go some of the way…
For those suppliers that now believe themselves to be Revenue Management-ready, the above analysis will provide an objective,
customer-driven benchmark to evaluate corporate Strengths and Weaknesses of their version of Revenue Management.
Any aspect of Revenue Management that contributes positively to optimising the above opportunities is of value, all else is
redundant.
You are now Revenue Management-ready…
NamNews │ July 2017 │ 3 www.kamci ty.com
UK & IRELAND NEWS
RETAIL TRENDS/ISSUES
FMCG Retailers And
Manufacturers Urged To Work
Together To Drive Growth A new whitepaper from IRI calls on FMCG retailers and
manufacturers to put aside their differences and work more
closely together on key marketing and operational tactics such
as pricing, promotional strategies and assortment in order to
drive brand and category growth.
IRI believes the industry should adopt a new standard for
Big Data Collaboration (BDC) to redefine the way that data is
shared between suppliers and retailers. The last time retailers
and manufacturers worked together with such intensity was
to make the grocery supply chain work more efficiently via the
Efficient Customer Response (ECR) strategy.
IRI says that now is the time to return to a focus on
collaboration in order to optimise the power of data
intelligence, improve practices and process and reduce the
cost of marketing, driving profit growth for both retailers and
suppliers. “In a struggling retail environment with no growth
in Western economies, retailers and manufacturers need to
change drastically the way they operate or they will have a
hard time to continue investing in innovations, driving
consumers into their stores and generating sales with the right
level of margin,” said José Carlos González-Hurtado, President
of International, IRI.
“Instead of battling over price, they need to focus on the
relatively untapped commercial advantage which they share:
customer knowledge.”
Retailers own the direct relationship with the customer
and so have the best real-time understanding of shopper
habits but they lack the fine detail about how customers feel
about brands and how important those brands are to the
people that shop in their stores. Manufacturers have an
extensive knowledge of brands and categories having spent
years building strategic, analytical and consumer-centric
organizations, but they have little evidence of what happens to
products once on store shelves.
IRI believes that by combining all of this information with
knowledge on media and other external factors such as the
macro economy, weather and petrol purchasing, would make
it possible for both retailers and manufacturers to personalize
the product offer and communications according to the
customer in a way that will truly resonate.
“Creating a system or standard for the way that
information is shared is the first step,” claimed González-
Hurtado.
“It would help overcome the barriers of data ownership,
the sheer volume of data available and the data analytics skills
required to mine it, as well as differing views of the customer.
There is also the natural mistrust that exists from fraught
partnership negotiations and, of course, the fact that separate
businesses do tend to focus on their own goals.”
Download the full whitepaper from the IRI website
NAM IMPLICATIONS:
▪ Given suppliers’ increasing interest in shopping
behaviour matched by retailers’ increasing interest in
consumption, there appears to be common ground for
sharing insights.
▪ Synchronising Supply Chain and Revenue Management
to optimise shopper visits might well provide a basis for
collaboration.
▪ Just needs a couple of big players to roll the ball
forward…
Consumers Love Of Coupons
Remains High Despite Fewer
Being Circulated Whilst the supermarket multiples have been reducing their
promotional activity to focus on everyday low pricing, it
appears that shoppers’ hunger for coupons and vouchers
remains high.
A survey by coupon provider Valassis suggests that almost
all consumers use coupons when supermarket shopping
(99%) and almost all (96%) are actively looking for
promotional offers more often or as much as a year ago.
Consumers reported saving £3.4bn in the 12 months to April
2017.
While the appetite for coupons and vouchers remains
high, 41% of consumers report that they are receiving fewer
than a year ago. The survey’s respondents reported decreases
in coupon availability across most of the usual sources, with
65% claiming they now receive fewer coupons at till and 35%
spot fewer coupons online.
Charles D’Oyly, Managing Director of Valassis UK,
commented: “Several grocery retailers have pulled back from
using basket price comparisons against other supermarkets,
which often resulted in the price difference being printed out
as a voucher when checking out. This promotional mechanic
has been popular since early 2010, but with the rise of the deep
discounters and the need to compete on everyday low prices
for household staples, it looks like retailers are not issuing as
many of those types of coupons and vouchers.”
NAM IMPLICATIONS:
▪ The unsatisfied appetite for coupons could result in more
of the current coupons being redeemed – i.e. less
wastage.
▪ Making it important that retailers and suppliers
incorporate higher redemption levels into their promo-
calculations…
Nielsen Unveils New System
That Helps FMCG Firms Tap
Into Emerging Trends Nielsen has unveiled a ‘connected system’ that aims to help
suppliers and retail companies spot emerging trends and act
on them by integrating FMCG client data with Nielsen’s retail
NamNews │ July 2017 │ 4 www.kamci ty.com
UK & IRELAND NEWS
POS, consumer panel, e-commerce, fresh food and cross
platform media data.
The Nielsen Connected System is cloud-based and
designed for decision-makers across FMCG and retail
companies to “foster collaboration and align organisations to
achieve sustained, profitable growth in today’s ever-evolving
industries”.
It includes a wide range of data, analytics and role-based
applications from Nielsen and an expanding group of partners.
The company said that in today’s challenging marketplace, the
Connected System delivers actionable, coordinated decision
making, aligning organisations around what’s happening with
their business, pinpointing the drivers of performance, and
identifying actions to drive growth.
Steve Hasker, Global President and Chief Operating Officer
at Nielsen, commented: “For more than 90 years, we’ve
maintained our position as a global measurement leader by
responding to market changes and client challenges with
resolve and innovation.
“Continuing that tradition, the Nielsen Connected System
is the next generation of interconnectivity. This is a direct
response to the changes and shifts happening in the FMCG and
retail industry. Now more than ever, the industry needs new
tools to help align businesses to the right resources to create
forward momentum through data fuelled decisions and
analytics.”
NAM IMPLICATIONS:
▪ Anything that improves dot-joining helps, especially
based on real data from the point-of-sale.
▪ Allowing you more time to think…really think, about
implications and action.
▪ Find out more on Nielsen’s website
Justin King Warns Shoppers
Will Face ‘Higher Prices, Less
Choice And Poorer Quality’
When UK Leaves EU Justin King, the former long-serving Chief Executive of
Sainsbury’s, believes that UK shoppers are “completely in the
dark” about the effect Brexit will have on their weekly food
shop.
Speaking to the BBC as part of its Panorama programme
‘Britain’s Food & Farming: Brexit Effect’, he said it was “very
clear” shoppers would face “higher prices, less choice and
poorer quality”.
King explained that Brexit, almost in whatever version it
is, will introduce barriers. “That makes it less efficient which
means all three of those benefits – prices, quality and choice –
go backwards,” he said
King, who supported Remain during the Brexit campaign,
said this frictionless movement of goods around Europe had
kept food prices down with retailers able to find the best
suppliers and markets throughout region. He also said the EU
had driven up standards and enabled the UK to get out-of-
season vegetables all year round.
However, John Mills, a vote Leave campaigner and
Chairman of consumer goods firm JML, hit back, telling the BBC
that the UK’s membership of the EU had kept prices artificially
high for shoppers. He said: “Food prices inside the EU vary
from food product to food product, but the average is
something like 20% higher than they are in the rest of the
world – so there is very substantial scope for food prices
coming down if we switch sources of supply outside the EU.”
Mills also stressed that cheaper prices may not mean
lower standards. He said: “The reason why food prices are
higher inside the EU is because they have got tariffs which
keep the prices up. It’s not anything to do with quality – it’s
due to the institutional arrangements which means the food
prices are kept much higher to increase farmers’ incomes.”
NAM IMPLICATIONS:
▪ Open markets, good and bad, dictating the need for
savvy consumers to keep their eyes wide open.
▪ Was it ever any different?
OTHER TOP STORIES Click for
details
Consumer Confidence Takes A Hit After General Election
Result
Warm Weather And Food Inflation Boosted Retail Sales
Last Month
Shop Prices Fall At Slowest Pace Since 2013 As Food
Inflation Hits 1.4%
Sales Of Prestige Beauty Products Hit £2.2bn With
Bricks And Mortar Still A Key Channel
Airports Offer A $38bn Bright Spot For Retailers
Gaining Consumer Trust And Loyalty Is Key Focus For
Retail Executives
Shoppers Looking To Innovate In The Way They Buy
Their Groceries
Energy, Water And Cola To Drive Soft Drink Sales Past
£8bn Mark
ECJ Rules That Makers Of Plant-Based Foods Should Not
Use Dairy-Style Names
SUPERMARKETS
Aldi Kicks Off Major
Recruitment Drive Aldi has kicked off its biggest ever recruitment drive to
support its plans to open hundreds of new stores in the UK
over the next few years.
NamNews │ July 2017 │ 5 www.kamci ty.com
UK & IRELAND NEWS
The discounter expects to create around 4,000 jobs across
its business as it pushes ahead with its plans to increase store
numbers from 700 to 1,000 by 2022. The new jobs will include
assistants and deputy managers across its shops and
distribution network.
Aldi said it needed to hire thousands of employees
following a recent “sales surge” which saw an extra 900,000
new customers visit its stores last year. It plans to open
around 70 stores this year.
NAM IMPLICATIONS:
▪ Vital that branded suppliers find safe ways of capitalising
on discounter growth…
▪ …and perhaps via some surrogate–label production on
the side?
▪ Even if such surrogate label initiatives are regarded as a
testing ground for the brand?
Aldi Launches Meal Kits
Range Aldi is taking on fast-growing recipe kit delivery companies
such as HelloFresh and Gousto, and upmarket rivals such as
Waitrose, with the launch of its own meal kits.
The discounter recently launched a range of fresh ‘Ready
Set Cook’ meal kits in its stores that sell for as little as £2.99,
far cheaper than rivals.
Aldi claims its meal kits are comparable to the Waitrose
Michel Roux Scratch range, but are far cheaper at £1.50 per
person compared to £2.99 per person at Waitrose. It added
that customers who buy their meal kits in bulk, or get them
delivered from “trendy services”, such as Hello Fresh, would
save a fortune if they make the switch to Aldi. The discounter
said that five meals for two people from its new range cost
£14.95 – 71% cheaper than five boxes from Hello Fresh, which
cost £52.
Tony Baines, Joint Managing Director of Corporate Buying
at Aldi UK, commented: “The meal kits are another example of
Aldi’s continued commitment to offering premium quality
products at amazing low prices, allowing customers to make
substantial savings on luxury equivalents without any
compromise.”
The major supermarkets have all been expanding into
meal kits to capitalise on demand from consumers who are
seeking healthy fresh meals but don’t have the time to prepare
one from scratch.
Back in April, Waitrose began trialling its own recipe kit
delivery service, whilst specialist HelloFresh recently
expanded into the retail channel via a tie-up with Sainsbury’s.
NAM IMPLICATIONS:
▪ And eating into the hallowed up-market ground of the
mults…
▪ …adding to its quality credentials in the process…
▪ With any traction resulting in additional interest by the
consumer in the rest of the discounter offer.
▪ Worth a fundamental review of your trade strategies?
▪ …at least.
OTHER ALDI NEWS Click for
details
Aldi To Install 96,000 Solar Panels By The End Of The
Year
Aldi Picks Up More Awards For Wine Range
Aldi Overtakes M&S And Waitrose In Customer
Satisfaction Ranking
CMA Welcomes Moves By
Asda To Make Its Promotions
Clearer The Competition and Markets Authority (CMA) has confirmed
that Asda has complied with a commitment it made last year
to ensure its promotional pricing was not misleading
shoppers.
Asda was singled out for criticism last year following an
investigation by the competition regulator into pricing tactics
used by the leading supermarkets, finding some could mislead
shoppers. Whilst the CMA did not make any rulings against
Asda, it did raise a number of specific issues with the retailer.
Asda subsequently gave a written commitment to change the
way it operates ‘was/now’ and multi-buy deals.
The CMA said earlier this month that it welcomed steps
taken by the supermarket to make its promotions were
clearer, with better labelling of offers and discounts. The
changes mean that the supermarket no longer displays the
‘now’ price for longer than it displayed the original ‘was’ price.
There have also been changes to its multibuy offers, to ensure
that these always offer a saving when compared with a single
product before the offer.
The CMA said it was now satisfied that Asda’s pricing is
clearer for shoppers and it has now formally closed its case.
Consumer watchdog Which? originally made the
compliant to the CMA about misleading supermarket pricing.
Its Managing Director of Home Products and Services, Alex
Neill, commented: “Following our super-complaint on
misleading supermarket pricing, it’s good to see that Asda has
changed its practices. The CMA needs to continue to monitor
all retailers to ensure that any misleading practices in other
sectors are also systematically tackled.”
A spokesperson for Asda said: “We welcome the CMA’s
recognition of our serious commitment to offer customers the
most trusted low prices of any full range supermarket. We
hope that the closure of this case means a level playing field is
now established where all supermarkets adhere to the
standards set by the CMA.”
NAM IMPLICATIONS:
▪ Perhaps even better for retailers to aim at preserving
hard-won credibility with the shopper…
▪ …by implementing the spirit as well as letter of law in all
dealings with consumer-shoppers?
NamNews │ July 2017 │ 6 www.kamci ty.com
UK & IRELAND NEWS
OTHER ASDA NEWS Click for
details
Asda Continues Overhaul Of Ready Meals Range
Young’s ‘Funky Fish’ Products Delisted By Asda As Part
Of Range Overhaul
Lidl Stepping Up Expansion In
The UK Lidl’s new UK boss, Christian Härtnagel, has revealed that the
discounter is stepping up its expansion and will see its fastest
ever growth in store numbers over the next two years.
In an interview with The Telegraph, Härtnagel said around
50% of the British public shopped at a Lidl store last year.
However, he believes that the main reason the rest of the
population don’t shop at the discounter is because they can’t
reach one of its 670 stores as easily as its competitors.
Härtnagel, who took over as Managing Director of Lidl UK
last September following the abrupt departure of Ronny
Gottschlich, said he was aggressively stepping up the group’s
expansion with a plan to roll out “at least one shop a week”. He
revealed that Lidl had already agreed sites to add between 50
to 60 shops a year for the next two years, compared to the 30
opened last year. The investment will be at least £1.45bn
between now and 2019. “That is the fastest we have ever
grown in the UK,” Härtnagel said.
Despite its main rival Aldi entering the online retail
market in the UK, Härtnagel stressed that Lidl would not be
revealing an online offering anytime soon in this country. He
revealed that he has a team of two dedicated to analysing all
the online options available but despite Lidl having an online
presence in Germany, Belgium and the Netherlands, such a
move was not around the corner for the UK.
“The UK is the most advanced online market in Europe and
customers wouldn’t be happy with goods being delivered in
three or five days, they want it the same day or the next day.
I’m convinced that if we just focus on our core supermarkets
we will have so much more to gain”, he said.
Meanwhile, Härtnagel admitted that Lidl’s profits in the
UK will be lower this year “because of the huge investment
figure and the effect of Brexit. But we are privately owned and
we are still focused on our long-term profitability.”
NAM IMPLICATIONS:
▪ Lidl’s plans for doubling their UK expansion over the
next two years (at least) obviously need to be factored
into your UK strategies, especially given that mults’
current growth would appear to be little more than
inflation driven, in the main.
▪ Their decision not to go online seems driven by their
inability to meet consumers’ needs of one-day delivery.
We have to assume that Lidl will reconsider this decision
as soon as Aldi show some success, at least within the
M25 market i.e. Lidl will invest to clear this hurdle.
▪ The question for suppliers has to be the extent to which
they can afford to sit on the sidelines, instead of finding
a non-compromising way of working with Lidl, and Aldi.
Morrisons Shareholders Vote
Against Chief Executive’s
Bumper Pay Package Morrisons faced a shareholder rebellion last month over its
Chief Executive’s bumper pay and bonus package.
At the company’s AGM at its HQ in Bradford, 48.1% of
shareholders voted against the directors’ remuneration report
after an influential investor lobby group recommended
opposing it. ISS had expressed concerns that Potts’s new long
term incentive plan (LTIP) has been increased from 240% of
his salary to 300%, despite the fact performance targets were
reduced.
Morrisons has softened targets to achieve bonus payouts
for future years, including a cut in the earnings-per-share
growth target from 6%-13% a year to 5%-10%. At the same
time, a maximum target for adding free cashflow over three
years was cut from £1.3bn last time to £800m. As a result of
other awards, Potts could be eligible to a maximum £5.3m total
pay package compared to the £2.8m he received last year.
In a statement issued after the AGM, the group’s Chairman
Andy Higginson said: “We fundamentally disagree with the ISS
analysis of the performance targets. Not only does the board
believe the targets to be significant and stretching, but the
judgement on what the right measures are goes to the heart of
rebuilding the business for the long term – striking the right
balance between investment in the business and continued
outperformance.”
Addressing the meeting, Potts highlighted his
achievements in turning around the chain’s performance,
adding: “We’re quietly building a broader and stronger
business, one that provides a capital-light route to long term
growth well into the future. I believe our planned
improvements for the future will further differentiate this
company from its competitors for each of its stakeholders.”
Meanwhile, Higginson told shareholders that despite the
economic and political uncertainty in the UK, the consumer
remains resilient so far. He said: “None of us knows how the
next few months and years will pan out but the team won’t
allow Morrisons to be the victim of any uncertainty. We’ll do
what’s best for customers.”
NAM IMPLICATIONS:
▪ The issue is whether the cost of management’s
remuneration package is appropriate compared with the
value added to Morrisons shares.
▪ If not, shareholders will vote with their feet…
▪ …and drive the share price down to a level that seems
fair to them.
▪ Suppliers have the option to help Morrisons
achieve/exceed turnaround targets.
OTHER MORRISONS NEWS Click for
details
Morrisons Appoints Non-Exec With Experience In The
Drinks Industry
NamNews │ July 2017 │ 7 www.kamci ty.com
UK & IRELAND NEWS
Morrisons Commits To Selling Only British Fresh Meat
Morrisons Fined £10k For Sending Unwanted Marketing
Emails
Morrisons Branches Out Into Online Florist Market
Sainsbury’s Holds Talks With
McColl’s About Supply Deal McColl’s has become involved in Sainsbury’s plans to acquire
Nisa (see p14). Reports said that senior executives from the
newsagent and convenience store operator have met with the
supermarket group’s management to discuss the deal.
Nisa has multiple supply contracts with McColl’s,
accounting for around 40% of its sales. One of these contracts
is due for renewal soon, while others are thought to run
through to 2020. Reports suggested that McColl’s is examining
whether to renew its Nisa agreement or seek another supply
deal, with Sainsbury’s named as a possible candidate.
McColl’s is also said to have had talks with a number of
other potential suppliers, including Morrisons and the Co-op.
McColl’s already has a close relationship with the Co-op,
having bought 300 stores from the society last year and
recently trialling a product supply deal. 25 McColl’s stores
have been stocking around 900 Co-op brand fresh, frozen and
ambient lines since June as part of a three-month pilot. The
products replaced Nisa’s Heritage and the Independent own
brand.
Morrisons has also been moving back into the convenience
sector via a forecourt store tie-up with Rontec and plans to
revive the Safeway brand as a range for independent retailers.
McColl’s operates over 1,400 stores and its supply
contract is said to be worth as much as £500m a year. Since
Tesco announced its plans to acquire Booker, City analysts
have suggested that McColl’s itself could become a takeover
target as the supermarket multiples battle to gain control of
stores in the growing convenience sector.
NAM IMPLICATIONS:
▪ Given that any successful transfer of a supply contract
would inevitable result in other McColl’s contracts being
transferred to the new partners as they reach maturity,
a successful move by Morrisons or the Co-op could
complicate any acquisition of Nisa by Sainsbury’s…
▪ …leading to authorities-induced uncertainties, delays and
slower decision-making, at least…
▪ The market is evolving too quickly for suppliers to risk
lingering in the wings…
Fears That Sainsbury’s Is
Embarking On Brand Cull Sainsbury’s could be set to embark on a major cull of what it
calls ‘commodity brands’ as part its strategy to win back trade
from the discounters.
According to suppliers quoted by trade magazine The
Grocer, Sainsbury’s senior management outlined details of the
group’s new differentiation strategy at a trade briefing held in
conjunction with the IGD last month. This is said to be aimed
at making Sainsbury’s stand out from its traditional
supermarket rivals and compete harder against the likes of
Aldi and Lidl.
While Sainsbury’s stressed that it was not entering a range
rationalisation process along the lines of Tesco’s Reset
programme, the retailer is reported to have indicated that
there would be a “significant” reduction in the number of SKUs
in its supermarket outlets.
One supplier told The Grocer that Sainsbury’s had outlined
that it would be assessing the “emotional functional qualities”
of all its 34,000 SKUs. They said: “So if you are a brand it’s a
case of ‘do you have an emotional connection with the
consumer?’ If you don’t then you are just really a commodity.
Sainsbury’s is saying it will drive distinctiveness by removing
duplicate products and adding NPD.”
The report added that suppliers were left under the
impression that for products to remain on shelf they would
have to deliver a 20% reduction in cost of goods sold. Another
supplier was quoted as saying that that those that stay will
have to offer a “real underlying value, and will have to be
distinctive”.
Meanwhile, a Sainsbury’s spokesperson was quoted as
saying: “We believe that, working with suppliers, we can
eliminate inefficiency from the value chain. We led the
industry on value simplicity, making buying brands at
Sainsbury’s simpler for customers and we now want to work
with brands to make them more distinctive and rewarding for
customers.”
NAM IMPLICATIONS:
▪ Ask yourself if your brand is really 20% better than
others in the category…
▪ Or wait for Sainsbury’s to do it on your behalf…
▪ …or drop your prices by 20%.
Sales Growth At Sainsbury’s
Improves In Tough Market Sainsbury’s has reported slightly better-than-expected sales
growth for the first quarter of its new financial year, helped by
inflation and the recent warm weather.
During the 16 weeks to 1 July, total group retail like-for-
like sales rose 2.3% (excl. fuel), compared with analysts’
expectations of a 2% rise and growth of 0.3% in the previous
quarter.
The results statement marked the first time since its
acquisition of the Home Retail Group that Sainsbury’s did not
issue separate like-for-like sales data for its supermarket chain
and Argos.
However, the group did reveal that total grocery sales had
risen by 3%, a significant improvement from the 0.3% growth
the previous quarter. Whilst food inflation and new stores
contributed to the figure, Sainsbury’s stressed that the number
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of transactions in its stores were up 2%, with like-for-like
transaction growth in all channels.
The group said that customers were attracted by its
investment in product innovation, with the produce category
performed particularly well, outperforming the market with
volume growth of over 1%.
Meanwhile, online grocery sales rose by 8%, while sales at
its convenience stores were up 10%.
In General Merchandise, total sales were up 1%, despite
disruption from the closure of 78 Argos in Homebase and 84
Habitat in Homebase concessions over the last year.
Sainsbury’s said that Argos had continued to perform well,
growing market share in key categories. It added that its Fast
Track delivery and collection service saw “stellar
performance” during the period of warm weather when
customers wanted to buy and receive products such as
paddling pools the same day.
Mike Coupe, Group Chief Executive, said Sainsbury’s was
working hard with suppliers to improve its price position
versus competitors. He added: “The market is competitive and
we continue to manage cost price pressures closely. Our
strategy is delivering and we are well placed to navigate the
external environment.”
Commenting on the results, John Ibbotson, director of the
retail consultancy Retail Vision, said: “It’s not far short of a
Lazarus moment. No longer leaning precariously on the Argos
crutch, Sainsbury’s core business is back on its feet and
growing food sales at a healthy clip.”
He added: “Mike Coupe has no time to rest on his laurels
though. Food price inflation has slashed margins, and with
consumer prices rising at close to 3% a year and the
consumption boom waning, retailers have to fight harder for
every sale.
“Yet for now the integrated model is delivering in spades.
Argos is no longer a ‘get out of jail’ for the struggling
Sainsbury’s brand, but an equal partner in a truly impressive
double act.”
NAM IMPLICATIONS:
▪ An integrated Sainsbury’s obviously on the way back.
▪ The key issue is how your brands’/products’ growth
compared…
▪ If matching or exceeding these results, an opportunity to
maximise on your resulting strengths.
Sainsbury’s Testing New
‘Smart’ Food Label Sainsbury’s is testing new food labels that show how fresh a
product is by changing colour.
The retailer is currently testing the
new technology on its own label cooked
ham. The ‘Smart Fresh’ label changes
colour from yellow to purple the longer
the pack has been open. It is also
temperature sensitive, with the rate of
colour change varying depending on the
temperature of the fridge.
Sainsbury’s said it hopes the new label will cut the large
amounts of perfectly good ham being thrown away by its
customers. The move is part of Sainsbury’s ‘Waste Less, Save
More’ programme designed to reduce household food
waste. If successful, the label could be extended to other foods.
NAM IMPLICATIONS:
▪ Anything that helps, helps…
▪ Giving Sainsbury’s a competitive edge, unless other
retailers follow.
▪ With overall consumer gain of less waste.
Sainsbury’s Secures Another
Concession Partner To Fill
Excess Store Space Sainsbury’s linked up with food and juice bar firm Crussh as
part of its recent moves to fill excess space in its larger stores.
A Crussh counter was opened in Sainsbury’s store in
Pimlico last month, serving healthy meals and drinks. Crussh
already operates nearly 30 outlets in London, although this is
its first opened inside a supermarket.
Initial customer response is said to have been good with
Sainsbury’s looking at rolling out the brand to other branches.
With shoppers spending more online and in local
convenience stores, Sainsbury’s has been seeking ways to fill
excess space in its larger outlets. Argos and Habitat implants
are being rolled out across the chain, whilst it also has
concession partnerships with Sushi Gourmet and Patisserie
Valerie.
NAM IMPLICATIONS:
▪ Where at: All part of a move by mults to optimise large
space redundancy.
▪ What it means: The 50-year lock-in implied by 2%
annual depreciation makes it difficult to sell-off/abandon
large stores so franchising space becomes necessary.
▪ Where headed: Unless the franchising initiatives yield a
combination of rent and % of sales that equates to
£1,000/sq. ft., then overall store profitability will be
diluted.
▪ How it affects you: Opportunities for instore theatre
that generates at least £1,000 sq. ft./annum
▪ Action: Time to explore any options that meet these
criteria, otherwise don’t bother.
Tesco’s Takeover Of Booker
Referred For Full-Scale
Investigation The Competition and Markets Authority (CMA) has announced
that it is launching a full-scale Phase 2 investigation into
Tesco’s proposed £3.7bn takeover of Booker over concerns it
could leave shoppers in some areas worse off.
The competition watchdog opened its Phase 1
investigation into the deal in May. However, at the end of June,
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Tesco and Booker requested a ‘fast track’ referral to the more
detailed second stage.
The CMA said that its initial probe had found more than
350 local areas where there is currently an overlap between
Tesco shops and Booker-supplied symbol stores such as
Premier, Londis, and Budgens, and as a result some shoppers
could face worse terms when buying their groceries.
It stated that there are concerns that the tie-up could lead
to Booker reducing the wholesale services or terms it offers to
the over 5,000 symbol stores it currently supplies, in order to
drive customers to their local Tesco.
The investigation will now pass to a new set of decision
makers – an inquiry group chosen from the CMA’s
independent panel members. This group will assess whether
the deal could reduce competition by conducting further
research and analysis as well as seeking views and evidence
from those potentially affected by the merger.
The statutory timetable for an in-depth Phase 2
investigation is 24 weeks, which means the CMA’s final report
should be published before Christmas.
Tesco and Booker have both played down concerns that
the deal will harm competition in the grocery market, stressing
that the merger will deliver significant cost savings that will
benefit consumers and independent retailers. However, rival
groups and suppliers have warned that the tie-up will give
Tesco greater muscle in setting prices and too much control of
the nation’s grocery supply chain.
NAM IMPLICATIONS:
▪ Barring ‘accidents’ a result by Christmas…
▪ Meanwhile, suppliers have to decide whether provisional
initiatives represent a better use of their time than
equivalent use of their energies and resources devoted
to other multiples…
▪ While the discounters and Amazon are unlikely to sit on
the sidelines…
Tesco’s Booker Deal Could
Help It Avoid The Impact Of
Cost Inflation Tesco could generate far greater synergies than estimated
from its tie-up with Booker, allowing it to negate some of the
cost inflation pressures on shelf prices and so accelerate its
turnaround at the expense of rivals.
This is according to analysts at HSBC, quoted by trade
magazine The Grocer. Whilst Tesco has estimated synergies of
£200m from its takeover of Booker, HSBC believes the figure
will be more in the region of £500m which could be re--
invested so the group could avoid the impact of inflation on
prices in both the retail and wholesale sectors.
Dave McCarthy, Head of Consumer Retail Europe at HSBC,
is quoted as saying: “We are firm believers in this
transformational acquisition and believe synergies could
exceed £500m versus the £200m identified by
management. Much of these benefits will be reinvested to
drive further growth to the benefit of customers, suppliers,
employees and shareholders of both companies”.
He added that Tesco and Booker’s rivals would struggle to
match this investment, making the group’s already successful
turnaround “even better”.
NAM IMPLICATIONS:
▪ This was never about the (obvious) benefits to Tesco,
Booker, and their customers…
▪ The issue is the impact on wholesaler competition and
their independent customers…
▪ And how this is perceived by the consumer-voter and
thereby the government…
▪ …and what consumer and the government do about it.
Tesco Axing 1,200 Jobs At HQ
As Part Of Cost-Cutting Drive Tesco has confirmed that it is planning to cut 1,200 jobs at its
head office as part its turnaround strategy that aims to reduce
costs by £1.5bn.
The cull amounts to a quarter of its workforce in Welwyn
Garden City and Hatfield, along with a number of jobs at the
main office of Tesco’s One Stop chain in Birmingham and the
retailer’s IT support centre in Bangalore, India.
The move came just a week after the group
announced that it was closing a call centre in Cardiff, putting
around 1,100 jobs at risk. Tesco has also been reducing roles
in its distribution centres and stores in recent months as part
of the cost-cutting drive instigated by Chief Executive, Dave
Lewis, to improve profitability. In his first year in charge of
Tesco, Lewis axed thousands of head office and store
management jobs.
A spokesperson for Tesco said the latest cuts at its HQ
were a “significant next step” in the turnaround of the
business. “This new service model will simplify the way we
organise ourselves, reduce duplication and cost but also, very
importantly, allow us to invest in serving shoppers better,”
they added.
The jobs under threat at its head office span a number of
departments including property, finance, buying and
marketing. Final decisions will be made once a consultation
has been completed over the summer.
NAM IMPLICATIONS:
▪ Despite the financial logic, the key issue with drastic job
reduction has to be the impact on those remaining…
▪ …keeping in mind that any drop in shop floor morale
impacts the shopper.
▪ Only time will tell…
Tesco Reports Strongest
Sales Growth For Seven Years Tesco reported its strongest rise in UK quarterly sales for
seven years last month, beating City expectations and
cementing its recovery led by Chief Executive Dave Lewis.
In the 13 weeks to 27 May, the group’s UK like-for-like
sales rose 2.3% – a sixth straight quarter of growth and well
ahead of the 0.7% increase seen in the fourth-quarter of its last
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financial year. Performance was driven by a 2.7% like-for-like
sales rise in food, supported by strong volume growth in fresh
food at 1.6%.
Tesco stated that total volume growth in the UK remained
positive and was similar to the last quarter as it continued to
be more selective in the way it drives volume. In particular,
the group has been reducing short-term marketing activities
in general merchandise and the use of promotions in its
household ranges.
Meanwhile, Tesco stressed that it was working hard with
its suppliers to protect its customers from inflationary
pressures. The group claimed that its price position relative to
competitors has improved and its efforts to offset inflation
have been recognised by shopper. Lewis commented:
“Customers have responded by doing more of their shopping
with us and as a result we continue to grow volumes,
particularly in fresh food.”
In the Republic of Ireland, Tesco’s like-for-like sales grew
by 0.2%, recovering from a 1.3% fall the previous quarter
despite continued investment in price cutting. The chain’s
improved competitiveness helped drive volumes up a strong
3.8%, including 5.3% growth in fresh foods.
Lewis described the current market conditions as “tough”
but said Tesco had made a “good start to the year”.
John Ibbotson, director of the retail consultancy Retail
Vision, commented: “Tesco has delivered a corker in its core
UK market. Food, and fresh food in particular, is firing on all
cylinders and that’s a huge shot across the bows for its
competitors, in particular Morrisons.
“With inflation rising sharply, Tesco has used its immense
buying power to keep prices lower for its customers. Against
this inflationary backdrop, the numbers are all the more
remarkable.” However, he warned of tougher times ahead,
saying the “toxic combination” of rising inflation and low wage
growth remains a major threat. “As inflation continues to
erode people’s spending power, more and more of Tesco’s
customers could be driven back to the discounters,” he said.
NAM IMPLICATIONS:
▪ Tesco obviously on the way back.
▪ However, the triple challenges of ‘redundant’ space,
discounter appeal and Amazonian growth remain.
▪ Redundant space: Expect mix of franchising, domestic-
dwelling and instore theatre to generate opportunities
for suppliers.
▪ Discounter appeal: Expect intensive price competition in
discounter categories – i.e. decision time for suppliers.
▪ Amazon: Expect fresh-based Tesco-initiatives within the
M25 – focus on helping Tesco to optimise other
categories in M25.
Tesco Rolling Out One Hour
Delivery Service Following on from recent trials, Tesco has announced that it is
rolling out its one-hour grocery delivery service in central
London.
Customers across almost 40 London postcodes are now
able to order, via the Tesco Now app, up to 20 items from a
range of 1,000 products, including fresh produce, meat, bakery
goods and dairy, as well as baby, health and beauty items.
Orders are then picked in a local store and delivered via moped
within 60 minutes by third-party fulfilment specialist Quiqup,
which has partnered with Tesco.
Tesco is looking to capitalise on rising consumer demand
for the rapid delivery of products. The likes of Amazon and
Deliveroo have led the way in offering such services
with Sainsbury’s also launching its one-hour ‘Chop Chop’
delivery service last year.
Adrian Letts, Online Managing Director at Tesco, said:
“Shoppers’ needs are changing and we want to offer a range of
services that allow them to shop with us in a way that suits
their needs. We look forward to hearing what they think of the
new service.”
Meanwhile, Hugh Fletcher, global head of consultancy and
innovation at retail consultancy Salmon, commented: “The
move is clearly designed to counter Amazon’s Prime Now
service, who, as well as buying Whole Foods earlier this month,
has threatened to seriously dent the popularity of the big
grocery stores in the country.
“Retailers should take a leaf out of Tesco’s book here; with
customers becoming more loyal to a service than a brand – and
convenience playing a huge part in how we, as consumers,
shop – retailers can’t afford to remain paralysed.”
NAM IMPLICATIONS:
▪ A service that is viable in cases of high density
coverage…
▪ …a race to the top, at least within the M25.
▪ Meaning that the M25 bounds what is likely to become
the most contested market in the UK, at least…
▪ Are you ready to anticipate the special requirements
arising, as a solus market?
Tesco Overhauls Brand Outlet
Aisles Tesco is reported to have relaunched its ‘Brand Outlet’ aisles
amid ever increasing competition from the discounters.
The retailer now operates around 270 of the value-
orientated aisles in larger stores located in less affluent
areas. They sell a range of branded grocery, household and
health & beauty products under the strapline ‘big brands at
small prices’. Many items are priced at £1 to compete with the
pound stores.
Some analysts have questioned whether Tesco would keep
the aisles given its shift towards EDLP. However, according to
trade magazine The Grocer, Tesco recently overhauled the
Brand Outlet range with a focus on large packs, such as 24
packs of toilet rolls and large packs of washing powder.
A Tesco spokesperson is quoted as saying: “Brand Outlet
offers are one of the many ways in which we offer our
customers everyday low prices on the products that matter
most.”
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Earlier this year, Tesco’s Chief Executive Dave Lewis
highlighted his concerns around rising prices, which he
believes has boosted sales at the discounters and could force
his chain to make some major changes in its current marketing
strategy.
NAM IMPLICATIONS:
▪ Only issue is the focus on Tesco stores in less affluent
areas.
▪ Been to a packed aisle in Lidl lately…?
▪ …and had any difficulty parking among the Mercs and
BMWs?
OTHER TESCO NEWS Click for
details
Tesco Makes Improvements To Clubcard Scheme
Tesco Voted Grocer Of The Year
Tesco Chairman Appointed Vice-President Of The CBI
Tesco Set To Begin Paying Compensation To
Shareholders
Tesco Outstripping Rivals In Northern Ireland
Tesco To Give Store Staff A 10.5% Pay Rise
Waitrose Hires Its First
Director Of Food Service Waitrose has appointed its first ever Director of Food Service
to support the expansion of its food-to-go and casual dining
activities.
Simon Burdess is joining the supermarket group in
September from InterContinental Hotels, where he is currently
Vice President, Restaurants and Bars. Prior to that he was
Commercial Director at Fortnum & Mason, having previously
held various commercial roles at Marks & Spencer, including
Category Manager for in store hospitality.
In recent years, Waitrose has been putting greater focus
on the fast-growing food-to-go / hospitality market in an effort
to make its larger stores more attractive places to shop. The
chain already has over 120 cafes in its stores, along with
bakery grazing areas, wine bars, and Sushi Daily counters.
Sales growth in this part of its business was running at over
7% last year.
Waitrose also recently trialled a ‘Supper Club’ at its store
in Haywards Heath and is rolling out ‘The Kitchen’, a new
foodservice counter concept serving hot meals for breakfast,
lunch and dinner.
Burdess will lead the continued expansion of these
activities with Waitrose Retail Director Ben Stimson
commenting: “We want our shops to be places where
customers will feel excited by and inspired by food – and
evolving our food service offer is vital in achieving this.”
NAM IMPLICATIONS:
▪ Another way of optimising every store visit.
▪ Opportunities for food service suppliers to propose extra
hooks?
OTHER WAITROSE NEWS Click for
details
Waitrose To Sponsor Food Shows On Channel 4
Waitrose Serves Up New Drinks Magazine
Waitrose To Launch More Easily Recyclable Sandwich
Wrapper
Waitrose Strengthens Fairtrade Commitment In Wake
Of Sainsbury’s Move Away From Scheme
Supermarket Sector Sees
Strongest Growth In Five
Years Latest grocery market share figures from Kantar Worldpanel
for the 12 weeks ending 18 June show that supermarket sales
growth has accelerated to 5% – the strongest increase since
March 2012 and a stark contrast to the 0.2% decline seen this
time last year. Tesco and Morrisons remained the top
performers amongst the big four, whilst Asda was the only
retailer to see branded products growing ahead of own label.
Fraser McKevitt, head of retail and consumer insight at
Kantar Worldpanel, said the market’s robust performance
over the period was partly down to weak sales growth last
year and a continuing increase in like-for-like grocery
inflation, which is now running at 3.2%.
However, McKevitt stressed that it wasn’t just inflation
which is bolstering market growth. “Recent spates of hot
weather have given an early boost to traditional summer
categories including ice cream and cider, with respective
increases of 12% and 16% adding £58m in sales, and that’s not
including the most recent heatwave,” he said.
Meanwhile, the performance of the Big Four grocers
continued to improve. Tesco’s sales grew by 3.5%, its fastest
rate since April 2012, with the retailer attracting a further
369,000 shoppers. Sales increased across all the group’s
channels, rising fastest online and through its Extra stores,
although its market share was still down 0.4 percentage points
on the same period last year.
Morrisons was the strongest performer amongst the Big
Four with sales increasing by 3.7% – its seventh consecutive
period of growth. Meanwhile, strong growth online and in its
Local convenience stores – particularly in London – helped
Sainsbury’s increase sales by 3.1%.
Asda’s recent recovery continued, with its overall sales up
by 2.2%, although its market share fell half a percentage point
year-on-year to 15.1%. McKevitt highlighted that Asda was
the only retailer where branded products outpaced own label
lines – significant for the grocer given it sells a greater
proportion of brands than many of its rivals. “That isn’t to say
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Asda’s own label offer is struggling – its Extra Special premium
line and recently launched Farm Stores range contributed to a
1.4% increase in private label sales,” said McKevitt.
Lidl pipped Aldi to the title of the UK’s fastest growing
supermarket for the first time since March, with sales growth
of 18.8% just ahead of the latter’s 18.7%. Both retailers
continue to gain market share – combined, the two have gained
1.4 percentage points since June 2016 and now hold 5.0% and
6.9% respectively.
Co-op has now seen continuous growth for a full two
years, up 2.2% in the latest period alone. Meanwhile, Iceland,
which is up 7.4%, has posted 15 periods of increasing
sales. Waitrose saw its best sales growth since March 2012,
growing marginally ahead of the market at 5.3%, although its
share remained flat at 5.2%.
Related item:
Supermarket Sales Boosted By Heatwave
NAM IMPLICATIONS:
▪ Whilst the sector growth is encouraging, the stand-out
performances have to be the discounters…
▪ Making it vital that branded suppliers find safe ways of
working with Aldi & Lidl.
GCA Survey Shows Significant
Progress For Suppliers Christine Tacon marked the end of her first four-year term as
Groceries Code Adjudicator (GCA) with the release of the
results of a survey which shows suppliers are now
experiencing far fewer Code-related issues, with Tesco and
Morrisons amongst the most improved supermarkets.
Results from 2017 YouGov survey (see below) showed
that for the fourth year running, fewer direct suppliers have
experienced one or more Code-related issues. The proportion
now stands at 56%, down from 62% in 2016 and from the high
of 79% in 2014.
Tacon said: “The overall fall is welcome but the more
dramatic data comes from looking at supplier experience of
issues that I have identified among my Top 5 and where I have
used collaborative or more formal regulatory action to drive
change.”
The figures show:
• Forensic auditing: 45% of suppliers reported
experiencing this as an issue in 2014 but only 12% in
2017. In 2014, the Adjudicator secured a voluntary
commitment from eight out of the ten regulated
retailers to limit forensic audit activity to the current
year plus two.
• Margin Maintenance: The Adjudicator initially raised
concerns about retailers requesting lump sums to
maintain margin in 2014 and her report of the
investigation into Tesco made clear that any request for
margin needed to be unambiguously supported by
supply agreements. In 2017, only 10% of suppliers
have reported this as an issue, down from 36% in 2014.
• Consumer complaints: In 2014, unjustified charges for
consumer complaints was the second biggest issue with
37% of suppliers reporting it. A year later the
Adjudicator published a best practice statement and
monitored progress. In 2017, only 12% of suppliers
have reported it as an issue.
• Packaging and design charges: Following action from
the Adjudicator only 11% have reported concerns with
packaging charges this year, compared to 24% in 2014
and 30% in 2015.
Tacon commented: “Suppliers have found the issue of
packaging and design charges to be an irritant for years.
Recently a supplier in the fresh produce industry told me that
that they had been trying to resolve the problem of
overcharging in this area for more than 10 years. But within
18 months of me focusing on the problem he was pleased to
say the issue had gone away.
“I see this as a sign that the collaborative approach that I
have promoted has been a real engine of change and is
achieving positive results across all retailers. I am delighted
that suppliers are seeing the benefits of this change.”
For the fourth year running, Aldi topped the overall table
in which suppliers rank their perception of retailers’
compliance with the Code; with Sainsbury’s as the highest
placed of the big four (also for the fourth year in a row).
Tacon added: “I am also pleased to report that suppliers
are recognising that Tesco is continuing to improve; as is
Morrisons, following a step change in its engagement with
suppliers.”
Delay in payments continues to be the issue of highest
concern to suppliers and remains in the current category in the
Adjudicator’s Top 5 along with forecasting and linked to this
the issue of promotions. Tacon said: “One of the key areas
where delay in payments manifests itself is in incorrect
deductions from invoices with or without notice, with 32% of
suppliers reporting this as an issue in this year’s survey. While
this is down from 46% in 2014, this shows me that there is still
work to be done in this area and I am right to maintain this as
one of my Top 5 issues.”
Download the GCA Annual Survey Results 2017 (PDF)
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Supermarkets Planning To
Use ‘Surge Pricing’ Systems A number of the UK’s biggest retailers are working on plans to
install ‘surge pricing’ systems in their stores which allow
prices on-shelf to rise and fall depending on demand.
Report said that Tesco, Sainsbury’s and Morrisons are
planning to replace paper price tags on shelves in some stores
with electronic labels, which will let them change prices
several times a day at the click of a button.
The technology, which is already commonplace in Europe
and the US, lets shops react to events a during a day. For
example, they can remove offers on sought-after items such ice
creams and chilled drinks during heatwaves and sandwiches
at lunchtime.
Andrew Dark, Chief Executive at electronic pricing firm
Displaydata, told The Telegraph that demand for the such
systems among UK retailers is starting to “go beserk”.
He added: “This kind of technology will be dominant in the
UK within two years and within five years it will be rare to see
a paper price tag. Paper tags often show the wrong prices as
they have to be manually replaced by staff when prices move,
but electronic labels can be updated in just 20 seconds.
“At present supermarkets are only able to act on around
20% of the price changes their computer systems recommend,
but this is about to change.”
Meanwhile, Roy Horgon, director at Markethub, another e-
pricing firm, said that shops can improve their profit margins
by up to 3% by using the technology, mainly as a result of
reducing the amount of waste created by stock left at the end
of the day.
Spokespersons for Sainsbury’s, Tesco and Morrisons
confirmed that they are trialling electronic shelf edge labels
and would be reviewing customer feedback before deciding on
a wider roll-out.
NAM IMPLICATIONS:
▪ An essential step forward in terms of facilitating the
implementation of revenue management on shelf.
▪ Given the benefits of retail price optimisation for
retailers and suppliers…
▪ Issue becomes: who pays?
UK Grocery Industry Reels
From Shock Of Amazon’s
Takeover Of Whole Foods Shockwaves from the news that Amazon has agreed to a
$13.7bn deal to acquire US chain Whole Foods Market spread
to the UK grocery market last month. The day after the deal
was announced, over £1.5bn was wiped off the value shares in
the leading supermarkets as analysts warned the move will
have major ramifications for the whole industry.
Commenting on the share price falls, Chris Beauchamp,
market analyst at IG, said: “If we thought the supermarkets in
the UK had trouble with the emergence of the German
discounters, it is as nothing compared to the ramifications of
Amazon’s expansion into grocery.”
The only supermarket to escape damage to its share price
was Morrisons as investors remembered the chain had its own
tie-up with Amazon. “Whole Foods has just nine stores in the
UK so the impact on Morrisons should not be too significant,
and if anything could support Morrisons if it signals how
Amazon might be able to help it grow market share,” said Neil
Wilson at ETX Capital.
Ocado’s share price was also boosted as City analysts
speculated that it could benefit from the deal. Whilst Ocado is
unlikely to be an acquisition target in the short term, the
group’s advanced technology and supply chain systems could
now prove more attractive. Some analysts suggested that
Amazon might look to link up with Ocado, whilst others think
that US grocery chains could decide to use Ocado’s technology
platform in a bid to compete with Amazon.
Meanwhile, industry analysts gave their opinions on the
deal and what it could mean for grocery market in the longer
term. Fraser McKevitt, Head of Retail and Consumer Insight at
Kantar Worldpanel, said: “Amazon is committed to cracking
the grocery market, and a business like Whole Foods brings
with it many of the crucial ingredients the e-commerce giant
has been missing in its other forays into food and drink. The
power of a physical presence on the high street to grow a
brand’s reputation and credibility is particularly important in
grocery, where consumers want to be able to see the quality of
the items they’re buying first hand.
“Bricks and mortar stores will also allow Amazon to
expand its options for ordering, pick-up and delivery. More
broadly, as a well-established retailer focused on the lucrative
health and wellness market within grocery, Whole Foods is
perfectly positioned to give Amazon a crash course in how
food retailing really works on the ground.”
Harsha Wickremasinghe, Associate at Livingstone
Partners, commented: “This is the clearest indication that
Amazon intends to be a serious player in grocery retail – and
is a significant wake-up call for grocery retailers in the North
America and the UK. It also highlights that Amazon clearly
believes that in order to achieve long-term success in the
grocery category, it is essential to have a bricks & mortar
presence.”
He added: “It is widely known that Amazon has been
scouting for prime-Central London locations as part of its
move into grocery retail in the UK. Exactly 12 months since
the launch of Amazon Fresh in the UK, and in one fell-swoop,
the online giant will now have nine supermarkets in the UK –
seven of which are London-based. Whole Foods’ proposition
also has an excellent fit with the typical London-based Amazon
Prime Customer. The UK grocers have downplayed Amazon’s
impact on their sector to date, but this latest move should have
them genuinely looking over their shoulder.”
NAM IMPLICATIONS:
▪ Amazon’s main contribution to Whole Foods will be in
back office functions.
▪ While upmarket positioning will cover online costs.
▪ As a basis for further acquisitions in the UK (Morrisons)…
▪ Apart from a little extra Amazonian buying muscle.
NamNews │ July 2017 │ 14 www.kamci ty.com
UK & IRELAND NEWS
OTHER TOP STORIES Click for
details
Booths Bolsters Management Team Following
Departure Of Chief Exec
Iceland Joins Bink Loyalty Scheme
Market Share Of Supermarkets Shrinking Across The
Globe
CONVENIENCE
Appleby Westward Planning
Major Product Cull To Focus
On Growth Areas Appleby Westward, the SPAR wholesaler for the south west of
England, has revealed that it is planning to cull around 2,000
ambient SKUs from its store ranges this year.
The move is part of a major range review which will see
the introduction of more SPAR own label products alongside
the introduction of lines that target younger and more health-
conscious shoppers. This will include protein and free-from
products, key growth areas in the food sector.
Speaking at the company’s annual trade show in Exeter
last month, Appleby Westward’s Managing Director Mike
Boardman said: “You can do an awful look by just tweaking the
range and making sure it is working hard.”
Boardman said retailers needed cut back the space
devoted to “non-productive and declining areas”, pointing out
that the free-from sector was now worth £772m in the grocery
market and growing at 20% year-on-year. He said that
Appleby Westward was “barely scratching the surface” when
it came to free-from products and protein was now a
mainstream sector. “We’ve got to get those ranges into store,”
he stressed.
Meanwhile, the wholesaler said it plans to get the
“minimum own label planogram” of 270 SKUs into every store.
SPAR own label currently has a 24% share, ahead of the
average 18.5% seen across all symbol groups, with Appleby
Westward hoping to raise the share to about 35% in the longer
term.
Appleby Westward will be offering retailers incentives to
stock more own label and a minimum range of protein and
free-from lines. A new rebate offer will potentially be worth
£600,000 to participating retailers over a year.
NAM IMPLICATIONS:
▪ Obvious need for suppliers to ensure that their brands
remain special.
▪ With the growth of own label a constant reminder of the
risk of complacency…
Bestway Overhauls Own
Label Offer Bestway has launched a revamped own label range to help
independent retailers compete with the multiples and
discounters.
Amid the current consumer shift towards buying more
own label grocery products, the wholesaler is replacing its
‘Best-in’ own brand, which it has used for the last 22 years,
with the new ‘Best-one’ label to tie in with its symbol group.
The new design will initially be introduced to 150
bestselling lines, including biscuits, soft drinks, snacks and
grocery staples, with another 150 changing over by the end of
the year. Bestway stressed that every product has been
reformulated to offer better quality with packaging
highlighting the benefits of each product, such as being a good
source of fibre or protein.
The group is also planning to launch a new premium range
called ‘Best-one Inspired’, which will available from August
and consist of an initial 15 lines, including all-butter cookies,
fruit conserves, and pesto.
Ed Smeaton, Director of Trading for grocery at Bestway
Wholesale, said: “Shoppers now trust own label as much as
they do branded products and are looking for both quality and
value.”
Bestway will run 40% PoR promotions in July and further
offers for its retail club members.
“The main thing for our customers is that we provide
quality products with great margins and highly-competitive
prices that allow them to compete with other channels such as
multiples and discounters,” added Smeaton.
NAM IMPLICATIONS:
▪ Shoppers buy the 4 Ps…Product, Price, Promotion and
Place.
▪ And if own label delivers the same for less, brands lose
out.
▪ Only options being to lower brand price or eliminate
quality deficiencies.
▪ Good branding trains the consumer to be more savvy in
terms of ability to evaluate differences in products/
brands.
▪ It follows that brands, having set the pace, stay in front.
Sainsbury’s Trying To Win
Over Disgruntled Nisa
Members Sainsbury’s £130m takeover offer for Nisa Retail has not been
well received by independent retailers with the supermarket
group said to be offering a number of sweeteners to win their
support.
Reports last month revealed that Sainsbury’s had entered
exclusive talks with the convenience store group as it moves
to counter Tesco’s planned £3.7bn takeover of
Booker. However, the potential deal is said to have sparked
NamNews │ July 2017 │ 15 www.kamci ty.com
UK & IRELAND NEWS
fury amongst a large number of Nisa members who want the
business to remain a mutual.
More than 30 members of the Nisa group have reportedly
pooled their shares to cross the 5% threshold needed to call a
vote on future of the group’s Chief Executive Nick Read.
According to The Sunday Times, the shopkeepers want to
throw out Read, blaming him for opening the door to a
takeover and possibly selling the business short.
However, a source close to Nisa told the newspaper that
the decision to hold sale talks was taken by the whole board,
chaired by Peter Hartley. The source described the threat of
an extraordinary meeting as “pure mischief making from a
small group”, with Hartley quoted as saying that he could not
see “any merit” in a vote.
Nisa is a £1.3bn turnover business currently owned by
around 1,300 registered members that operate over 3,000
independent convenience stores across the UK. All members
own shares in the business and will have a final vote on any
deal. Each own between one and 250 shares out of almost
60,000 in total with Sainsbury’s believed to have offered
£2,500 per share.
One long-term Nisa member told The Guardian last month:
“The deal for one share is not going to get people excited. The
devil will be in the detail, but giving up our sovereignty is a big
issue for independents.” Another said: “If we take our
independence away, we are inadvertently creating a cartel.
There will be nobody else there but the big four … Every single
supply route will be corporately owned.”
Two prior takeover attempts from Costcutter to acquire
Nisa were blocked by members. However, analysts have
suggested that given the increased competition in the sector,
some shopkeepers may now agree to a deal that secures them
support from one of the largest retailers in the country.
Sainsbury’s is reported to be offering a number of
sweeteners to win support for its offer. This includes giving
members staggered payments over three years if they remain
with Nisa. They will also be able to choose whether to remain
fully independent and have an enhanced range of own label
food products or the ability to stock Sainsbury’s own brand
ranges if they can demonstrate high store standards.
Harj Dhasee, who owns a store in Mickleton,
Gloucestershire, told The Guardian that a tie-up with
Sainsbury’s could offer opportunities: “On a personal level,
running a Sainsbury’s Local franchise would be a game
changer for me, because for consumers it’s all about brand
loyalty and recognition. If the Tesco/Booker merger happens,
they will have all the volume, and the whole industry works on
sales volumes.”
NAM IMPLICATIONS:
▪ The issue is reduced profitability and thereby insufficient
ROCE…
▪ …the door then opens for radical solutions, including
takeover i.e. we have gone way beyond blaming the
CEO.
▪ Best to hope for a good price and take the money…
▪ Meanwhile, suppliers have to decide how long they wait
for resolution before taking their long-term strategies
elsewhere.
Profits Improve At Nisa Amid the talk of Sainsbury’s acquiring the business, Nisa Retail
has reported year-end results showing that its recovery over
the last year had continued with a strong rise in profits.
During the 52 weeks ended 2 April 2017, the group’s
EBITDA came in above target, up 17.8% to £8.6m. Meanwhile,
pre-tax profit was £2.8m, recovering from a loss of £5.4m the
previous year, helped by a reduction in exceptional costs.
However, total sales edged down 2.6% to £1.25bn, with
the group partly blaming the loss of business from the failed
My Local chain. Like-for-like sales were also down 1.5% as a
result of “competitive pressure and price investment”.
However, some of the decrease was mitigated by an
increase in sales to new businesses with Nisa recruiting 515
new stores compared to 476 the year before. Much of this
growth was driven by two large contract wins; namely the 298
stores McColl’s Retail acquired from the Co-op and the 47
stores acquired from the Bourne Leisure estate.
The group also pointed to the strong performance of its
Heritage own label range, with produce sales up 4.9% overall,
which included a 45.1% jump in chilled vegetables and 62.4%
increase in sales of loose salads.
Nick Read, CEO of Nisa Retail, commented: “The uplift in
performance throughout FY17 continued to build on the
foundations laid in FY16, when Nisa returned to profitable
growth. It has also helped us to convey a message of long term
sustainability, key to securing the confidence of our banking
partners in our recent refinancing discussions.”
Read also confirmed that following a number of enquiries
from interested parties, the Nisa Board has been weighing up
the merits of a possible offer for the company. Sainsbury’s is
believed to have seen off offers from the likes of the Co-op and
Morrisons.
Read said: “Should that party wish to make a formal offer
for the company, the Board will at that stage determine
whether it is appropriate for this offer to be put to members.
It will then be for the members to determine whether or not
they wish to accept the offer.”
NAM IMPLICATIONS:
▪ Whilst the turnaround continues, the issue has to be
whether members are prepared to demutualise in the
face of continuing market pressures.
▪ In other words, take a cash payment for their shares
and possibly continue as shop-managers under the
Sainsbury’s umbrella.
▪ Meanwhile, suppliers have to prepare for a period (one
year) of instability in their dealings with both companies.
One Stop Launches More
Extensive Own Label Range The Tesco-owned One Stop chain is relaunching its own label
range with the introduction of more products to give shoppers
a much broader choice.
All the new products will be One Stop-branded with a
refreshed pack design. The range will include bigger pack
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UK & IRELAND NEWS
sizes, along with more chilled fresh meat and produce lines, all
at a “competitive retail price” with better margins for retailers.
The range will feature around 330 lines and will be
launched in two phases. Phase one, comprising chilled food,
meat and produce will launch in the middle of this month.
Phase two, comprising grocery, impulse, cake, frozen and
grocery non-food, will launch at the end of October.
The range features a “contemporary look and feel” and is
being supported by a marketing campaign focused on the
message ‘you’ll love the change’. One Stop said this will enable
it to talk about “all the amazing product stories” in the new
range, when it reduces the price of products, increases the
pack size, improves the quality of products, plus the sourcing
of many of the products from UK suppliers.
The new range will be supported with new POS, fixtures
and shelving to showcase the increased offer and range.
Tracey Clements, Managing Director for Tesco
Convenience and Chief Executive of One Stop, said: “All of our
customer insight, colleague and franchise feedback over the
past couple of years has said that we need to get a better,
broader own label range to meet the needs of our customers.
Well, we have listened and developed a range that every
colleague, franchisee and customer will love.”
NAM IMPLICATIONS:
▪ Shoppers buy the 4 Ps…Product, Price, Promotion and
Place.
▪ And if own label delivers the same for less, brands lose
out.
▪ Only options being to lower brand price or eliminate
quality deficiencies.
▪ Good branding trains the consumer to be more savvy in
terms of ability to evaluate differences in products/
brands.
▪ It follows that brands, having set the pace, stay in front.
OTHER TOP STORIES Click for
details
Applegreen Makes Forecourt Acquisition In The US
New CFO Appointed At Applegreen
Central Convenience Stores Hits 110 Outlets
Co-op’s Chief Digital Officer To Depart
Blakemore Launches Innovative New SPAR Outlet
WHOLESALERS
Booker’s Q1 Sales Boosted By
Good Weather Booker has reported robust first quarter trading figures,
boosted by the good weather and a late Easter. During the 12
weeks to 16 June, the wholesaler’s group sales rose by 4% with
like-for-likes up 4.2%.
Non-tobacco sales grew by 9.6% on a like-for-like basis,
although tobacco sales continued to be adversely impacted by
changes in tobacco legislation and plummeted 7.9%.
The group said it had been a solid quarter for customer
satisfaction and cash profit, with the performance of Booker
Direct, Chef Direct, Ritter, and Booker India meeting its
expectations. It added that its Premier symbol chain continued
to grow and it was making “good progress” with Budgens and
Londis.
Chief Executive Charles Wilson said it had been a “good
quarter” for Booker. He added that that “business as usual is
going well” as it went through the competition process for the
planned Tesco deal.
NAM IMPLICATIONS:
▪ Good that Booker are managing to ‘ignore’ the potential
distractions of the CMA investigation.
▪ Revealing possible opportunities for suppliers in
appropriate categories to lengthen their strategic
planning cycles.
▪ Whilst allowing for the fact that the Tesco takeover may
not go ahead.
Parfetts Warns Tesco-Booker
Deal Will Have ‘Very Severe’
Consequences North-west independent wholesaler Parfetts has become the
latest player in the market to warn against Tesco being
allowed to acquire Booker.
Whilst Tesco has played down concerns that the deal will
harm competition, Parfetts’ Chairman Steve Parfett said that
Booker has a significant amount of control over the products
stocked in its independent stores. As a result, he believes
Tesco’s suggestion that its acquisition of Booker would have
no implications for competition in the market is wrong.
Speaking to MLex, he stressed that the takeover would
have “very severe” consequences for the retail and wholesale
grocery markets in the coming years. He added it would be
“incredibly disruptive” because other supermarkets would
respond by pursuing other wholesalers.
Parfetts, which owns six cash & carry warehouses across
the north of England supplying thousands of independent
stores, has been in touch with the CMA to voice its
concerns. Parfett told MLex that he believed competition
officials had failed over the years to tackle the market power
held by the big four supermarkets, allowing them to receive
significantly better terms on the products they bought from
suppliers. He said that if Tesco’s acquisition of Booker is
allowed to go ahead, Booker would then gain those
preferential rates.
Parfett added that he thought that within five or 10 years,
the UK grocery market would become almost entirely
controlled by the big four grocers, the Co-op, and Aldi and Lidl.
NamNews │ July 2017 │ 17 www.kamci ty.com
UK & IRELAND NEWS
NAM IMPLICATIONS:
▪ Preferential rates for Booker says it all…
▪ Hopefully the CMA factor in the implications…
OTHER TOP STORIES Click for
details
Dhamecha Foods Set To Open Its 9th Depot By End Of
Year
Landmark Wholesale Launches Summer Promotion
FOODSERVICE
& HOSPITALITY
Private Equity Firm Eyeing
1,000 Pubs Run By Admiral
Taverns Patron Capital Partners, the private equity firm which is in the
processing of buying 1,400 pubs owned by Punch Taverns, has
reportedly made a bid to acquire Admiral Taverns.
Admiral operates an estate of around 1,000,
predominantly wet-led, pubs across the UK. According to Sky
News, Patron Capital Partners is among a number of parties
which have tabled offers to buy the business.
The report added that the auction of Admiral, which has
been owned by US private investment firm Cerberus since
2013, is at an early stage and the identities of the other bidders
was unclear.
Patron Capital Partners is currently in the process of
concluding a joint takeover with Heineken of Punch, which has
a portfolio of more than 3,300 pubs. Under their plans,
Heineken will take control of 1,900 sites, with Patron
acquiring the remaining 1,400.
NAM IMPLICATIONS:
▪ The combined deals would give Patron Capital Partners
control of 9% of the UK’s 50,000 pubs.
- A significant player in that route to market...
- On the back of a financially driven approach...
- Has to mean increased market concentration.
▪ Time for a re-jig of your on-trade strategies?
Tim Hortons Appoints Exec
From Costa To Support
Expansion In The UK Tim Hortons, the Canadian café and bake shop that recently
entered the UK, has announced the appointment of Kevin
Hydes as its new UK Chief Finance & Commercial Officer. He
will oversee the group’s business strategy, brand execution
and development in the UK.
Tim Hortons opened its first British and European
restaurant on Argyle Street in Glasgow last month, with plans
to roll out the business to cities nationwide over the coming
year.
The group said that Hydes is charged with delivering a
concept that is unique to the UK market and places an equal
emphasis on freshly-prepared food and on “great value” coffee.
Hydes previously spent 11 years at Costa Coffee,
overseeing the marketing function in the UK during chain’s
significant period of growth a few years ago. More recently, he
held the role of International & Brand Development Director.
Gopi Dhaliwal, COO Tim Hortons UK and Ireland,
commented: “Kevin brings an enormous wealth of experience
from his time at Costa Coffee, and his expertise of quickly
scaling food and drink retail brands will be vital to our long-
term ambitions in Great Britain.”
NAM IMPLICATIONS:
▪ In other words, look back on the growth of Costa…
▪ ...for pointers on first-try moves by Tim Hortons UK and
Ireland.
Subway To Open Another 500
Outlets Sandwich chain Subway has announced that it is planning to
open another 500 stores in the UK and Ireland by 2020 as its
pushes to capitalise on the strong growth in the food-to-go
market.
The openings will take its store count to over 3,000 with
the group also in the process of overhauling its current stores
and revamping its menu. The expansion plans are expected to
create around 5,000 new jobs.
Foodservice Market Slows New research from The NPD Group shows that the British Out
of Home (OOH) foodservice market has slowed since the Brexit
referendum result in June last year.
While visits after the referendum (10-month period July
2016 to April 2017) were still up 0.7% over the equivalent
period a year earlier, this is slower than the 1.5% visit growth
seen in the period before the referendum (six months Jan to
June 2016 compared to same period the year before).
Visit growth to quick-service restaurants (QSR) slipped
marginally. QSR was registering pre-referendum visit growth
of 2.2% but this has now fallen to 1.9%. Full-service
restaurants – the most expensive foodservice channel – saw
the most noticeable slowdown from 3% down to 2%.
Cyril Lavenant, Foodservice Director UK at the NPD Group,
warned of further big challenges ahead for the sector. He said:
“The weakness of sterling means foodservice operators will
have to replace global sourcing with local sourcing while
ensuring they still get the quality they need.”
He added that rising inflation is likely to dampen demand
for eating out, whilst tighter immigration rules could make
harder for operators to hire staff.
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UK & IRELAND NEWS
NAM IMPLICATIONS:
▪ The challenges above, coupled with Brexit uncertainty,
means having to focus on relative competitive appeal.
▪ Meaning, with any growth coming at the expense of
competition, focus on - and optimise - competitive
advantage.
▪ And food service is no exception…
Foodservice Price Inflation
Climbs To Highest Point In
Nearly Nine Years The latest edition of the CGA Prestige Foodservice Price Index
reveals that inflation in wholesale foodservice hit 9% in May,
its highest point in nearly nine years.
CGA’s report stated that an increase in the farm gate price
of milk, low stocks and a rise in global demand have all fuelled
a sharp rise in dairy prices, where inflation is 9.9% year on
year. Inflation in the fruit category was even higher at 12.7%,
with the weak pound substantially pushing up the costs of
items imported from around the world. Poor weather and
disease in some key fruit growing regions of the UK and
Europe have reduced stocks and pushed prices up further.
GCA said that many other macro factors have added to
inflationary pressures in foodservice, including UK political
uncertainty surrounding Brexit negotiations and the General
Election, and fluctuating oil prices.
Although there are signs that inflation in some food items
may start to ease, the figures from the latest CGA Prestige
Foodservice Price Index continue a sharp upswing in costs for
the sector in 2017. The report said that the widening gap
between the rate of inflation here and in the Consumer Price
Index emphasises the need for foodservice businesses to seek
expert independent help with their procurement and pricing
strategies.
Christopher Clare, Head of Consulting & Insight at Prestige
Purchasing, commented: “There are few places to hide from
the increased costs we are seeing flow through to operators –
we would always recommend though, that operators test the
competitiveness of their pricing in the marketplace and fully
understand the justification for any increases.”
NAM IMPLICATIONS:
▪ Fact is, with prices rising, demand falls…
▪ Meaning real competitive advantage presents the only
growth option.
OTHER TOP STORIES Click for
details
HelloFresh UK Appoints Claire Davenport As CEO
Heineken Makes Offer To Allay CMA’s Punch
Competition Concerns
Greene King Posts Robust Year End Results But Warns
Of Difficult Times Ahead
Good Weather Boosts Sales At J D Wetherspoon Pubs
Pub Group Young’s Benefits From Good Weather
Whitbread Makes Good Start To The Year
GENERAL
B&M Continues Its Strong
Growth B&M has revealed another period of strong sales growth,
boosted by the good weather, the later Easter, and robust
grocery sales.
Despite “challenging trading conditions”, the fast-growing
discounter saw UK like-for-like sales in its first quarter to 24
June jump 7.3%. As well as benefitting from the favourable
seasonal weather, B&M said its performance was buoyed by
strong grocery sales and the timing of Easter trading, which
fell in the quarter this year and added approximately 1% to the
headline like-for-like total.
Total UK revenues over the 13-week period increased by
17.8% to £598.4m, whilst sales at its Jawoll unit in Germany
rose 23.9% to £57.9m.
The group opened 6 net new outlets during the period,
taking its total store count in the UK to 543. B&M expects to
open between 40 and 50 new shops this financial year as it
pushes towards its recently upwardly revised UK store target
of at least 950 outlets.
Simon Arora, Chief Executive, said: “In these uncertain
times, and with inflation returning to the UK market, more and
more shoppers are actively seeking out value in our stores and
that means our business is strongly positioned to do well and
continue its rapid growth.”
NAM IMPLICATIONS:
▪ Best to view these non-mults (discounters, online, etc.)
trade moves as a fundamental, and permanent shift in
savvy consumerism.
▪ With consumers demanding demonstrable value-for-
money, and a determination to talk about their
experiences, good or bad, via social media.
▪ In other words, any brand loyalty needs to be
encouraged and preserved, at all costs.
Bunnings Doubles Scale Of
Pilot Store Programme Wesfarmers Bunnings unit has announced that it is to expand
its pilot programme in the UK, and will have 20 stores
operating by the end of 2017 – twice as many as previously
expected.
The announcement coincided with the opening of a
Bunnings Warehouse in Milton Keynes, its fourth since
acquiring the Homebase chain last year. The store, on the site
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UK & IRELAND NEWS
of a former Homebase outlet, is its largest in the UK at over
90,000 sq. ft.
The group said its decision to accelerate the store opening
programme was in response to “positive” feedback from
customers to its first pilot stores in St Albans and Hemel
Hempstead.
The company has said it plans to invest up to £500m
rolling out the Bunnings Warehouse format in the UK and
Ireland over the next three to five years.
Managing Director PJ Davis said that increasing the
number of pilot stores to 20 will give it the opportunity to test
the concept in new geographies, with different demographics,
across a range of store sizes. “The success of the pilots still
remains a precursor to additional investment,” he added.
Bunnings’ next store will be in Folkestone, Kent in July.
Following that, the Homebase stores in Thanet (Broadstairs),
Sittingbourne, Kent and Basildon Vange, Essex will be the next
to be redeveloped.
NAM IMPLICATIONS:
▪ The advantage of retail compared with supply…
▪ Put your idea on the high street and let demand
determine growth rate…
▪ Enviable…
OTHER TOP STORIES Click for
details
Debenhams Struggles In ‘Volatile’ Market
CEO Of Hamleys Stepping Down
Falling Consumer Confidence Hits Trade At John Lewis
New Head Of Buying At Majestic Wine
Another Top Exec Departs Majestic Wine
M&S Using Laser Technology To Reduce Packaging
Waste
Sales Decline Continues At M&S But Showing Signs Of
Recovery
Poundland Launches Rival To Toblerone Bar
Robust Performance In WH Smith’s Travel Outlets
Offsets High Street Weakness
HEALTH & BEAUTY
Supplier Accuses Boots Of
Dictating Unfair Terms Boots has been accused of dictating unfair payment terms and
charges by one of its suppliers.
In an anonymous letter quoted by The Sunday Times, a
small supplier claims that the retailer levied a 2.5% “prompt
payment” charge on all invoices settled within 106 days. It
also said that Boots was applying a “non-compliance” charge
of £300 for small errors in paperwork or for using the wrong
type of pallet with deliveries.
Boots told the newspaper that it laid out all terms clearly
in agreements with suppliers.
Amid mounting government pressure, retailers are
starting to reduce their payment terms, particularly for
smaller suppliers that are under increasing pressure from
rising costs.
Last month, Asda slashed its payment terms for small
suppliers to 14 days as part of its efforts to “work more
effectively” with its supply base. And back in
March, Morrisons announced that it was reducing its payment
terms for smaller suppliers to a maximum of 14 days, following
similar moves by Waitrose and Tesco in the last couple of
years.
NAM IMPLICATIONS:
▪ Allegedly one small case, but part of a growing
awareness that paying within agreed terms is not the
issue from a consumer point-of-view.
▪ The issue is more about paying suppliers within a fair
period, ideally related to order-delivery cycle…
▪ …as evidenced by moves by major customers to pay
small suppliers in 14 days.
Sales At Boots Impacted By
Pharmacy Funding Changes Alongside last month’s news that Walgreens Boots Alliance
has dropped its plan to merge with US rival Rite Aid, the group
revealed third-quarter results that contained disappointing
figures for its UK operation.
In the three months to 31 May, sales at Boots in the UK fell
0.4%, impacted by recent changes to pharmacy funding.
However, like-for-like retail sales edged up 0.1%, supported
by good growth in the beauty category.
Meanwhile, the group’s Retail Pharmacy International
division, which includes Boots UK and other retail outlets
around the world, saw sales decrease 10.3% to $2.8bn,
impacted by currency fluctuations. On a constant currency
basis, sales decreased 0.2%, whilst on comparable store basis,
sales edged up 0.2%.
The unit’s operating profit fell 36.3% to $142m, while
adjusted operating income decreased 25.2% to $193m, down
14% on a constant currency basis.
NAM IMPLICATIONS:
▪ For more on Pharmacy Funding cuts – see here.
▪ Whilst the retail sales performance could be said to
reflect market conditions, the 14% (constant currency)
drop in operating income is more serious.
▪ Meaning Boots could be open to initiatives focused on
bottom line improvement.
NamNews │ July 2017 │ 20 www.kamci ty.com
UK & IRELAND NEWS
Boots Seeing Strong Growth
In Ireland The Irish arm of Boots saw robust growth last year, boosted by
new store openings and good trading in existing outlets.
Figures show that pre-tax profits at Boots Retail (Ireland)
jumped 27% to €25.7m in the 12 months to the end of August.
Revenues at the health & beauty chain also increased by 15%
to €367m, supported by the opening of four new stores.
A directors statement in the accounts said: “The company
delivered strong performance in the financial year as a result
of new store openings in the current and prior period, good
retail trading, partially offset by lower disbursement rates.”
At the end of August last year, Boots Ireland operated 84
stores. However, it has since opened three more stores.
The company’s online operation also enjoyed good growth
with boots.ie receiving an average of 526,000 visits per month
compared to 349,000 visits per month in 2015.
NAM IMPLICATIONS:
▪ Only issue will be cross border differences especially
given fall in sterling.
▪ Meanwhile, Boots Ireland optimising the market
dynamics within brands and generics.
Holland & Barrett Sold To L1
Retail For £1.77bn Holland & Barrett is being bought by L1 Retail, an investment
fund backed by Russian billionaire Mikhail Fridman.
L1 Retail, which is the retail investment arm of the
tycoon’s LetterOne holding company, is paying £1.77bn for the
1,150-strong chain of health & wellness stores. It is being sold
by private equity firm Carlyle which bought Holland & Barrett
as part of the purchase of its US parent company NBTY
(Nature’s Bounty) back in 2010.
The transaction is expected to close by September this
year, subject to regulatory approvals.
Commenting on the acquisition, L1 Retail’s Managing
Partner Stephan DuCharme said: “We believe that the
company is well positioned to benefit from structural growth
in the growing £10bn health and wellness market and has
multiple levers for long term growth and value creation.”
Holland & Barrett’s annual revenues in 2016 exceeded
£610m, with the business having recorded 32 consecutive
quarters of like-for-like growth. In recent years, the group has
been investing in new store openings, its online platform and
expansion overseas.
The purchase is the first by L1 Retail, which was set up last
year with the aim of investing $3bn in a small number of retail
businesses with strong growth potential. Its investment team
is led by DuCharme, and supported by an Advisory Board of
internationally renowned retail executives – Karl-Heinz
Holland (a former Chief Executive of Lidl), Clive Humby (one
of the founders of dunnhumby), and John Walden (the former
Chief Executive of the Home Retail Group).
Strong Year For Superdrug
And Savers Superdrug and Savers, the health & beauty chains owned by
A.S. Watson, have both posted exceptionally strong trading
figures for their last year.
During the 53 weeks to 31 December 2016, total sales at
Superdrug’s 789 outlets rose 10.4% to £1.2bn with like-for-
like growth of 7.8%. Meanwhile, pre-tax profits jumped 41%
to £80.4m, boosted by store expansion
Inspired by celebrities, Superdrug said sales of cosmetics
soared 14%, with it grabbing 30% of the market. Sales of
health and wellbeing products rose 12%, bolstered by diet and
fitness ranges.
Superdrug opened 23 new stores during the year and
invested £33m in store revamps, converting a further six
outlets to its Wellbeing format. Meanwhile, the group’s online
unit also performed well with sales up over 60%.
Over the same period, sister chain Savers saw its pre-tax
profits jump 24.8% to £36.3m on total sales up 15% to
£416.7m, benefitting from a significant jump in store numbers.
Operating profits at value-oriented health & beauty chain
climbed 28% to £38.7m with margins improving from 8.4% to
9.3% after costs were “well controlled”.
Like-for-like sales rose a healthy 6.9%, although this was
down on the 8.1% growth seen in the previous year.
A total of 45 new Savers outlets were opened during the
period, of which 12 were conversions of former Superdrug
sites. The company also closed five sites which meant it ended
the year with 383 shops.
In notes accompanying the accounts, Savers’ management
said that the EU referendum result had “created uncertainty
regarding future consumer sentiment and demand” and led to
upward pressure on costs due to the devaluation of sterling.
They added that the business was “planning strategies to
mitigate the impact of inflation and to maintain its strong price
perception on the High Street”.
Meanwhile, the two chains’ parent company, A.S.
Watson, revealed that it was stepping up its expansion in the
UK despite the slowdown in the retail market caused by Brexit
uncertainty and rising prices.
The group plans to create more than 1,000 jobs across the
UK with the opening of 30 more Superdrug stores, 45 Savers
outlets and 13 The Perfume Shop sites.
Dominic Lai, A.S. Watson’s Managing Director, said: “We
are under a lot of pressure, with Brexit uncertainty and
sterling going down, but we will continue to invest in the UK.”
NAM IMPLICATIONS:
▪ Contrast this with the growth in the mults and Boots
over the same period!
▪ If your brands followed suit, perhaps worth considering
how your initiatives at Superdrug and Savers affected
the result…
▪ …and perhaps replicating as appropriate in other
retailers?
NamNews │ July 2017 │ 21 www.kamci ty.com
UK & IRELAND NEWS
OTHER TOP STORIES Click for
details
AAH Appointed Solus Wholesale Partner For Derma
L’Oréal Signs Contract To Offload The Body Shop
Pharmadose Purchases Aramada Pharmacy Group
E-COMMERCE
eBay Takes On Amazon And
High Street Giants With New
Price Match Guarantee eBay has announced the launch a new price-match guarantee
on its UK site, in a challenge to retailers such as Amazon, John
Lewis and Tesco.
Launching later this month, the guarantee will cover
prices for new items included in its ‘Deals Programme’. eBay
promises that it will have the best price available of six major
online retailers – Amazon.co.uk, Currys.co.uk, Johnlewis.com,
Argos.co.uk, Tesco.com and Asda.com. If not, eBay will match
the lower price of that competitor.
Rob Hattrell, Vice President of eBay in the UK, said: “We
are confident in the strength of our deals already. But we’re
giving our customers that confidence by also matching the
price of our competitors.”
NAM IMPLICATIONS:
▪ Patently, as online matures, so the customary marketing
moves will apply.
▪ …and be used by pure-play and traditional retailers
alike.
▪ With an increasingly savvy consumer keeping all players
on their toes.
Higher Costs Hit Profits At
Ocado; To Benefit From
Amazon’s Whole Foods Deal Ocado has reported another good rise in order volumes and
revenues, although its first half profits shrunk due to higher
costs.
For the 26 weeks ended 28 May, the online grocer’s retail
revenue increased 12.5% to £659.6m with order volumes
growing by 15.6% to an average of 260,000 per
week. However, average basket size value declined by 1.4% to
£108.45, impacted by the uptake of its Ocado Smart Pass offer
and reduced multi-buy promotions.
EBITDA edged up 2.7% to £45.2m after a gross margin
increase, driven by a reduction in promotional activity and
improved operating efficiencies, was offset by cost inflation,
the impact from the opening of its new distribution facility in
Andover, and investment in its platform. Pre-tax profit
plummeted 18% to £7.7m as a result of “higher depreciation”
from the Andover opening.
Meanwhile, having recently signed up its first overseas
client for its Ocado Smart Platform (OSP) technology and
services, Ocado revealed it was having other conversations
with “multiple retailers” about future contracts. Whilst
analysts have suggested that Amazon’s expansion into the
grocery market poses a significant threat to Ocado, the group
said that the online giant’s recent acquisition of Whole Foods
will be a “positive catalyst” in advancing its tie-ups with other
retailers.
Ocado added that had begun testing a first store-pick
solution with Morrisons and was continuing to build new
facilities in the UK “in order to meet the increasing demand we
see”.
Tim Steiner, Chief Executive Officer of Ocado, said: “As the
channel shift to online advances we continue to gain share in a
competitive UK market. We expect the trend for grocery
shopping online to continue as consumers become more tech
savvy and gain confidence in the online services available.
Ocado will be a natural beneficiary of that trend thanks to its
industry-leading customer offer.”
NAM IMPLICATIONS:
▪ While its mainstream business continues to grow,
Amazon-Whole Foods move provides opportunities to
allow mults to leap-frog online barriers via Ocado…
▪ …attracting further investment in the process.
▪ Making it important for suppliers to climb aboard the
Ocado train…
▪ Or risk the delays and costs of doing it themselves.
Grocery Suppliers Need To
Upskill To Capitalise On
Online Opportunity A recent report suggesting one in seven Britons are doing all
of their food shopping online could have major implications
for the UK’s grocery suppliers and manufacturers wanting to
capitalise on this sales growth opportunity.
This is according to category and shopper management
specialist Bridgethorne, who believe that manufacturers need
to upskill their sales, category and marketing teams to ensure
they are well equipped to capitalise on this developing online
opportunity.
The comments come following the recent publication of
a report from Mintel, which suggested that the proportion of
households doing all of their grocery shopping online has
doubled since 2014. The report said the number of Brits
shopping purely online has risen from 7% to 14%, with 48%
doing at least some grocery shopping online, up from 43%.
Nick Kirby, eCommerce Director at Bridgethorne, says that
grocery manufacturers and suppliers will need to look hard at
their trade investment and marketing budgets to ensure that
they have a balance in spend across all channels and that they
are investing substantially enough to engage and attract new
shoppers and convert them to purchase where they are
conducting their shopping.
NamNews │ July 2017 │ 22 www.kamci ty.com
UK & IRELAND NEWS
“With a rise in the number of grocery shoppers only
engaging with brands when conducting an online shop, it is
becoming even more important to optimise digital shelf
activation and amplify online communication using the right
messages at the right point of the online shopper journey,” said
Kirby.
“With shoppers switching between channels – for
example, supermarkets to discounters – to complement their
online purchasing, it is essential that manufacturers have
winning channel strategies in place that are both effective in
their own right, as well as allowing for a seamless omni-
channel shopping experience.”
Getting online right, though, could also have a benefit for
bricks and mortar stores, with other research showing that up
to 70% of in-store sales are influenced by an online retailer
search – the so-called ‘e-commerce halo effect’. Kirby adds
that FMCG suppliers need to be addressing their online
strategy because it influences the shopping experience across
all channels not just online.
NAM IMPLICATIONS:
▪ In other words, with online grocery becoming
mainstream, it is time to regard online as a ‘new
traditional shop’…
▪ …and try ALL the tools…
▪ The channel will soon reveal what works.
OTHER TOP STORIES Click for
details
Amazon Expands Dash Button To 20 More Brands
New Study Finds Strong Correlation Between A
Product’s Number Of Online Reviews And Sales
Ocado Announces Winner Of Britain’s Next Top
Supplier Competition
IRELAND
Aldi Revamping Stores Aldi has revealed that it is investing €60m in revamping its
stores in Ireland, a move that will see a significant expansion
in the selection of fresh foods.
With Ireland’s post-recession consumer demanding
higher quality local foods, the discounter’s ‘Project Fresh’
strategy will see it increase chiller space in its 129 outlets by
up to 40%. Fresh produce departments are being moved to the
front of all its stores, whilst in-store bakeries are being trialled
in a number of outlets.
Aldi’s stores in Ireland will also receive a cosmetic
makeover under Project Fresh, with new signage and the
elimination of signs hanging from the ceilings to reduce the
appearance of clutter.
Giles Hurley, Managing Director for Ireland and the UK,
told the Irish Times that the new format had already been
rolled out at a handful of stores. Larger stores in metropolitan
areas are expected to be upgraded relatively quickly, although
it could take up to five years to implement the changes across
its entire estate.
Hurley revealed that Aldi will soon expand its footprint
with new stores in Ennistymon, Trim and Leixlip. It has also
nine “target locations” for 2018 as part of its €100m expansion
that will see it open around 20 new stores over three years.
Hurley added that Aldi has about 50 “target locations” beyond
its existing network.
NAM IMPLICATIONS:
▪ If you had built an 11% share in a retail market, would
you invest in your valuable asset?
▪ Anticipate Aldi and Lidl doing anything that sustains
current growth and penetration…
▪ And try to find safe ways of working with the
‘discounters’…
Musgrave Reports Jump In
Profits; Outlines Growth
Plans And Brexit Response Ireland’s Musgrave Group saw a strong performance in its last
financial year, recovering from a challenging period for the
business, and is now focused on growing its online and
foodservice operations.
During the 12 months to 31 December 2016, the group’s
turnover on the previous year was flat at €3.7bn, but on
constant-currency basis it increased 3.4%. Meanwhile,
excluding pension gains, pre-tax profit come in at €73m,
compared to €38.1m a year earlier from continuing operations
(excluding its UK operations sold to Booker). Group operating
profit before exceptional items jumped 71.2% to £79.6m.
The group’s SuperValu unit saw sales rise 2.4% to €2.67bn
with its focus on fresh and local food driving its performance.
Sales in its Centra convenience division rose 3% to €1.59bn,
supported by its ongoing ‘Live Every Day’ programme.
Chris Martin, Musgrave’s Chief Executive, said the group
had benefited from “a clear focus on cost reduction and the
delivery of a transformation programme” which began in 2014
to turn around the business and return it to growth following
the country’s lengthy recession.
He added that while the business was performing well to
date in 2017, the group remained cautious as a result of the
uncertainty caused by Brexit and its potential to slow growth
in the Irish grocery retail sector.
Whilst stressing that the Irish economy was now in a much
stronger position than before, Martin said: “For food, there are
challenges. The reality of a hard Brexit will mean tariffs and
those tariffs will impact goods as they come from the UK to
Ireland.”
He added: “We want to protect the consumer as much as
possible from any impact of tariffs. For home-grown products,
there is an opportunity for (Irish) suppliers to step in and
service the Irish market. That shouldn’t be forgotten. It’s not
all doom and gloom.”
NamNews │ July 2017 │ 23 www.kamci ty.com
UK & IRELAND NEWS
Meanwhile, the company is focused on growing its
business in a number of key areas with online food sales seen
as a major opportunity given that the Irish retail market is
relatively underdeveloped in this channel.
Martin said: “We’re absolutely embracing online shopping.
I would say we are leading in many respects. Online is clearly
running away in the non-food sector like textiles and
electricals. In food, it has been different. If you look around
the world, the market with the biggest penetration of online is
the UK which is around 6%-7% of the total grocery spend. In
Ireland, we are around 1.5%.
“What we saw last year is that our online grew by about
22%. So far this year, it has grown by around 24%. We’re
investing heavily.”
Martin added SuperValu’s venture into the Chinese market
was still just “a toe in the water” and it remained to be seen
how much growth was possible. Earlier this year, Musgrave
began selling a number of SuperValu own brand products in
China’s via local online shopping giant Alibaba. However,
Martin said the group was is examining how to introduce its
export business to the Middle East, and it has had discussions
with other platform operators in China.
Musgrave is also eyeing further expansion by supplying
Ireland’s growing restaurant scene. Martin said the group
would look at any acquisitions that were available in the
wholesale and food supply sectors, following its buyouts of CJ
O’Loughlin and wholesale operations from DCC in recent
years.
The group recently launched its Chipmonger operation in
greater Dublin which provides independently-owned chip
shops with a brand, who in turn buy their stock from
Musgrave. This is now operating with three chip shops but
Martin said it hoped to roll Chipmonger out to 30 outlets by
the end of the year.
NAM IMPLICATION:
▪ Time to ensure that you plan and execute collaborative
moves aimed at achieving your fair share of Musgrave
growth.
Calls For Reduction In VAT A body that represents retailers in Ireland is calling for VAT to
be reduced by 3% to help offset the effects of Brexit, Sterling’s
devaluation and the consumer shift towards online shopping.
Retail Excellence said Brexit is already damaging the Irish
retail sector. The group’s spokesperson Lorraine Higgins said
the current 23% rate of VAT in Ireland was introduced as an
emergency measure, and that it is time for it to be reduced.
She added: “At the moment we’re advised to compete with
England. Then you factor into the equation sterling
devaluation and increased competition in the UK.”
NAM IMPLICATIONS:
▪ Dropping VAT to 20% means a gap in the Irish budget
that needs refilling elsewhere…
▪ Unwise to hold your breath.
Tesco Gaining Ground In
Growing Irish Grocery Market The latest grocery market share figures from Kantar
Worldpanel in Ireland for the 12 weeks ending 18 June 2017
show the highest market growth (+3.5%) since January 2017,
with Tesco holding onto second spot and gaining ground on
the market leader.
The latest figures reflect the impact of Easter on
consumers and retailers alike, with the holiday falling outside
of the comparable time period in 2016. Price deflation, which
held steady at -0.2%, was offset by an increase in overall
volume sales of 4.6%. Cora Campbell, consumer insight
director at Kantar Worldpanel, commented that while average
pack prices are down, shoppers are choosing to take advantage
of this recent period of deflation by adding more items to their
baskets per trip, driving the market’s overall growth.
She added: “In the face of continuing competition the
major retailers’ investment in developing and improving their
own brand lines is paying off. Overall sales of private label
goods are up by 4.2% and they now account for 54% of grocery
spend – the highest proportion since March this year.”
Among the retailers, SuperValu’s lead over Tesco
narrowed to 0.2 percentage points. Tesco grew ahead of the
market, at 3.8%, although Dunnes Stores remained the
strongest growing retailer, increasing value sales by 4.5%.
Meanwhile, Lidl and Aldi both enjoyed a goof performance,
holding their market share at 11.7% and 11.2% respectively.
OTHER TOP STORIES Click for
details
Lidl Continues Expansion In Ireland
UK Still Offers Significant Potential For Irish Food &
Drink Firms
Retail Ireland Concerned About Disparity Between
Retail Sales Volumes And Value
NamNews │ July 2017 │ 24 www.kamci ty.com
UK & IRELAND NEWS
MANUFACTURERS
Gü Puds And Richmond
Sausages Cut Pack Sizes Due
To Rising Costs Gü Puds and Richmond sausages have become the latest
manufacturers to reduce the size of their products, whilst
keeping prices the same – a move widely dubbed as
‘shrinkflation’.
According to a report by trade magazine The Grocer, Noble
Foods has reduced the weights of its Gü twin-packs of
individual cheesecakes and pies, by almost 17% in one
instance. A Gü spokeswoman is quoted as saying the move
was down to “a sustained rise in the cost of core ingredients”.
She added: “As opposed to passing these costs on to Gü
customers, or compromising on quality, a few of our puds have
seen a small change in the weight so we can maintain our
current RRP. This decision has been a last-case scenario for
us, as we pride ourselves on consistency.”
Meanwhile, packs of Richmond sausages have also been
reduced. The Grocer found that the brand’s owner Kerry
Foods has cut the pack size of Richmond Thick Sausages from
16 sausages to 14 with the price remaining the same.
Meanwhile, 28¬-packs have been reduced to 24 sausages.
A spokesperson for Kerry Foods is quoted as saying the
move was in response to the “long-term rise in the price of
pork”, adding: “We have previously absorbed these rising
commodity costs internally. However, this decision was taken
to continue to offer the high quality and value that is expected
of our brands.”
NAM IMPLICATIONS:
▪ Explanations apart, the consumer perceives and receives
less for the same price.
▪ Thereby reducing the relative competitive appeal of the
brand vs competitors that have not changed their
offering.
GSK To Sell MaxiNutrition GlaxoSmithKline (GSK) is reportedly looking to offload its
MaxiNutrition division, which sells sports nutrition products
under the Maximuscle brand.
GSK acquired MaxiNutrition in 2010 for £162m, tapping
into the growing health food market. According to Sky News,
the group’s new Chief Executive, Emma Walmsley, wants to
sell the business and has hired professional services firm EY to
handle the process. Names of potentially interested buyers is
unclear, as is the asking price.
NAM IMPLICATIONS:
▪ This would make an interesting acquisition for an
Amazonian online player wishing to disrupt another
category…
▪ Meanwhile, an appropriate what-if might prove insightful
for other members of the sports nutrition category.
Kallø Secures Contract To
Supply NHS Food Outlets Kallø, the natural food brand owned by Wessanen UK, has
secured a major new deal that will see a selection of its single-
serve snacks made available to all NHS Trust cafés and shops.
With its focus natural ingredients, Kallø said its range had
met the NHS Commissioning for Quality and Innovation
(CQUIN) guidelines which aim to help improve the health and
wellbeing of staff and patients. Across the country, retail
outlets owned by the NHS Trusts will now be able to order
select Kallø products from the NHS supply chain.
In recent years, the NHS has been making a concerted
effort to make the food offering in hospitals healthier as part
of the government’s wider drive to reduce obesity levels in the
UK. Back in April, the NHS announced that retailers operating
in its hospitals will be banned from selling sugary drinks next
year unless action is taken to drastically reduce sales of such
products.
NAM IMPLICATIONS:
▪ A little overdue, but a welcome step
▪ Time to complete the move by opening access to
qualified products and brands.
Nestlé Commits To Cutting
Sugar Content In UK Cereals Nestlé is continuing its drive to make its product portfolio
healthier but committing to reduce average sugar content
across its UK cereal range by 10% before the end of 2018.
The food giant said the change to the products that are
made by Cereal Partners Worldwide (UK) will result in around
225 million fewer teaspoons of sugar in the nation’s diet.
Nestlé stated that the changes will be achieved through a
combination of reformulation and by growing the share of
lower sugar variants. Since 2010, Nestlé Breakfast Cereals in
the UK has already reduced its average sugar content by 15%
across the portfolio.
Gharry Eccles, UK Regional Vice President of Cereal
Partners Worldwide said: “Offering consumers healthier and
tastier cereals is one of our top priorities and we are
determined to make breakfast even better for everyone.”
Amid government pressure to help tackle the UK’s obesity
crisis, food and drink manufacturers have been reformulating
their products to make them healthier. Nestlé has been cutting
sugar content across a host of its iconic brands in recent
months including Milkybar, KitKat and Rowntree’s.
NAM IMPLICATIONS:
▪ Unless competing cereal suppliers follow suit, Nestlé
have to grow at their expense.
▪ Providing reduced sugar content truly reflects national
taste…
▪ On balance, however, we are all headed the same way.
▪ In other words, sugar (and salt) consumption are on the
way down, only issue being how far and how soon…
NamNews │ July 2017 │ 25 www.kamci ty.com
UK & IRELAND NEWS
Premier Foods Plays Down
Sale Rumours Premier Foods has played down a report by the Wall Street
Journal that said it had hired advisers to review future options
for the business that could include the sale of one or more of
its major brands, a merger with a rival food group, or an
outright sale.
The review comes amid a flurry of recent activity in FMCG
sector concerning the likes of Nestlé, Reckitt Benckiser and
Unilever.
Premier issued a statement noting the comments in the
press regarding a review of options for the group. It added: “In
line with good corporate governance, the group regularly
reviews options to deliver value for all its stakeholders. These
reviews are carried out in the ordinary course of business as
part of the group’s standard planning cycle and also on ad hoc
bases, and may involve external advisors.
“The Board has made no changes to its strategy since the
strategic update communicated in our preliminary results
announcement on 16 May 2017.”
Back in May, Premier said that it would now be focusing
more of its efforts on cash generation and cost efficiencies
after reporting a fall in annual sales amid “challenging” trading
conditions. Last year, Premier rejected a takeover bid from US
group McCormick Foods.
NAM IMPLICATIONS:
▪ Whatever the outcome, each option raises issues for its
competitors.
▪ Suppliers need to conduct what ifs on each option and
scope out the resulting competitive landscape in each
case…
▪ …and revisit their trade and marketing strategies.
Cyber Attack Impacts Trading
At Reckitt Benckiser Reckitt Benckiser (RB) has revealed that the cyber-attack at
the end of June, which hit it and dozens of other global firms,
significantly impacted its trading activities and will lead to it
reporting a fall in quarterly sales.
In a statement, RB said it had made good progress in
getting key applications and systems back on track since the
attack on the 27 June so it can start trading normally with its
customers and partners.
However, the group admitted that the ‘Petya’ malware
attack had disrupted its ability to manufacture and distribute
products to customers in multiple markets. Consequently, it
was unable to ship and invoice some orders to customers prior
to the close of its latest quarter.
As a result, the manufacturer said it expected like-for-like
sales to fall by 2% in its second quarter. It added that sales
growth would have been flat had it not been for the attack and
a separate problem in India, where the implementation of a
new Goods and Services Tax (GST) had resulted in reduced
orders from some of its customers during June.
The group said it expected that some of the revenue lost
from Q2 would be recovered in Q3. However, continued
production difficulties in some of its factories meant that it
also expects to lose some further revenue permanently. RB
now expects full year like-for-like net revenue growth of
around +2% (previously +3%).
RB’s second quarter ended on 30 June and the company is
due to report its half year results on 24 July.
NAM IMPLICATIONS:
▪ A reminder that in a fast moving market, lost sales can
be non-recoverable…
▪ Whatever the cause…
▪ A pointer for all…
Seabrook Crisps Agrees
Contract To Supply Aldi Bradford-based Seabrook Crisps has secured a contract to
supply its products to Aldi’s 470+ stores in Australia.
After being acquired by private equity firm LDC back in
2015, the fast-growing snack manufacturer has been focused
on growing its export activities. It has already agreed to export
deals with Lulu Hypermarket in the UAE, Monoprix in France,
7-Eleven in China, and Carrefour in Spain.
Marketing and international sales director, Kevin
Butterworth, said: “Successful exporting requires long-term
commitment. Securing the latest retail deal with Aldi in
Australia keeps us on target to achieve 4% revenue in exports
by April 2018, two years from our first export sale in April
2016, and our medium-term aim to achieve 10% revenue
within five years.”
NAM IMPLICATIONS:
▪ Key will be Seabrook’s ability to deepen penetration of
these retailers in other countries.
▪ i.e. 7-Eleven in in other parts of SE Asia, Carrefour in
France, and Aldi everywhere…
▪ Time for other members of the categories to conduct
some appropriate what-ifs on competitive impact…
Tayto Acquires Another
Vending Machine Firm The Northern Ireland-based crisp maker Tayto has acquired
West Country Vending Service, its second purchase of a
vending machine company this year following its takeover of
Freedom Refreshments back in April.
As with the previous deal, Tayto’s affiliate company, the
Montagu Group, made the purchase of the £11m-turnover
company. West Country Vending Service manages and
outsources vending machines, as well as selling them to a
range of customers in various sectors.
The deal provides Tayto, which owns brands such as
Golden Wonder and Mr Porky, with access to 5,300 vending
machines operating across the South West of England and
South Wales.
NamNews │ July 2017 │ 26 www.kamci ty.com
UK & IRELAND NEWS
NAM IMPLICATIONS:
▪ Tayto NI not to be confused with Tayto Ireland, a
separate brand.
▪ Either way, Tayto is now the No.3 crisp & snack business
in the UK.
▪ This continuing growth via acquisition needs watching
within the category, especially in terms of relative
competitive appeal.
Leading FMCG Manufacturers
Struggling For Growth The world’s top 50 FMCG firms saw their organic growth
slump further in 2016, down from 3.4% to 2.6%, with overall
revenue growth turning negative.
This is according to OC&C Strategy Consultants’ annual
Global 50 Index report in collaboration with The Grocer, which
examines the financial performance of the world’s 50 largest
consumer goods companies such as Nestlé, P&G, Diageo and
PepsiCo. It shows that the top 50 consumer goods giants have
lost eight percentage points of sales growth in just five years
(from 7.3% gain in 2011 to a drop of -0.7% in 2016).
Net profit last year was up 18.8% from 16.6% annual
growth in the previous year, although most of this was due to
exceptional gains.
With organic revenue growth at historic lows and
companies under pressure from activist shareholders to boost
margins, mergers and acquisitions (M&A) activity had become
a critical source of growth among the leading firms in recent
years. However, the study suggests that political uncertainty
caused by the UK’s EU referendum, populist parties gaining
ground across Europe and the US presidential election, has
depressed deal-making in the sector.
M&A activity among the top 50 consumer goods giants fell
sharply from US$226bn in 2015 to US$50bn in 2016. The
decline last year comes after a bumper year for M&A in 2015
and brings deal value to its lowest level since 2011, less than
half the ten-year average (average annual deal value between
2006 – 2015: US$108bn).
Will Hayllar, Partner at OC&C Strategy Consultants,
commented: “The bottom fell out of consumer goods M&A in
2016, and political uncertainty has undoubtedly played a
significant part in this. With the Global 50 struggling to find
growth and under increasing pressure to boost margins,
there’s more reason than ever for M&A activity – be that
acquisitions to access growth segments in their categories like
premium and natural or consolidation to drive profitability.
Clearly, events across Europe and the US made many cautious
of pulling the M&A trigger in 2016.
“However, we’ve already seen green shoots in the first half
of 2017 with M&A beginning to recover across the sector as
businesses adjust to the new political norms.”
NAM IMPLICATIONS:
▪ Having gathered the M&A low-hanging fruit, major
companies are now having to rely on real organic growth
to maintain their independence of the stock market.
▪ In the apparent absence of such growth, another stop-
gap has to be redefinition of core business and sell-off of
non-core assets.
▪ In such conditions, most growth comes at the expense
of the competition.
▪ Time for suppliers to reassess the changing competitive
landscape in a search for any competitive edge…
OTHER TOP STORIES Click for
details
Addo Food Expanding Into Foodservice Sector
Arla Boss Warns Of Price Rises And Shortages Of
Butter
Around Noon Acquires Chef In A Box
ABP Food Group To Take A 50% Stake In The Linden
Foods
AB InBev’s Marketing Director Joining Kerry Foods
Beechdean Ice Cream Group Acquires Enjays
Pancakes
BrewDog Loses Elvis Trademark Dispute
Carlsberg Acquires Craft Beer Maker In London
Coca-Cola To Double The Amount Of Recycled Plastic
In Its Bottles To 50%
Cadbury Expanding Production At Bournville Site
Diageo To Buy George Clooney’s Tequila Firm
Halewood Acquires Stake In Craft Brewer
English Tea Shop Acquires Joe’s Tea Company
Moy Park Put Up For Sale By JBS
Pladis Appoints Chief Digital Officer
Scandi Standard To Acquire Ireland’s Leading Chicken
Processor
Unilever To Acquire Cosmetics Brand Hourglass
Weetabix Appoints New Managing Director
Wyke Farms and OMSCo Extend Partnership To
Become Largest Producer of Organic Cheddar
TRADING UPDATES
2 Sisters ABF Creightons
McBride PZ Cussons Warburtons
NamNews │ July 2017 │ 27 www.kamci ty.com
INTERNATIONAL NEWS
EUROPE
AUSTRIA: Rewe Looks To
Open Smaller Merkur Stores The Rewe group has said it will look to expand its Merkur
banner across Austria by opening smaller stores.
Merkur’s current stores cover an area of around 1,800 sq.
m., but the new stores will cover an area of 1,100-1,500 sq.
m. Rewe said the new strategy will help it open stores in areas
where it does not currently have a presence, allow it to react
“more flexibly” to space constraints, and let it focus on densely
populated residential areas.
The first such compact store will open on 27 July in Kittsee
in Burgenland, with Merkur saying it sees scope for 40 more
such stores across the country. The chain currently operates
131 outlets in Austria, and aims to open seven new stores and
convert six existing ones in 2017 at an investment of €100m.
CROATIA: Agrokor To Shut
Dozens Of Konzum Stores The Agrokor conglomerate is set to shut down dozens of stores
under the Konzum banner in Croatia, due largely to the group’s
financial woes.
According to local reports, the move will see the closure of
around 80-100 Konzum outlets. No details of the number of
jobs being lost were available.
The reports said the decision was made after meeting by
Slavko Ledić, Chairman of the board, and Antom Ramljak, the
extraordinary commissioner for Agrokor. Ledić noted that the
number of stores being shut this year is more than usual given
the intense focus on profitability.
NAM IMPLICATIONS:
▪ Any non-profitable business unit will dilute group
profitability.
▪ Therefore closure is the only real option if cost-cutting or
scale purchasing fails…
▪ …better to cut & run before the creditors do it on your
behalf.
▪ Meanwhile, suppliers need to scale down contracts
accordingly.
CYPRUS: SPAR Agrees Deal
To Enter Market SPAR International has formed a new partnership with local
firm Ermes Department Stores, which will see the SPAR brand
enter the Cyprus market.
The new entity, SPAR Cyprus, aims to open its first stores
in the first quarter of 2018, with a target of more than 20
supermarkets in the next five years. It said the stores will be a
mix of company-owned greenfield outlets (to be developed by
Ermes) as well as independent retailer conversions to the
SPAR banner.
SPAR International will provide support in terms of retail
layout and design, own brand product procurement, retail
staff training and development, supply chain optimisation,
retail location assessment, project management, retail
operations, and brand building marketing campaigns.
Ermes is the leading retail company in Cyprus in the
apparel, cosmetics, DIY, and electronics sectors, operating
more than 90 retail shops, with over 75,000 sq. m. of retail
space.
DENMARK: Dansk Offers More
Details Of Netto Expansion Dansk Supermarked is planning to introduce more Netto-
branded stores across Denmark in the next few months, as it
continues to expand the banner.
The group said it will open more than 60 such stores, and
will hire up to 900 new staff for the move. It plans to open
three to four new stores each week, starting August.
The openings will include the former Kiwi stores which it
has acquired from Dagrofa, which will be rebranded to the
Netto banner. Dansk noted: “We had already set up an
ambitious plan to manage the next store openings, which was
revised after the acquisition of the Kiwi stores”.
NAM IMPLICATIONS:
▪ If you not listed in Netto, perhaps these 60 new stores
are a good place to start, given a need by all suppliers to
find a way of working with the discounters.
▪ If you are already listed, you will have already submitted
proposals to optimise the enlarged estate?
FINLAND: Kesko, Oriola Offer
New Details Of JV The Kesko and Oriola groups have revealed more details of
their health & beauty joint venture, the formation of which was
announced earlier this year.
The JV has been approved by Finland’s Competition and
Consumer Authority, and the establishment of the company
has now been finalised, with both groups holding a 50% stake.
The companies said the first phase will see them invest
€25m and open 100 physical stores and an online store in
Finland, with 15 stores set to open by end-2017. The new
chain is expected to create 1,000 new jobs, and will also offer
pharmaceuticals if the country’s legislation is amended. The
name and concept of the chain will be announced in the next
few months, with the first stores set to open in the autumn.
Kesko noted: “Together with Oriola we will build a leading
health, beauty and wellbeing chain that Finns can trust. Kesko
has extensive experience in the grocery trade and a strong K
consumer brand. Oriola, for its part, is a highly valued
distributor of health and wellbeing products and an expert in
the pharmaceutical sector.”
NAM IMPLICATIONS:
▪ It could just work.
▪ And suppliers have three months to make a play…
NamNews │ July 2017 │ 28 www.kamci ty.com
INTERNATIONAL NEWS
FINLAND: Kesko Sells Off
More Non-Food Units Kesko continues to scale down its non-food operations, this
time announcing the sale of its Indoor Group subsidiary.
The unit, which operates the Asko and Sotka furniture
trade chains, is being bought by a consortium for €67m.
Indoor Group operated 98 stores across Finland and Estonia
under the two banners, and generated net sales of €187m and
operating profit of €9.8m in 2016.
Kesko noted that it’s “strategic objective is to achieve
growth in the Finnish grocery trade, growth and expansion
within the building and technical trade in Europe as well as
growth in the car trade. The divestment of Indoor Group is a
coherent step in the implementation of Kesko’s strategy”.
The group expects to record a profit of €15m once the deal
is completed, which will take place by end-June 2017.
NAM IMPLICATIONS:
▪ Only issue for Indoor suppliers might be possible prices
and terms disparities under new ownership…
▪ Best act now to eliminate he obvious, or await he call
from the buyer...?
FINLAND: S Group To Buy
Stockmann Grocery Business The Stockmann group has announced a deal to sell its grocery
business to the S Group in a deal worth €27m.
The ‘Delicatessen’ business operates standalone stores in
several Finnish cities, as well as shop-in-shops at Stockmann
department stores in the Baltic countries, and the Delicatessen
kitchen that prepares own label Meals for Stockmann. The
business generated €127m in revenue during 2016, but
reported an operating loss of €11m.
Stockmann said the deal will boost its profitability,
adding: “Changes particularly in the food procurement and
logistics market in Finland have affected Stockmann
Delicatessen’s competitiveness”.
The S Group said it aims to improve its range of products
and quality of service, adding: “Our goal is to develop the
Delicatessen stores into S Group’s flagship stores.”
The deal will see the existing ‘Delicatessen’ stores being
transferred to the S Group’s regional cooperatives. The stores
in Helsinki, Tapiola and in the Itis and Jumbo shopping centres
will be transferred to HOK-Elanto; the stores in Turku and
Tampere will be transferred to the respective Regional
Cooperatives; and the kitchen will be transferred to Meira
Nova, a subsidiary of SOK. The operations in the Baltic
department stores will remain with Stockmann.
NAM IMPLICATIONS:
▪ In other words, a fairly smooth transition…
▪ Worth a try?
FRANCE: Costco Opens First
Store Costco has formally become operational in France after its first
store in the country opened its doors.
The opening of the outlet on 22 June, located in Villebon-
sur-Yvette, made France the third European country where the
US giant has a presence (after Spain and the UK). Costco has
previously said it aims to have 10-12 stores operational locally
within a decade.
According to local reports, the outlet stocks around 3,800
SKUs, of which 500 are luxury brands. However, the reports
also noted that Costco has only signed up 16,000 members so
far, having expected around 30,000 by now.
NAM IMPLICATIONS:
▪ Either way, a no-brainer…
▪ Anticipate 10 stores and submit product/brand initiatives
now.
▪ Or let your competitors show you how.
FRANCE: Intermarché Parent
To Acquire Bricorama Groupement Les Mousquetaires, the parent of Intermarché,
has announced that it is set to acquire DIY chain Bricorama.
The deal will add Bricorama’s 164 stores to Les
Mousquetaires’ Bricocash, and Bricomarché banners, creating
the third-largest DIY group in France with a 14% share of the
market (overtaking Mr Bricolage). The deal will also include
Bricorama’s stores in Spain, as well as its Asian sourcing office.
Les Mousquetaires said the combined new entity would
“be in a better position to stay the course of development in a
highly competitive market, respond to the challenges of online
commerce and offer an always improved service to its
customers”.
The deal is subject to regulatory approval.
NAM IMPLICATIONS:
▪ The DIY game has just changed gear in France.
▪ Think about it, how would you play it if you were
Intermarché?
FRANCE: Picard Continues To
Rejig Strategy The Picard frozen food chain is continuing to introduce
changes across its store network, as part of the ‘Plan 2020’
strategy (launched in 2015).
According to a report in Les Echos, the chain is currently
trialling an in-store catering facility, which allows customers
to heat the frozen meals they have purchased in a microwave
(for a fee of €2). The report says the service is popular with
students and young people, and has prompted Picard to extend
the facility to 20 more stores.
Picard also reportedly plans to open 25 new stores in
France in 2017, and will also keep more of its stores stay open
NamNews │ July 2017 │ 29 www.kamci ty.com
INTERNATIONAL NEWS
for longer (until 8:30pm or 9pm). The report noted that the
chain has recorded sales growth of up to 15% at stores where
the extended hours have been implemented.
NAM IMPLICATIONS:
▪ Why charge?
▪ i.e. build the cooking cost partly into the price and really
see it go…
GERMANY: Aldi Nord Set For
Major New Investment Aldi Nord is reportedly planning to invest more than €5bn on
its global operations, as it looks to revamp its existing stores.
According to local weekly Bild am Sonntagm, which cited
unnamed sources, the investment will be Aldi Nord’s largest
ever. The programme, nicknamed ‘Aniko’, is set to begin in
autumn 2017.
The report added that the group will finance the spending
from existing cash reserves, instead of taking on new
debt. However, the paper also noted that the strategy needs
the approval of one remaining foundation that controls Aldi.
Aldi has not commented on the report.
NAM IMPLICATIONS:
▪ If you were growing at Aldi’s rate, €5bn would seem
worthwhile…
▪ In other words, key to find non-compromising ways of
working with Aldi and Lidl.
GERMANY: Edeka Launches
Platform For Supplier
Startups Edeka has formally unveiled a new platform that looks to
connect FMCG startups directly with its retailers.
The cooperative giant has been trialling the ‘FoodStarter’
platform for some time, and offers new manufacturers to
connect directly with the around 4,000 retailers who are part
of its network. The portal allows the startups to feature their
products, as long as they are non-refrigerated and
transportable.
Any interested Edeka retailers can contact the companies
directly and request samples, which are then sold on a trial
basis at the individual stores. Following this, the retailers offer
feedback on issues such as pack sizes, prices, and shelf
placements.
The move offers suppliers a quicker path to market, while
individual retailers get the chance to distinguish themselves
from rivals by introducing new products quicker, and
customers benefit from a more varied product offer.
NAM IMPLICATIONS:
▪ A great way of accessing blue-skies innovation.
▪ Know any good startups?
GERMANY: Rewe In New
Online Moves Rewe unveiled two new online moves in June, as it looks to
fend off growing competition from the likes of Amazon.
First, the group began trials of an online marketplace
platform that offers products from third-party partners and
cover categories such as food, cosmetics, household items, and
kitchen supplies. Rewe, which already offers online shopping
in Germany, intends the platform to serve as a “one-stop shop
for customers”.
The initial phase will see Rewe offer its own label and
branded products, as well as those from five partners, which
will be available to select customers. More partners will be
added gradually, as the service is offered to more customers.
Later, the group launched an online store for its Penny
discount banner, the first such webshop for the brand. The
Penny-Onlineshop.de site offers largely non-food items across
categories such as household, garden & DIY, electronics,
cooking, and sports. It also offers wines and spirits, but no
food or grocery items are included.
The store is accessible by shoppers in Germany, and there
is no minimum order requirement. The orders are delivered
via DHL (within Germany only) for a shipping fee of €4.95.
NAM IMPLICATIONS:
▪ All the logical ingredients that allow roll-out.
▪ Anticipate a fully comprehensive online service…
▪ …and make your approaches now.
ITALY: Esselunga Receives
€7.5bn Buyout Bid Esselunga, the fourth-largest grocer in Italy, has reportedly
received a formal expression of interest from Chinese group
Yida International.
According to local daily la Repubblica, Yida has offered
around €7.5bn for the group, far higher than the €6bn
reported offer by private equity giants Blackstone and CVC
Capital Partners in September 2016.
However, the sale of the group is unlikely to be smooth,
given the reported differences between the heirs of founder
Bernardo Caprotti, who died last year. In his will, Caprotti is
said to have recommended that his heirs sell Esselunga as he
believed they would not be equal to the task of operating the
group. However, daughter Marina Caprotti (who holds a 70%
stake along with her mother Giuliana Albera) is now believed
to be keen on keeping Esselunga in family hands.
Neither Esselunga nor Yida have commented on the
report.
NAM IMPLICATIONS:
▪ A period of uncertainty ahead as the family weigh the
two alternatives of sale or continuing as-is…
▪ Causing suppliers to move to short-term mode until the
uncertainty is resolved…
▪ Leaving the top three competitors to grow at the
expense of Esselunga…
NamNews │ July 2017 │ 30 www.kamci ty.com
INTERNATIONAL NEWS
ITALY: TuoDi Reportedly Up
For Sale A new report has claimed that the Dico TuoDì discount
supermarket chain has been put up for sale, as it continues to
struggle in the country’s tough retail market.
According to local daily Il Sole 24 Ore, shareholders have
now given a mandate to Rothschild and lawyer Roberto
Cappelli to find a buyer for a part or all of the company. The
report comes on the back of a similar report earlier in the year.
Dico TuoDì operates 400 stores across Italy and has sales
of around €600m annually. However, it also racked up losses
of around €90m in the 2013-15 fiscal years, and is said to have
debts of €350m.
NAM IMPLICATIONS:
▪ Time for TuoDi NAMs to reassess their exposure to the
retailer…
▪ …and to calculate the incremental sales required
elsewhere in the market should the worst happen….
▪ i.e. Divide your current TuoDi debtor position by your
net margin and multiply by 100.
POLAND: EC Rules Against
Local Retail Tax The European Commission has once again ruled against the
Polish government’s retail tax, reiterating that the latter was
in violation of EU aid laws.
The law introduced a three-tiered tax and was approved
by the Polish parliament in July 2016. It came into force on 1
September 2016 but was suspended after the EU launched an
investigation.
The EC noted that the tax would “give companies with a
lower turnover an unfair economic advantage. Smaller
companies should of course pay less tax than their larger
competitors in absolute terms, but still in the same proportion
to their turnover. Poland has not demonstrated that the
progressivity of the retail tax was justified by the objective of
the retail tax to raise revenues, or that companies subject to
the higher rates would have a higher ability to pay.”
The EC noted that it did not “question Poland’s right to
decide on its taxation systems or on the objective of different
taxes and levies”, but merely wanted the tax system to “comply
with EU law, including state aid rules”.
The Polish government said it would review the latest
verdict.
NAM IMPLICATION:
▪ It’s called sovereignty, folks.
RUSSIA: Ban On EU Food
Imports Extended Yet Again The Russian government has extended a ban on imports of
perishable food products from the European Union, the US,
and several other countries.
The list of banned food imports includes meat, fish, dairy,
fruit, and vegetables. The embargo was first imposed in
August 2014 in response to sanctions related to the Crimea
crisis. It was extended until August 2016, then end-2017, and
has now been extended until 31 December 2018.
The decision follows the EU’s extension of its own
sanctions. Russian President Vladimir Putin has said the
import ban will be lifted as soon as the economic sanctions by
the West are lifted.
NAM IMPLICATION:
▪ Meanwhile…?
RUSSIA: Magnit Begins Trial
Of Pharmacy Banner Magnit, Russia’s second-largest retailer, has announced the
formal launch of a new pharmacy banner in the country.
The group said it has opened four trial outlets under the
‘Magnit Apteka’ banner in Krasnodar. The stores are located
within its existing hypermarkets and neighbourhood stores.
Magnit said the outlets stock an average of around 3,500
SKUs, and besides medicines and medical devices, also offer
products in the skin care, beauty, nutrition, and sanitary
categories.
Magnit did not say how many more stores it plans to open,
or when, under the banner.
NAM IMPLICATIONS:
▪ A low risk trial whose success will determine rate of
expansion.
▪ Worth anticipating a branch in every Magnit store, and
climbing aboard now?
SPAIN: Amazon Extends DIA
Tie-Up Amazon and DIA continue to expand their fledgling
partnership in Spain, with their tie-up moving into new areas.
The initial deal saw customers of the Amazon Prime Now
service in Madrid receiving access to select Plaza de Dia
products. The service has now been extended to Prime Now
customers in Barcelona and surrounding areas, with around
5,300 DIA products available.
The orders will be prepared in a store dedicated
exclusively to the service, with local reports saying it covers
1,800 sq. m. and employs 30 staff.
NAM IMPLICATIONS:
▪ Easier for suppliers to climb aboard now…
▪ …rather than await the inevitable move by a competitor.
SPAIN: Mercadona Set To
Revamp Online Approach Mercadona has introduced a new strategy to drive its online
sales, with the launch of the ‘Mercadona Tech’ platform.
NamNews │ July 2017 │ 31 www.kamci ty.com
INTERNATIONAL NEWS
The grocery giant said it has “finally decided to bet on
online sales”, adding that the upcoming site will be part of its
aim to “reinvent the way we buy food”. Online sales currently
account for just 1% of Mercadona’s total sales .
The company said it wants to “create a simple and
intuitive experience for our customers and also seek logistics
efficiency through technology.” Mercadona already has team
of 20 people working on the platform, but is looking for
additional engineers, product managers and design experts.
NAM IMPLICATIONS:
▪ It is all about the following (Amazon) entry standards:
1-click ordering
Infinite selection (Amazon 300m products)
No quibble returns, as easy as ordering
Delivery within 24 hours
▪ Otherwise don’t bother…
THE NETHERLANDS: Ahold In
Talks With AH Franchisees
Regarding Innovation Ahold Delhaize has been holding talks with several franchisees
of its Albert Heijn banner, with an intention of launching new
pilots to drive growth.
According to a Distrifood report, the ‘inline’ pilots aim to
combine elements of the banner’s online and physical
strengths. The report cited a company spokesperson, who
said the move was prompted due to shifts in customer
behaviour. The spokesperson added: “A number of
franchisees have indeed responded positively and would like
to start the inline pilot together with us.”
The move comes even as Albert Heijn and its franchisees
remain in conflict over the former’s direct online activities,
which the franchisees say affect their business.
NAM IMPLICATIONS:
▪ Suppliers need to ensure that any ‘franchisee
cannibalisation’ charges are directed at the retailer
rather than the supplier brand.
▪ In other words, suppliers need to check their own
compatibilities across different routes to consumer.
THE NETHERLANDS: Sligro
Confirms Offer For Emté The Sligro Food Group has confirmed that it has received a
takeover offer for its Emté supermarket banner, adding that it
has turned down the same.
The group was responding to media reports which said
that Jumbo Supermarkten had made a joint bid (with an
unnamed partner) for the 131-store banner. The reports
stated the offer price was sufficiently high enough to be
“difficult for Sligro to let go”, without a specific amount being
disclosed.
In response, Sligro said it had received a “non-binding,
conditional” bid, but said it had decided this was “not an
opportune moment for bids of this kind”. Sligro said it had
“made this known to the interested parties”.
The group also said it will present its previously-
announced review of Emté on 20 July, adding that it is “keeping
all options open, although we would clearly prefer not to
dispose of any activities”.
NAM IMPLICATIONS:
▪ But if the price is right?
▪ Time for a ‘what if’ on a sale?
▪ And a small adjustment to your trade strategies?
OTHER TOP STORIES Click for
details
EUROPE: Metro Group Names New Country Heads For
Cash & Carry Unit
FINLAND: Kesko Reports Success Of ‘vege shelf’
FRANCE: A.S. Watson Appoints New Head At Local
Marionnaud Unit
FRANCE: Auchan Uses Reflex TMS To Optimise
Transport Operations
FRANCE: Système U Centralises More Operations
Under New Unit
GERMANY: Edeka Unveils Changes To Management
GERMANY: Rewe Unveils Own Label Reformulation
ITALY: Intervias Unveils Local Esso Station Deal
ITALY: Metro Shuts Down Local Redcoon Site
PORTUGAL: Mercadona Reportedly Begins Registering
Trademarks Locally
ROMANIA: Hornbach Set To Launch Online Store
RUSSIA: Auchan To Rename Nasha Raduga Chain
RUSSIA: O’Key Announces Familia Tie-up
RUSSIA: X5 Retail Rolls Out New Loyalty Programme
RUSSIA: X5 Retail Appoints New CFO
SPAIN: Eroski In New Lufthansa Tie-Up For Loyalty
Card
THE NETHERLANDS: Ahold Delhaize To Trial
Checkout-free Concept
THE NETHERLANDS: Albert Heijn Unveils B2B Range
THE NETHERLANDS: SPAR International Appoints New
Head Of Buying
NamNews │ July 2017 │ 32 www.kamci ty.com
INTERNATIONAL NEWS
TRADING UPDATES
Axfood Casino Casino
Celesio Colruyt Condis
Cora Coop Italia Plus
AFRICA / ASIA / AUS
AUSTRALIA: Retailers Deny
Plans To Implement ‘Surge
Pricing’ Digital Tags The major Australian grocers have denied reports that claimed
they were looking to introduce digital price tags across their
stores, which would allow so-called ‘surge pricing’.
In late June, a report by news.com.au cited industry
experts who said local grocers would implement electronic
shelf labels within five years, which could lead to
supermarkets remotely changing product prices based on
demand surges.
The report cited Brent Coker, a consumer psychologist at
the University of Melbourne, who said e-pricing would make it
easier for retailers to gather customer information and use it
to their advantage. Coker noted: “They can look at sale data
and what price a product was when it sold the most units to
consumers. E-pricing combined with inventory control
information and what’s being sold and what volume, which is
gathered through the till data, prices can be adjusted according
to the demand.”
Later reports noted that Woolworths briefly trialled the
use of LCD screens for shelf-edge pricing at one store, although
the group insisted that was to increase efficiency. A former
store manager said the move was aimed at helping “reduce the
wages and the labour it takes to put those tickets up each day
or each week, and take them down again.”
However, Woolworths told SmartCompany the company
“does not have any plans to introduce electronic pricing”, Coles
said it had “no plans” to launch digital ticket, and Aldi said: “At
this stage, we have no plans to trial or implement digital price
tags in any of our Australian stores”.
NAM IMPLICATIONS:
▪ But what if they did…?
▪ With some competitors copying the surge-price and
others making contra moves to gain advantage…
▪ Time for a few what-ifs?
AUSTRALIA: Suppliers Pick
Woolworths Over Coles After
Five Years Woolworths has topped Coles in a key supplier survey, the first
time in five years it has done so.
The UBS supplier survey saw suppliers give Woolworths a
6.7/10 rating, up 50bps, with improvements recorded in every
metric. In comparison, Coles saw its rating drop to 6.1/10,
down 60bps from the previous survey. In the latest survey,
Coles led in just one category – own label.
The survey polls 48 suppliers to supermarkets each
quarter, asking them to rate them on 26 different categories,
including morale, pricing strategy, and promotional
effectiveness.
In a note to clients, UBS analyst Ben Gilbert noted: “We
believe Woolworths is turning around faster, sales momentum
is continuing (despite tougher comparables) and Coles has yet
to formulate a strategy to regain momentum”.
Gilbert forecast that the momentum would continue until
at least Christmas 2017, and warned that Coles’ recent plans
to up spending “appears to have come six months too late, with
a competitive response (based on public statements) not
coming until early this year. We believe momentum at Coles is
unlikely to improve materially until Christmas, which will be a
key test as to who is best positioned to outperform over 2018.”
NAM IMPLICATIONS:
▪ The battle will be won in the aisles.
▪ Time for suppliers to decide which of the two retailers’
traffic profile best matches their brand profiles.
▪ And invest accordingly…
MIDDLE EAST: MAF Acquires
Regional Geant Franchise The Majid Al Futtaim group has announced the acquisition of
Retail Arabia, the franchise owner of the Geant banner across
the Middle East, for an undisclosed price.
The deal gives MAF control of 26 Geant hypermarkets and
convenience stores across Bahrain, Kuwait, and the UAE, as
well as four Gulfmart supermarkets in Bahrain.
All 30 outlets will be converted to the Carrefour banner,
establishing the French group as one of the largest grocers in
the Middle East, with 99 stores across the three countries (80
in the UAE, 11 in Bahrain, 8 in Kuwait).
Alain Bejjani, CEO of MAF Holding, added: “We are open to
further prospects, through both organic growth and
opportunistic acquisitions … Our ambition is to expand our
physical as well as our digital presence, and reinforce our
omni-channel offering.”
NAM IMPLICATIONS:
▪ Meanwhile, suppliers need to recheck any potential
prices & terms inconsistencies…
▪ …and adjust accordingly…
▪ Before the real growth begins.
NamNews │ July 2017 │ 33 www.kamci ty.com
INTERNATIONAL NEWS
HONG KONG: A.S. Watson
Unveils Expansion Plan The A.S. Watson Group has said it is aiming to open hundreds
of new outlets across the world this year, even as it unveiled
plans to invest on its technology platform over the short term.
The group said it will look to open 1,400 outlets globally
this year, including 500 in China alone. A large portion of the
stores will be in the emerging markets of Eastern Europe and
Turkey, with 60 new stores set for Hong Kong.
A.S. Watson also plans to invest HK$500m (€56m) over
the next three years to improve its technology services, boost
Big Data analysis, and in its MoneyBack reward programme.
NAM IMPLICATIONS:
▪ Worth remembering that this all started with a single
vendor selling plastic flowers on the streets of Hong
Kong back in the fifties…
▪ Don’t miss a second chance…
HONG KONG: Dairy Farm
Names Ian McLeod As CEO Dairy Farm International has announced the appointment of
Ian McLeod as its new CEO, effective 18 September 2017.
McLeod, who announced his departure as CEO of
Southeastern Grocers in the US earlier in June, will succeed
Graham Allan, who is stepping down as of 31 August after five
years in the role.
McLeod spent his early career with Asda before joining
Halfords in 2003 as Chief Executive. He then became
Managing Director of Coles in Australia in 2008, where he led
a turnaround in the group’s fortunes.
NAM IMPLICATIONS:
▪ i.e. man with interesting pedigree, going to a great
company…
▪ Watch this space…
INDIA: Amazon Receives
Approval For Food Retailing Amazon has received approval from the Indian government to
invest in the local food retailing industry.
Amazon becomes one of the first companies to receive
such an approval from the Department of Industrial Policy &
Promotion, which will allow it to set up a wholly-owned
subsidiary to sell food items directly to consumers.
The clearance offers Amazon greater end-to-end control of
its supply chain, and the company noted: “We are excited by
the government’s continued efforts to encourage FDI (foreign
direct investment) in India for a stronger food supply chain”.
Interestingly, in its application, Amazon said it planned to
sell products “through any channel, offline or online”, raising
the possibility that it may be looking at a bricks & mortar
approach down the line. The company has not commented on
that, nor has it commented on reports that it may choose to
launch an own label food range following the approval.
NAM IMPLICATION:
▪ Well, you know what that means…
INDIA: Tesco-Tata JV Unveils
New Expansion Plans Trent Hypermarket, the joint venture between Tesco and the
Tata Group, has announced plans to rapidly expand its store
network across India.
The chain currently operates 45 stores, and said it aims to
have 200 operational within two to three years. Jamshed
Daboo, MD of Trent, said around 50 of the new stores will open
in the Hyderabad region alone. He added that most of the new
growth is expected to be under its ‘Star Market’ banner, which
has mid-sized supermarkets covering an area of 8,000-10,000
sq. ft.
Daboo also said Trent is setting up a 70,000 sq. ft.
distribution centre in Hyderabad at an investment of Rs.250m,
which is expected to become operational in the next year. The
distribution centre – its third in the country – will help to
expand the chain’s own label and direct sourcing efforts.
NAM IMPLICATIONS:
▪ Forget the name…
▪ Key is the opportunity to get aboard now, before the
competition show you how…
INDIA: Tata To Acquire
GrocerMax To Support Trent? The Tata Group is reportedly set to acquire local online grocer
GrocerMax in order to support Trent Hypermarket, the
former’s joint venture with Tesco.
Launched in 2015, GrocerMax is a hybrid platform for
grocery that maintains just 10% inventory, with the rest being
sourced from stores in real time. Local media claim the two
sides are nearing a deal that will see the Tatas acquire
GrocerMax’s management team and technology infrastructure.
The reports said GrocerMax will shut down its current
operations, and instead be used to set up an online platform
for Trent in the markets where the latter operates (Western
and Southern India).
NAM IMPLICATIONS:
▪ Flexible enough to be optimised in the new Tesco-Trent
Hypermarket venture.
▪ Time for suppliers to propose initiatives now?
INDONESIA: 7-Eleven
Franchisee Shuts All Stores 7-Eleven no longer has a presence in Indonesia after country
franchisee Modern International shut down all existing stores
as of 30 June.
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INTERNATIONAL NEWS
Modern, which operated 141 outlets under the
convenience store banner, said it could no longer support
operations given its limited resources. The company had been
looking to sell to Thailand’s CP Group, but that deal fell
through earlier in June.
The first 7-Eleven store opened in Indonesia in 2009, and
at its peak in 2016, it operated 189 stores. However, Modern
began shutting down stores last year due to unprofitability,
and the company’s woes worsened after it reported a 37%
drop in sales in the first quarter of this year.
NAM IMPLICATIONS:
▪ A final departure for 7-Eleven, or a search for another
partner?
▪ Best try a couple of ‘what ifs’ and prepare accordingly…
JAPAN: Lawson Unveils Self-
Service Mini-stores In Offices Lawson Inc. has introduced a new concept in Japan, called
‘Petite Lawson’, which consists of self-serve mini c-stores in
office buildings.
The unstaffed stores offer snacks and drinks which can be
bought from automated self-checkout terminals, with the
latter only accessible using contactless payment cards. The
range of products includes convenience-store staples such as
snacks and instant noodles, with some stores featuring
refrigerators and freezers that stock chilled and frozen items.
Lawson reportedly aims to open 1,000 such outlets within
this fiscal year, mainly in urban areas.
NAM IMPLICATIONS:
▪ 1,000 sites is good…
▪ …but think of the scalability.
▪ Best to get in now, rather than allow competitors to
show you how.
MIDDLE EAST: Shinsegae To
Enter Region Via Saudi Arabia South Korea’s Shinsegae has announced a deal that will see it
enter the Middle East, through a launch in Saudi Arabia.
The conglomerate has tied up with the Fawaz Alhokair
group to launch its ‘Sugar Cup’ cosmetics banner in the
country, with the first such store opening in Riyadhi. The deal
will see Shinsegae supply products and knowledge on store
operations to Fawaz, while receiving royalty income. There
are plans to open more Sugar Cup stores in other cities, such
as Jeddah and Damman.
The move Shinsegae’s entry into Mongolia in summer
2016. The launch comes as the Middle East cosmetics market
is forecast to double in size to US$36bn (€31.6bn) by 2020.
NAM IMPLICATIONS:
▪ Add to this the Carrefour initiatives (above)…
▪ ...and decide whether you are doing enough to capitalise
on retail changes in the Middle East.
NEW ZEALAND: Woolworths
To Sell EziBuy Woolworths Ltd has announced the sale of its EziBuy fashion
and homewares chain, ending a sale process that began last
year. The Australian group is selling the local retailer to
investment firm Alceon Group for an undisclosed price.
Woolworths acquired EziBuy for NZ$350m (€225m) in
2013, but a strategic review in 2016 decided that the latter did
not fit in with the rest of its business. EziBuy has also
struggled of late, reporting a loss of NZ$15m (€9.6m) in 2016,
on sales of NZ$163m (€105m).
The Australian group noted: “Woolworths has undertaken
a comprehensive sales process to ensure the right decision
was made for EziBuy, with a buyer who has indicated a desire
to work with the team to continue to build the
business.” Alceon also owns a 49% stake in the Noni B
women’s fashion label.
NAM IMPLICATIONS:
▪ Anticipate new momentum from EziBuy via new owners…
▪ ...and renewed focus on the core business by
Woolworths.
S. AFRICA: Shoprite Targets
Woolworths Holdings With
New Checkers Strategy Shoprite Holdings has unveiled a new strategy for its
‘Checkers’ banner, which will see it try and lure away the
middle- and upper-class consumers that are the mainstay of
rival Woolworths Holdings.
Speaking to Reuters, Shoprite CEO Pieter Engelbrecht said
the group plans to open more Checkers stores in affluent areas
of the country, while increasing the quality of its convenience
food offer. He said the group will look to open 23 such stores
over the next year.
The new stores will feature a wider range of premium
foods and beverages, and will also offer more convenience
foods (with this number set to grow to 500 items by the end of
the year). The moves follow recent tie-ups with Gordon
Ramsay, spending in its supply chain and food technology, and
investment on price.
Engelbrecht said Checkers will look to highlight its lower
price point, adding: “A lot of those wealthier customers, two
million of them, actually frequent our stores already, but not
exclusively. Our job is to get a better share of their wallets
when they are in stores and then impress them so that they
come back”. He also noted: “Woolworths over time has
constantly moved the price of convenient products up and up
because they were virtually the only players in that market,
which gives us the opportunity to come in”.
NAM IMPLICATIONS:
▪ Obviously Woolworths will not sit on the sidelines.
▪ But any fight-back has to be at the expense of the
bottom line…
NamNews │ July 2017 │ 35 www.kamci ty.com
INTERNATIONAL NEWS
SINGAPORE: Alibaba Unveils
New US$1bn Stake In Lazada The Alibaba Group has expanded its stake in Lazada, the
largest online retailer in Southeast Asia, with a new US$1bn
(€878m) deal.
The move, which comes on the back of a similar US$1bn
(€878m) stake buy in 2016, will see Alibaba’s share in Lazada
grow to 83%, and values the online company at around
US$3.15bn (€2.77bn). Alibaba will pick up the stake from
existing Lazada shareholders, including Rocket Internet and
Kinnevik. The deal leaves just Alibaba, Temasek Holdings, and
current management as investors in Lazada.
Maximilian Bittner, CEO of Lazada, told Reuters: “It is a
clear signal from (Alibaba) that, now having learned the
market better, that they really believe in the opportunity of
ecommerce in southeast Asia”.
Bittner added that having Alibaba as a backer was “very
helpful”, noting: “It will be easier to take on one 800 pound
gorilla when you have the other 800 pound gorilla behind
you”.
NAM IMPLICATIONS:
▪ Time for suppliers to take their corners.
▪ i.e. remaining outside the ring is no longer an option…
OTHER TOP STORIES Click for
details
AFRICA: Carrefour Introduces ‘Market’ Format In
Ivory Coast
AUSTRALIA: Metcash Announces CEO Exit, FY Profit
Drop
AUSTRALIA: Metcash Appoints Former Tesco Exec As
New CEO
AUSTRALIA: Woolworths Reassigns Company
Veterans To Big W
CHINA: JD.com Ties Up With Farfetch For Luxury
Brands
CHINA: Startup Unveils ‘Robo-Grocery Store’ That Will
Drive To Your Door
INDIA: Amazon Pumps In More Money Locally
INDIA: Amazon Appoints New Head For B2B Platform
INDIA: Future Group Unveils Aggressive Plans For
‘Nilgiris’ Banner
JAPAN: Seven & I In Online Tie-Up With Mail-Order
Firm
THAILAND: SPAR Ties Up With DHL For Market
Expansion
AMERICAS
CANADA: Sears Canada
Declares Bankruptcy, To Shut
Some Stores Sears Canada filed for bankruptcy in June, less than two weeks
after admitting that its liquidity status had raised “material
uncertainties” as to its continued operations. The department
store chain has been granted protection under the Companies’
Creditors Arrangement Act, which gives it until 22 July to
restructure itself.
Sears said that it will use the time to try and refinance
C$450m (€310m) in debts, and will also shut down 59 of its
more than 200 stores (20 Sears, 15 Sears Home Stores, 10
Sears Outlets, and 14 Sears Hometown). The chain will also
eliminate 2,900 jobs, of which around 500 are office positions
with the rest being linked to the stores being closed.
Most recently, Eddie Lampert’s ESL Partners and
Fairholme Capital Management said they were “evaluating,
discussing and considering a potential negotiated transaction”
with Sears Canada. The two firms own about two-thirds of
Sears Canada combined.
They did not say what sort of transaction they were
considering, but added that the talks could include financing,
purchase and sale, or restructuring.
The move is the end result of years of poor results at the
chain, which has seen its sales fall from C$6.7bn (€4.6bn) in
2001 to just C$2.6bn (€1.8bn) in 2016.
NAM IMPLICATIONS:
▪ The issue for suppliers might be the extent of their
possible exposure re current credit.
▪ i.e. Divide the sum outstanding by the supplier net
margin and multiply by 100 to find the incremental sales
required by the supplier in order to recover any potential
losses.
CANADA: Walmart To
Introduce Marketplace
Concept Locally Walmart is looking to significantly expand its Canadian online
shop, by introducing its Marketplace platform in the
country. The platform, first launched in the US in 2009, offers
products from third-party sellers.
The retail giant said the move, which is expected to go live
in the next two months, will help create an “endless aisle” of
products. Lee Tappenden, CEO of Walmart Canada, told the
Financial Post daily: “We will double the SKUs we have online
at the launch date, and by early next year we will have millions
of SKUs online.”
Tappenden told the paper: “Walmart was designed based
on assortment, a one-stop shop, and this is still what it is today.
This is just making that transition to combine in store and
online.”
NamNews │ July 2017 │ 36 www.kamci ty.com
INTERNATIONAL NEWS
The Post also reported that Walmart is launching a click &
collect service in Canada, with plans to offer the same at 100
stores by Christmas 2017, and then gradually roll it out across
the entire 410-store network.
NAM IMPLICATIONS:
▪ Interesting to see how Walmart’s ‘endless aisle’
compares with Amazon’s 300m product offering…
▪ And where does that leave other online retailers…
US: Amazon Agrees Deal To
Acquire Whole Foods Market Amazon looks set to significantly ramp up its presence in the
grocery sector after announcing that it has agreed a deal to
acquire US chain Whole Foods Market.
The online giant will pay US$42 (€37m) per share in an
all-cash transaction which values the natural food retailer at
approximately US$13.7bn (€12bn), including Whole Foods’
net debt. Completion of the deal is expected in the second half
of this year, subject to approval by Whole Foods Market’s
shareholders and regulatory clearance.
Whole Foods Market generated sales of approximately
US$16bn (€14bn) last year from more than 460 stores in the
US, Canada, and the UK. However, the chain has been
struggling in recent quarters, and earlier this year unveiled
major changes while also scaling back its store expansion
plans. Its declining share price has prompted pressure from
activist investor Jana Partners, and had also led to speculation
that it could face a buyout bid from Albertsons Cos.
Whole Foods Market will continue to operate its stores
under the current brand with Mackey remaining as
CEO. Amazon also denied a Bloomberg News report that
claimed the online giant would look to reduce jobs at Whole
Foods to reduce costs.
John Mackey, co-founder and CEO of Whole Foods, noted:
“This partnership presents an opportunity to maximise value
for Whole Foods Market’s shareholders, while at the same time
extending our mission and bringing the highest quality,
experience, convenience and innovation to our customers”.
A regulatory filing later offered more details of the deal,
with Whole Foods noting that it had received interest from two
other companies and four private equity firms, although none
of them put forward a formal bid.
The filing noted that the interest began in mid-April, with
Reuters claiming that one of the parties involved was
Albertsons Cos, which proposed a merger of equals that valued
Whole Foods at US$35 and US$40 (€30.7-€35.1) per share.
At the same time, following a Bloomberg News report that
suggested Amazon had once considered making a bid for
Whole Foods, John Mackey (the latter’s CEO) discussed the
same with an unnamed external consultant. Following this
discussion, the consultant called Amazon on 21 April to
introduce the two companies, leading to a meeting on 30 April
where strategic options were discussed but no bid was made.
Whole Foods continued to reach out to other suitors
following this, which ended on 23 May, when Amazon made a
written offer for US$41 (€36) per share. The letter also noted
that Amazon “reserved the right to terminate discussions if
there was any leak or rumour of its interest” in Whole Foods.
Whole Foods decided not to pursue any other talks for
worries that the Amazon bid would leak and lead to it being
cancelled. The grocer countered with a price of US$45 (€39.5)
a share, to which Amazon made a “best and final offer” of the
current price.
Commenting the deal, Fraser McKevitt, head of retail and
consumer insight at Kantar Worldpanel, said: “Amazon is
committed to cracking the grocery market, and a business like
Whole Foods brings with it many of the crucial ingredients the
e-commerce giant has been missing in its other forays into
food and drink. The power of a physical presence on the high
street to grow a brand’s reputation and credibility is
particularly important in grocery, where consumers want to
be able to see the quality of the items they’re buying first hand.
“Bricks and mortar stores will also allow Amazon to
expand its options for ordering, pick-up and delivery. More
broadly, as a well-established retailer focused on the lucrative
health and wellness market within grocery, Whole Foods is
perfectly positioned to give Amazon a crash course in how
food retailing really works on the ground.”
NAM IMPLICATIONS:
▪ A firm foot in Bricks & Mortar food retail for Amazon…
▪ More of a challenge in terms of online execution…
▪ …but every little helps.
US: Lidl Unveils More Details
Of Market Expansion Lidl has offered more details of its plans for the US market.
The chain has opened 14 stores in the country as of early
July, and plans to have 100 stores operational by June 2018.
It also unveiled plans for a new US$100m (€87.8m) facility
in Cartersville, Georgia, which will be its fourth regional
headquarters and distribution centre in the US. The move will
create 250 new jobs over the next five years.
NAM IMPLICATIONS:
▪ In other words, the infinitely scalable Lidl model is on
the move, its potential only limited by demonstrable
demand, at a pace directly related to shopper demand.
▪ All else is detail…
US: Staples Sold To Private
Equity In US$6.9bn Deal Staples has agreed to be bought out by private equity firm
Sycamore Partners for US$6.9bn (€6.1bn), a year after its
merger with Office Depot was blocked by regulators.
The deal, which will be the largest ever retail acquisition
by Sycamore (its previous highest was the US$2.7bn (€2.4bn)
buyout of Belk), is expected to be completed by end-2017.
Shira Goodman, CEO of Staples, noted: “With the support
of Sycamore and as a private company, we will be better
equipped to continue to transform to meet changing customer
needs in an ever-evolving and competitive marketplace”.
NamNews │ July 2017 │ 37 www.kamci ty.com
INTERNATIONAL NEWS
Under Goodman, who took over recently from Ron
Sargeant, the chain has been shutting stores and overhauling
its marketing strategy. However, it continues to struggle, with
first-quarter sales down 4.9%.
NAM IMPLICATIONS:
▪ A final opportunity for Staples…
▪ In such cases anticipate cuts, sale and leaseback, and
re-flotation within five years.
▪ And adjust trade strategies accordingly.
US: Walgreens Drops Rite Aid
Merger, To Buy Stores Walgreens Boots Alliance has dropped its merger plans for the
Rite Aid chain, instead revealing a new deal to acquire
thousands of stores from its rival.
The WBA move comes after it extended the deadline for
the merger twice while waiting for the Federal Trade
Commission to issue a ruling. The termination of the deal also
includes the scrapping of the sale of certain stores to
Fred’s. As a result, WBA will pay Rite Aid a US$325m (€285m)
termination fee.
The new deal will see WBA acquire 2,186 stores, three
distribution centres, and related inventory from Rite Aid for
US$5.2bn (€4.6bn) in cash. The agreement also includes an
option for Rite Aid to become a member of WBA’s group
purchasing organisation, Walgreens Boots Alliance
Development GmbH.
The new deal is expected to attract less scrutiny from the
US regulator than the original one. WBA said it expects to
complete the initial closings within six months, following
which it will begin acquiring stores and related assets on a
phased basis, and convert them gradually to the Walgreens
brand.
WBA said the deal will be modestly accretive to its
adjusted diluted net earnings per share in the first full year
after the initial closing of the new transaction, and expects to
realise synergies of more than US$400m (€351m) within three
to four years of the initial closing, primarily through
procurement, cost savings and other operational matters.
Stefano Pessina, CEO of Walgreens Boots, said the deal
“will allow us to expand and optimise our retail pharmacy
network in key markets in the US, including the Northeast, and
provide customers and patients with greater access to
convenient, affordable care.”
NAM IMPLICATIONS:
▪ Purchasing 2,186 stores from a total of 4,621, and
presumably those least likely to raise competition
issues…
▪ …allows WBA many of the advantages of takeover,
without the possibility of further delays by the
authorities.
▪ In other words, WBA build extra buying muscle
(especially if Rite Aid exercise their option to join the
WBA purchasing organisation), and wider distribution…
US: Walmart Unveils Stricter
Delivery Rules For Suppliers Walmart is set to introduce stricter delivery rules for its
suppliers, as it looks to implement an ‘On-Time, In-Full’
strategy.
According to Bloomberg News, beginning August 2017,
Walmart will require suppliers who deliver full truckloads of
fast-moving items to deliver “what we ordered 100% in full,
on the must-arrive-by date 75% of the time.” By February
2018, the group wants OTIF deliveries 95% of the time.
The report notes that items that are delivered early, late,
or are missing during a one-month period will incur a fine of
3% per cent of their value. Suppliers will also be fined if the
products are improperly packaged. Bloomberg said Walmart
will be working on a scoring system to determine whether any
fault lies with the supplier or itself.
Walmart expects the programme to add US$1bn (€878m)
to revenue by helping improve product availability, and will
also help improve its back-room storage facility.
NAM IMPLICATION:
▪ An end to ‘drop & drive’?
US: Walmart Signs Up Dozens
Of Suppliers In ‘Open Call’ Walmart has offered product deals to nearly 100 companies,
as part of its latest ‘U.S. Manufacturing Open Call’.
The fourth annual Open Call saw Walmart receiving 750
product presentations from more than 500 suppliers based in
47 US states and Puerto Rico. Product ideas spanned a wide
range of categories, including home décor, apparel, hardware,
toys, health and beauty aids, sporting goods, and food.
Nearly 100 firms were offered deals on the spot, and will
see their products soon being stocked at Walmart stores and
website. The chain also continues to hold discussions with
other participants to help further develop their products in the
hope of a listing.
NAM IMPLICATIONS:
▪ Apparently a 20% success rate (by company).
▪ Still worth busting a gut, if you get the opportunity…
OTHER TOP STORIES Click for
details
BRAZIL: Carrefour Looks To Raise Up To $1.7bn Via
IPO
US: Couche-Tard To Divest 70 Stores For CST Brands
Deal
US: Home Depot In $265m Deal For Compact Power
Equipment
US: Japan’s Don Quijote Acquires Hawaiian Chain
NamNews │ July 2017 │ 38 www.kamci ty.com
INTERNATIONAL NEWS
US: Kroger Sues Lidl For Trademark Infringement
US: Supervalu Announces Exit Of Senior Exec
US: Walmart Warns Partners Away From Amazon Web
Services
US: Walmart Continues Buying Spree With Bonobos
Deal
TRADING UPDATES
Empire Co Jean Coutu Walgreens Boots
MANUFACTURERS
BRAZIL: JDE Looking For
More Coffee Deals Jacobs Douwe Egberts (JDE) has said it is looking to make new
acquisitions in Brazil’s coffee market, as it looks to gain ground
on global market leader Nestlé.
Brazil is the world’s second-largest coffee market and JDE
is the second-largest player in the country with an estimated
20% market share. It owns several major local brands,
including Café do Ponto, Pilão and Café Pelé. Globally, the
group has an estimated 12% share of the global coffee retail
market, compared to Nestlé’s 22%, according to Euromonitor.
Media reports quoted Lara Barns, head of JDE Brazil, as
noting: “We want to be a leader in Brazil. We continue to look
for opportunities.”
Barns noted that Brazil only accounts for 10% of JDE’s
global revenues, even though it accounts for 20% of volumes,
reflecting lower prices and the popularity of cheaper brands.
Barns said: “The premium coffee segment is the one that grows
the most in Brazil. That is our bet”.
NAM IMPLICATION:
▪ Can also bet that Nestlé will not sit on the sidelines…
SWITZERLAND: Nestlé Faces
Pressure From Investor Nestlé has come under new pressure after activist investor
Daniel Loeb’s Third Point hedge fund declared that it had
picked up a stake in the group. The food giant later unveiled
plans for a major share buyback programme and future
investments.
The 1.3% stake, worth 3.28bn Swiss francs (€3bn), is the
largest ever taken by Third Point in any company and
reportedly makes the hedge fund the eighth-largest
shareholder in Nestlé. Third Point wrote to its investors
declaring the stake, adding that it has already had productive
conversations with Nestlé’s management.
The letter said Nestlé “will need to articulate a decisive
and bold action plan that addresses the staid culture and
tendency towards incrementalism that has typified the
company’s prior leadership and resulted in its long-term
underperformance”.
The hedge fund called on the group to improve its margins,
buy back shares, and sell off non-core businesses. Amongst its
demands is the setting of a formal target of achieving margins
of 18%-20% by 2020, the sale of the 23% stake in L’Oréal
(possibly “via an exchange offer for Nestlé shares), and taking
on additional debt to generate funds and buy back shares.
Just days after the announcement, Nestlé announced plans
to buy back shares worth 20bn Swiss francs (€18bn). The
group said the buyback programme, which began on 4 July
2017 and is expected to be completed by June 2020, was
prompted by a review and “low interest rates and strong cash
flow generation”.
Nestlé also reiterated that its future capital spending will
be focused “particularly on advancing high-growth food and
beverage categories such as coffee, petcare, infant nutrition
and bottled water, as well as expanding its presence in high-
growth geographic markets”. Additionally, it said it will look
for opportunities in consumer healthcare.
Nestlé stressed that it will only consider deals that “fit
within targeted categories and geographies, deliver attractive
returns”, and help consolidate its position in the food &
beverage categories.
The group also said it continue to study options to improve
its margins “through targeted efficiency programs that do not
undermine the company’s performance in attractive long-term
growth categories”.
NAM IMPLICATIONS:
▪ In other words, a request for few cosmetic changes.
▪ Resulting in a renewed focus on growth…
▪ …and inevitable changes in the competitive landscape in
a number of categories.
▪ Time to check your categories?
US: Campbell Soup In $700m
Deal For Pacific Foods Campbell Soup has announced the acquisition of Pacific Foods,
a maker of organic soups and broths, in an all-cash deal worth
US$700m (€615m).
Pacific Foods also makes organic sauces and non-dairy
beverages, dips, meals and sides. It generated sales worth
US$218m (€191m) for the fiscal year ending 31 May 2017.
Campbell said the deal expands its presence in the health
and well-being categories, while giving it “more access to
natural and organic customers and channels”. The group will
invest in expanding Pacific Foods’ distribution, marketing, and
R&D.
Following the completion of the deal, Pacific Foods will
become part of Campbell’s Americas Simple Meals and
Beverages division. Chuck Eggert, CEO and co-founder of
Pacific, will remain as a supplier of key ingredients through his
family farms.
NamNews │ July 2017 │ 39 www.kamci ty.com
INTERNATIONAL NEWS
NAM IMPLICATIONS:
▪ A little more leverage within their categories.
▪ Time for competing suppliers to re-evaluate the new
competitive landscape?
US: Lactalis To Buy Danone’s
Stonyfield Unit Danone has agreed to sell off its Stonyfield business in the US
to Lactalis, in a deal worth US$875m (€769m). The move is
part of Danone’s deal with the US regulators in exchange for
receiving approval for its own acquisition of WhiteWave
Foods.
Stonyfield, which generated around US$370m (€325m) in
sales in 2016, produces a range of organic yogurts, frozen
yogurts, smoothies, and packaged milks. Danone said the
business “remains a highly attractive asset”, but added that it
“made the strategic decision to divest Stonyfield as it allows us
to take a major step towards completing the WhiteWave
transaction expeditiously.”
NAM IMPLICATION:
▪ A silver lining for Lactalis…
US: Nestlé To Support Startup
Accelerator Nestlé USA has signed a new partnership with Rabobank and
RocketSpace, which will see them support startups for the
Terra ‘Food + Agtech Accelerator’ programme.
The Swiss group said it will collaborate with Terra and
other corporates to “select and coach the most innovative and
disruptive startups in the food and agricultural industry”.
Nestlé said it expects to support 20 startups over the duration
of the two 6-month accelerator programmes, and will explore
new and improved ways to produce, sell and distribute food.
A cross-section of startups will be selected from more than
1,000 applicants, with the goal of finding healthier and more
sustainable products and services that enhance the quality of
people’s lives. The first of two Nestlé-hosted Terra
programmes will be selected in autumn 2017, and applications
for the second cohort will open in early 2018.
Nestlé USA noted: “We’re experiencing a seismic shift in
the food industry, and our partnership with Terra by
Rabobank and RocketSpace is just one way in which Nestlé can
play a leading role in meeting quickly evolving consumer
expectations and explore new disruptive technologies and
business models. When we combine the resources of Nestlé
with the creativity and new thinking born from the startup
culture, we can create real change in our industry and best
deliver on consumer needs.”
NAM IMPLICATIONS:
▪ Mutually beneficial way of locating and optimising
innovation in key categories.
▪ With the machinery to drive and real breakthroughs…
US: Nestlé Considering Sale
of Local Confectionery Unit Nestlé has said it is considering selling its US confectionery
business, amongst other options, without offering a reason
why.
The country unit owns brands such as Butterfinger,
BabyRuth and 100Grand, and generated sales of around
US$920m (€801m) last year. The US confectionery business
accounts for just 1% of the group’s global annual sales, and
Nestlé is only the fourth-largest in the market (behind Mars,
Hershey, and Mondelez).
Nestlé said it will “explore strategic options”, although the
move does not include the Toll House brand. It also stressed
that it remains “fully committed” to its international
confectionery business, and will continue to invest in its US pet
care, bottled water, frozen meals, infant food, and ice cream
businesses.
NAM IMPLICATIONS:
▪ Little harm and possible benefits in competitors
exploring what-ifs re sale of confectionary unit…
▪ …and reassessing the resulting competitive landscape.
OTHER TOP STORIES Click for
details
AUSTRALIA: Woolworths Holds Off On Stocking New
Coca-Cola Product
AUSTRALIA: Coca-Cola Hit Again After Domino’s
Switches To Pepsi
CHINA: Asahi To Sell JV Stake To Tingyi
INDIA: Coca-Cola Targets Value Segment With New
Fizzy Range
NORWAY: Mars Scraps Orkla Wrigley Distribution Deal
US: Avon Appoints New COO
US: Dean Foods Acquires Uncle Matt’s Brand
US: Hain Celestial Announces First Deal Via Cultivate
Ventures Unit
US: Mondelez Issues Revenue Warning Over Cyber
Attack
US: Nestlé Picks Up Minority Stake In Freshly
TRADING UPDATES
Barry Callebaut PepsiCo
NamNews │ July 2017 │ 40 www.kamci ty.com
RETAILER FACTFILES
J Sainsbury PLC
A pivotal year for Sainsbury’s following its acquisition of the Argos chain with the
aim of creating a leading multi-channel food and general merchandise retailer.
Whilst integratiation of the two businesses appears to be going well so far, the group
is having to contend with the fall-out from last year’s EU referendum and continued tough competition from
discounters.
RETAIL STORE PORTFOLIO
As of 11 March 2017, the Sainsbury’s group operated 605 supermarkets, 806 convenience stores and 715 standalone Argos
outlets. It also operates a growing number of Argos and Habitat stores operating within its larger supermarket outlets (see
stores section below).
KEY FINANCIALS & PERFORMANCE REVIEW
Despite a boost from a 27-week contribution from its new
Argos business driving up turnover, Sainsbury’s reported
a third straight year of underlying profit decline and
warned of further tough times ahead.
The group’s underlying pre-tax profit declined by 1% to
£581m, whilst retail underlying operating profit fell by
1.4% to £626m. The falls reflected lower like-for-like sales,
investment in price cuts and cost inflation. This was partly
offset by cost savings of £130m and a contribution from
Argos of £77m. Retail underlying operating margin declined 32 basis points to 2.42%.
Annual like-for-like sales in the Sainsbury’s chain were down 0.6%, although this was a slight improvement on the 0.9% dip the
previous year. The figure improved throughout the year, falling by 1% in the first half, but by only 0.1% in the second half as
food price deflation eased.
The group revealed that supermarket sales over the year declined by nearly 2%, whilst in its convenience chain they grew by
over 6%. Online grocery sales were up by over 8%, with order growth of nearly 12% being partially offset by a reduction in
basket size due to deflation and a lower number of items per basket.
The group stressed that its overall food performance was “resilient” with consumers said to be responding positively to the
chain’s new focus on lower regular prices. Sainsbury’s revealed that total transactions over the year increased by nearly 3% to
26 million per week.
Argos sales contributed 14.5% growth since its acquisition and the chain’s like-for-like sales were up 4.1% in the second half.
First Quarter to 1 July 2017: Sainsbury’s reported slightly better-than-expected sales growth for the period, helped by inflation
and warm weather. Total group retail like-for-like sales rose 2.3% (excl. fuel), compared with analysts’ expectations of a 2% rise
and growth of 0.3% in the previous quarter.
The results statement marked the first time since its acquisition of the Home Retail Group that Sainsbury’s did not issue separate
like-for-like sales data for its supermarket chain and Argos. However, the group did reveal that total grocery sales had risen by
3%, a significant improvement from the 0.3% growth the previous quarter. Whilst food inflation and new stores contributed to
the figure, Sainsbury’s stressed that the number of transactions in its stores were up 2%, with like -for-like transaction growth
in all channels.
Meanwhile, online grocery sales rose by 8%, while sales in its convenience stores unit were up 10%. Clothing sales climbed 7.2%
following growth in both stores and online. Sainsbury’s opened one supermarket and 10 convenience stores during the period.
In General Merchandise, total sales rose 1%, despite disruption from the closure of 78 Argos in Homebase and 84 Habitat in
Homebase concessions over the last year. Sainsbury’s said that Argos had continued to perform well, growing market share,
with particularly good growth in mobile, audio, tech categories and electricals and toys.
Online sales were up 10% with its Fast Track delivery (+36%) and collection service (+64%) seeing “stellar performance”,
particularly during the period of warm weather when customers wanted to buy and receive products such as paddling pools the
same day.
Year to 11 March 2017 2016 Change
Turnover (£m) 26,224 23,506 11.6%
Operating Profit (£m) 642 707 (9.2)%
Operating Margin (%) 2.45 3.01
Pre-tax Profit (€m) 503 548 (8.2)%
ROCE (%) 4.5 5.3
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RETAILER FACTFILES
RECENT DEVELOPMENTS & CURRENT ACTIVITIES
Sainsbury’s
Supermarkets: The group’s grocery chain remains at the core of the business, although up against changing shopper trends and
the revival of Tesco and Morrisons, Sainsbury’s performance has been disappointing of late. However, the group still has a strong
and differentiated food offer with a number of improvements made over the last year.
A key plank to Sainsbury’s strategy to compete with the discounters over the last couple of years has been to simplify its pricing,
replacing promotions such as multi-buys with lower regular prices. Promotional participation has decreased by almost 6% to
25%, with the group claiming this has helped attract shoppers back to its stores with total transaction numbers increasing.
The group has also completed a revamp of 3,000 of its own label products with a focus on quality and price, which helped driv e
up volumes of its core ‘by Sainsbury’s’ range by 2% last year. Meanwhile, over the course of its current financial year, the group
revealed that it will be reviewing 125 of its food ranges, which account for around 60% of its food sales. Sainsbury’s also recently
became the latest supermarket group to overhaul its alcohol range with a host of leading brands seeing some of their products
being dropped, in favour of popular craft beers and ciders.
Sainsbury’s says its strategic focus is on growing categories where it can increase market share. This has seen it invest in ranges
such ‘Deliciously FreeFrom’, tapping into the fast-growing allergen-free food market. This range doubled in size last year
incorporating new fresh, frozen, chilled and ambient lines. Meanwhile, in September the chain launched its ‘On the Go’ range of
breakfast, lunch and snacking lines with an investment of £8m. A new prepared vegetable range has also proved successful as
health-conscious customers seek alternatives to carbohydrates.
Along with its most recent first quarter results, the group said that customers had been attracted by its investment in product
innovation with 430 new and improved food products launched during the period, including over 250 new Summer eating lines.
The group added that the produce category performed particularly well, outperforming the market with volume growth of over
1%.
Recent reports have suggested that Sainsbury’s could be set to embark on a major cull of what it calls ‘commodity brands’ as part
its strategy to win back trade from the discounters . According to suppliers quoted by trade magazine The Grocer, Sainsbury’s
senior management outlined details of the group’s new differentiation strategy at a trade briefing held in conjunction with t he
IGD in June.
While Sainsbury’s stressed that it was not entering a range rationalisation process along the lines of Tesco’s Reset programme,
the retailer is reported to have indicated that there would be a “significant” reduction in the number of SKUs in its superma rket
outlets. One supplier said that Sainsbury’s had outlined that it would be assessing the “emotional functional qualities” of all its
34,000 SKUs. They added that if a brand doesn’t have an “emotional connection” with the consumer, then it was really a
commodity. Sainsbury’s is hoping to drive distinctiveness by removing duplicate products and adding new lines.
The report added that suppliers were left under the impression that for products to remain on shelf they would have to delive r
a 20% reduction in cost of goods sold. Another supplier was quoted as saying that that those that stay will have to offer a “real
underlying value, and will have to be distinctive”.
Meanwhile, Sainsbury’s has been seeking ways to fill excess space in its larger outlets. Whilst Argos and Habitat implants are
being rolled out across the chain, Sainsbury’s has also agreed to a number of concession partnerships. Most recently Sainsbury’s
linked up with food and juice bar firm Crussh, which operates 30 outlets in London. A counter operated by the firm opened in a
Sainsbury’s store in Pimlico in June this year, serving healthy meals and drinks. Initial customer response is said to have been
good with Sainsbury’s looking at rolling out the brand to other branches.
Sainsbury’s is also trialling an in-store partnership with Patisserie Valerie, selling its upmarket cakes at counters in 12
supermarkets. The group has also expanded its tie-up with Sushi Gourmet. Following a “successful” 20-store trial, Sainsbury’s
is planning to roll-out a further 30 Sushi Gourmet counters in its supermarkets by the end of the year.
Convenience: Sainsbury’s convenience chain continues to outperform its larger supermarket stores, with sales growing 6% last
year. However, the chain’s planned growth is being held back by the lack of suitable sites with Sainsbury’s planning to open just
25 of its ‘Local’ format stores this year, down from 41 last year and 66 the year before. It had once hoped to open around 100 a
year.
The group is looking for new avenues of growth for its convenience business, and is currently trialling a franchise arrangement
with Euro Garages on eight of its petrol station forecourts. Sainsbury’s is also considering offering franchise deals to independent
retailers, highlighting that such a strategy would be a lower-cost alternative to leasing or buying its own stores.
Online: The group’s online grocery operation also remains a key growth area. Orders increased by nearly 12% during the last
year with Sainsbury’s delivering around 276,000 per week. It expects demand for its online grocery service in London to double
NamNews │ July 2017 │ 42 www.kamci ty.com
RETAILER FACTFILES
over the next eight years. To help meet this growing demand, the group opened its first purpose -built online fulfilment centre
in Bromley-by-Bow, East London last September which has the capacity to fulfil 25,000 orders each week.
Meanwhile, grocery Click & Collect sites are now available at over 150 of its stores and Sainsbury’s offers same day delivery from
29 sites across the country. The group is also trialling a one-hour delivery service to over 40,000 London postcodes via its ‘Chop
Chop’ bicycle delivery service to compete with the likes of Amazon.
Cost Saving: To help fund investment in its offer, the group continues to seek ways to simplify its business. By the end of its last
financial year, the group had delivered on its target of £500m of cost savings over three years. It has now committed to finding
a further £500m over the next three years, starting this year.
As part of this efficiency drive, Sainsbury’s announced in March that it was cutting up to 400 roles as part of a shake-up of its
store operations. The group removed 400 price controllers (staff that check prices are displayed correctly on shelves) from its
operations with the task now set to be carried out by other staff. Sainsbury’s also revealed that it was cutting night shifts in 140
stores, requiring around 4,000 staff to move to either early morning or late evening shifts.
Argos
Sainsbury’s completed its acquisition of the Home Retail Group-owned Argos business in September 2016. As one of the leading
non-food retailers in the UK with an advanced online operation, Sainsbury’s is hoping to use Argos to create a dynamic business
that can capitalise on changing shopper trends.
The group has been rolling out Argos Digital stores in its supermarkets to fill excess space and make them more attractive
destinations for shoppers. Sales at such stores that have been open for over a year are said to be delivering like -for-like growth
of between 20 to 30%, with the supermarkets themselves also seeing sales uplifts of between 1 to 2%. The group now has 75
Argos Digital stores in its supermarkets, with plans to have 175 operating by the end of the current financial year and 250 by
March 2019.
Argos digital collection points are available in 142 Sainsbury’s supermarkets for customers to collect Argos orders. It is also
trialling collection points in its convenience chain. The group also plans to transform another 60 existing stand-alone Argos
stores to its new digital format, meaning that over a third of the Argos store estate will be digital by the end of the current
financial year.
As part of the Home Retail deal, Sainsbury’s also acquired the Habitat business. It now has 11 mini Habitat concessions in its
supermarkets to support the chain’s multi-channel business strategy.
Meanwhile, Argos is planning to significantly grow its own brand offer with the help of Sainsbury’s. Commercial Director Rob bie
Feather said earlier this year that Argos has been strong on brands, particularly in electricals and gadgets. However, the chain
is now focused on harnessing the design expertise of Sainsbury’s to help it gain market share in categories such as homeware.
Feather said Argos now had a “big opportunity” to develop more of its own products and would be “driving hard into home” as
part of the strategy.
Sainsbury’s expects the tie-up to deliver £160m of EBITDA synergies over three years. The synergies include the integration of
central and store support functions across the two businesses, as well as cost savings from opening Argos Digital stores in
Sainsbury’s supermarkets.
Nisa Takeover
In June this year, it emerged that Sainsbury’s had entered into exclusive talks to acquire Nisa Retail in a deal worth £130m as it
moves to counter Tesco’s planned £3.7bn takeover of Booker. This followed unconfirmed reports earlier in the year that
suggested it was mulling over a bid for Palmer and Harvey (P&H).
Nisa is a £1.3bn turnover business currently owned by around 1,300 registered members that operate ov er 3,000 independent
convenience stores across the UK. All members own shares in the business and will have a final vote on any deal. Whilst some
members believe a tie-up with Sainsbury’s could offer opportunities for growth and support in an increasingly competitive
convenience sector, others are said to be fiercely opposed, preferring to remain independent.
The supermarket group is said to have offered a number of sweeteners to win their support. This includes giving members
staggered payments over three years if they remain with Nisa. They will also be able to choose whether to remain fully
independent and have an enhanced range of own label food products or the ability to stock Sainsbury’s own brand ranges if the y
can demonstrate high store standards.
The talks have also opened the door to Sainsbury’s taking over a major supply contract with newsagent and convenience chain
McColl’s. Nisa has multiple supply contracts with McColl’s, worth some £500m a year and accounting for around 40% of its sales.
These contracts are coming up for renewal and executives from Sainsbury’s are reported to have met with McColl’s management
to discuss taking over the supply contract despite being in talks to acquire Nisa. However, Sainsbury’s faces competition for the
contract with Morrisons and the Co-op said to be involved in the talks.
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RETAILER FACTFILES
TRADING OUTLOOK
Whilst the Argos deal has the potential to support Sainsbury’s growth in the years ahead and expand its share of the all -important
online retail market, the group is set to face some difficult times in the immediate future. The UK grocery market remains highly
competitive with Sainsbury’s facing a squeeze on several fronts. On one side, the discounters are crushing prices and stealing
market share, while Tesco and Morrisons are both in the middle of strong turnaround programmes that are leaving Sainsbury’s
trailing.
Whilst sales number will benefit from inflation, cost price pressures are likely to hit profits at a time when the City wants to see
some improvement following three years of declines. Meanwhile, the current squeeze on consumer’s incomes could also start
to hit trading at Argos, particularly demand for big ticket items.
On a more positive note, if it goes ahead, the acquisition of Nisa for a relatively sm all sum could prove a valuable asset for
Sainsbury’s in the battle for convenience shoppers.
ADDITIONAL INFO: Company website: www.about.sainsburys.co.uk
Waitrose Headquarters: 33 Holborn, London, EC1N 2HT. UK
Tel: 020 7695 6000
ANNUAL REPORT
& ACCOUNTS
Auchan Holding
The French group has had a busy year, working on expanding its existing store network
while introducing new formats and concepts. Its underlying financials remain strong, a
key factor as it prepares for a significant medium-term investment in expanding its
presence across the world.
RETAIL STORE PORTFOLIO
As of 31 December 2016, Auchan operated 3,617 outlets (hypermarkets and supermarkets), both directly and through
franchises. These include:
Western Europe: 2,585
• France (593) – 144 hypermarkets (Auchan) and 449 supermarkets (Simply Market, franchises)
• Spain (345) – 56 Alcampo hypermarkets and 289 supermarkets
• Portugal (49) – 30 hypermarkets (Jumbo, Pao de Acucar) and 19 convenience stores
• Italy (1,597) – 59 hypermarkets (Auchan, franchises) and 1,538 convenience stores (Simply Market, Lillapois,
franchises)
• Luxembourg (1) – 1 Auchan hypermarket
Eastern Europe: 472
• Hungary (19) – 19 Auchan hypermarkets
• Poland (109) – 76 Auchan hypermarkets, and 33 supermarkets
• Romania (33) – 33 hypermarkets (Auchan, Auchan City, Real)
• Russia (300) – 101 hypermarkets (Auchan, Auchan City, Raduga) and 199 Atak supermarkets
• Ukraine (11) – 11 Auchan hypermarkets
Asia: 471
• China (447) – 447 hypermarkets (Auchan, RT Mart)
• Taiwan (25) – 25 RT Mart hypermarkets
• Tajikistan (1) – 1 Auchan hypermarket
• Vietnam (8) – 8 convenience stores
Africa: 89
• Senegal (6) – 6 convenience stores
• Tunisia (81) – 81 supermarkets
• Mauritania (2) – 2 supermarket
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RETAILER FACTFILES
KEY FINANCIALS & PERFORMANCE REVIEW
The group’s revenue was up 0.7% on a constant-currency
basis, while underlying operating profit grew by 1.3%, and
underlying net profit jumped up 18.2% to €824m.
Auchan Retail saw revenue grow by 0.7% to €51.7bn,
helped by growth in 11 of its 14 markets (in constant-
currency terms).
In France, revenue was down 0.5% to €19.2bn, whilst in
Western Europe revenue declined by 0.7% to €9.9bn.
Central and Eastern Europe saw revenues fall by 5.8% to
€9.9bn, while the Rest of the World recorded a 0.8% decline to €14.5bn.
Year to 31 Dec 2016 2015 Change
Turnover (€m) 52,820 53,814 (1.8)%
Operating Profit (€m) 1,081 1,122 (3.7)%
Operating Margin (%) 2.05 2.08
Pre-tax Profit (€m) 989 1,021 (3.1)%
ROCE (%) 4.91 5.04
RECENT DEVELOPMENTS & CURRENT ACTIVITIES
Expansion
The past year saw Auchan enter one new country, while expanding in various existing markets via acquisitions. It also ended
two existing associations as part of its aim to streamline its operations.
In June 2016, Auchan formally entered the market of Tajikistan, marking an expansion of its presence across Central Asia. The
group opened a 5,000 sq. m. hypermarket (operated by Auchan’s partner Schiever) in the capital Dushanbe. The group has yet
to say if it plans to expand its presence in the market.
That move was accompanied by the group’s continued expansion in its existing markets.
In Russia, Auchan said it would spend 20bn-30bn roubles (€295m-€442m) annually over the next few years, with the money
going towards opening new stores and revamping existing ones. Since its launch in the market, Auchan has so far invested
around 200bn roubles (€295m).
In China, its hypermarket joint venture (Sun Art Retail) unveiled plans in August 2016 to invest 1bn yuan (€135m) over two
years to boost its online operations. Sun Art added that it expects the online business to break even in the 2020-21 fiscal year.
In Ukraine, the group acquired local hypermarket chain Karavan in June 2017. Karavan operates nine hypermarkets in the
country, and will add to Auchan’s existing 11 local stores. The deal will also see the French group expand its reach to nine cities,
from its existing five.
And finally, in Hungary, Auchan is set to open its first supermarket (in August) in an attempt to establish a presence where it
cannot open hypermarkets. The group also plans to open 30 hypermarkets and 30 franchise stores nationwide over the next
five years, while expanding its online operations.
Format Development
Auchan continues to work on introducing new store formats and tweaking existing ones, as it looks to keep up with consumer
trends and attract more shoppers.
Several of those moves involved the group’s operations in Russia. In October 2016, Auchan said it would phase out the Atak
banner in Russia, and rebrand all such stores to its namesake banner. Russia is the last market in which the Atak banner operates,
and the conversion of all the stores will take place by May 2018. Auchan said the move will not only be “a change of signage” but
also involve a “change of concept”, with the stores being revamped to diversify the product offer. Auchan also said it plans to
add 20 new outlets to the format over the next year, and from 2018, will look to open 35 -40 supermarkets annually.
The group also decided to rename its Nasha Raduga (‘Our Rainbow’) hypermarket banner, announcing the move in June 2017.
Auchan will initially rename one store in Kovrov to the ‘Kashy Den’ (‘Every Day’) banner, which is also the name of it s local
budget own label range, and if successful, will rebrand all the remaining Nasha Raduga stores. Auchan said the move is expected
to help the store attract more customers, as the Kashy Den brand is already known to the general public.
Those rebrandings were accompanied by the continued roll-out of existing store formats into new markets.
In August 2016, Auchan announced plans to launch the ‘Lillapois’ drugstore banner in Russia. The first such store was a 200 sq.
m. store located in a Moscow shopping centre, which stocked around 7,500 items. The group plans to invest 400m roubles in
adding 20 more stores by the end of 2017, although it has not offered details on any investment plans beyond that.
In November, Auchan opened a new convenience store format in France called ‘MyAuchan’, aimed at urban and on-the-go
shoppers. The first such store opened in Paris, covering just under 300 sq. m. of space and stocking 5,500 products, with a focus
on seasonal, organic, local, and dietary items. The new format offers an eating area (which includes a coffee machine, a water
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RETAILER FACTFILES
fountain, and a microwave), a kiosk which offers access to Auchan’s online shops, lockers where packages can be picked up,
newspapers and wifi.
Encouraged by the initial success of the format, the group then launched MyAuchan in Portugal, with the opening of two stores
in April, with plans to open four more by the end of 2017. And in May, the group launched MyAuchan in Italy, with an opening
in Piacenza. And finally, in Romania, the group announced plans to open MyAuchan stores at fuel stations operated by OMV
Petrom. The first such stores began rolling out in May, and there are plans to have 15 stores operational by end -2017.
Tie-Ups
Auchan had a busy year in terms of its tie-ups with peers and service providers, moving out of some partnerships while entering
into several others, both in France and internationally.
In June 2016, Auchan and Système U announced that they had dropped plans to swap stores in France belonging to their
individual banners. The deal had become the focus of an expanded probe by the French competition regulator, and the two
groups decided that it was “too complex to roll out in the short-term”, adding that they will now only focus on their existing
buying alliance.
In December, Auchan ended its association with the ‘Little Extra’ banner in France, having sold its stake to founder and CEO
André Tordjman. At the time, Little Extra operated 19 stores across the country, specialising in home products sold at cheap
prices, as well as a small grocery offer. It also has shop-in-shop corners at Auchan hypermarkets, mostly selling its own label
offer.
And in January, the Auchan-Sma grouping ended its purchasing tie-up with the Sisa buying group in Italy. The two sides had
entered into an agreement in January 2015, which was set to last until 2019 and result in joint purchasing of more than €8bn.
The new tie-ups made by the group largely focused on improving its purchasing operations and its digital marketing.
In July 2016, Auchan partnered with HookLogic (which offers performance marketing for brands) to help boost its French online
site. The tie-up offers brands “high performing advertising opportunities” on Auchan.fr, in the form of sponsored products,
native product ads on retail websites, and allowing brands to leverage real-time targeting to reach the highest intent shoppers.
The deal made Auchan the first French retailer to partner with HookLogic.
In the same month, Auchan China announced a deal with digital intelligence firm Keyrus, in a move aimed at boosting its online
shopping platform in the Asian market. Keyrus has used SAP’s hybris solution to introduce “new payment methods” for Auchan
China, while also “putting in place connectors with the major marketplaces in China”. Additionally, Keyrus is working to improve
Auchan’s click & collect capability, and expand the Auchan Wine platform (by connecting it with the Feiniu and Tmall
marketplaces).
In September 2016, Auchan announced a new purchasing partnership in France with Boulanger, a specialist in the local
household electrical goods and multimedia market. The partnership covers the negotiation of purchases of white, brown and
grey household electrical goods manufactured by national and international brands aimed at the French market. Auchan granted
Boulanger the mandate to negotiate on its behalf, beginning with the commercial terms for 2017 (excluding retailers’ own
brands), which got underway in October 2016. The tie-up involves an estimated business volume of more than €2.1bn (excl.
tax), making it the second-largest such deal in France.
And in October, Auchan signed a purchasing partnership with Parashop, covering the negotiation of purchases with all over-the-
counter pharmaceutical product suppliers for Auchan’s retail activities in France. Parashop is France’s leading OTC pharmacy
network, with 64 stores in France and 4 stores in Italy. The agreement saw Eurauchan – Auchan Retail’s purchasing centre in
France – granting Parashop the mandate to negotiate on its behalf. The deal, which was also effective for the negotiations on
commercial terms for 2017, is expected to get both groups “obtain the best market terms across all product categories.”
Logistics
In October, Auchan signed an agreement to build a new warehousing and logistics centre in the Moscow region, which will be
the biggest single-user building in Europe. The facility, which will cover a total area of more than 138,000 sq. m., will be built on
an investment of around 6bn roubles and will create more than 750 new jobs. The centre will be constructed using advanced
technologies and has a planned capacity to handle loading and unloading of more than 230 trailers simult aneously, and will
service more than 50 Auchan stores in the region.
In November, Auchan launched trials of a new robotic shopping trolley in France, aimed at helping customers who suffer from
limited mobility. The ‘wiiGO’ trolley is linked to an electronic ID badge to be carried by customers, and as long as they stay within
a 1.5 metre radius of the trolley, it will follow them automatically. Auchan trialled the system for a month, and is considering
future options (including larger trolleys) based on customer feedback.
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RETAILER FACTFILES
In March 2017, Auchan kicked off a unique new promotional campaign, which saw it offer a basket of 60 SKUs at the same
discounted price in 14 countries. The ‘Ça Va Booster!’ campaign saw Auchan offer deep discounts on the products, which were
available at 4,000 of its stores.
And in June 2017, Auchan France deployed the latest version of the Reflex TMS solution by Hardis Group, enabling it to drive the
execution of its transport operations in real time.
Executive Changes
The past year saw a small number of high profile changes to Auchan’s executive team across the global.
In November 2016, Auchan announced the resignation of Jean Patrick Paufichet as CFO. Paufichet, who left the group, was
succeeded by Jean Chausse, then Deputy CFO.
Then in February 2017, Auchan announced that Vianney Mulliez would be stepping down as Chairman of the Board after 11
years in the post. Mulliez was succeeded in March by Régis Degelcke. The move was termed part of the group’s ‘Vision 2025’
project, with Auchan saying Mulliez “felt it was time for Auchan Retail to take a new direction in the years ahead”.
In May, Auchan announced the departure of Shen Hui, GM of its China unit, effective immediately. Shen, who had been with
Auchan since 1999, was made GM in February 2016. Vincent Mignot, Auchan’s director of innovation, took over the post and
Stephane Boennec, former GM of e-commerce for Auchan China, was made GM of the client and innovation department.
And finally, in July, announced the appointment of new Executive Chairmen for its Russian and Chinese operations.
TRADING OUTLOOK
Auchan is clearly eager to expand its operations, and has announced moves to grow gradually in most of its markets. It also
continues to work on tweaking its store concepts to keep in touch with changing consumer demands, as can be seen by its push
to roll out the MyAuchan c-store format in various countries. The various tie-ups in the past year to push its digital presence and
marketing also offer signs of its priority areas for the immediate future. The success of even some of these initiatives will only
help to further consolidate Auchan’s presence in the global market.
ADDITIONAL INFO: Company website: www.groupe-auchan.com
Headquarters: 40, avenue de Flandre – BP 139, 59964 Croix Cedex – France
Tel: +33 (0)3 20 81 68 00
ANNUAL REPORT
& ACCOUNTS
Companies in this Issue
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Assistant Editor Fabian Panthaki
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ISSN 1357-4418
7-Eleven ............................................................... 33
A.S. Watson ................................................... 20, 33
Admiral Taverns ................................................ 17
Agrokor ................................................................ 27
Ahold ..................................................................... 31
Aldi ......................................................... 4, 5, 22, 29
Alibaba .................................................................. 35
Amazon ............................................ 13, 30, 33, 36
Appleby Westward ........................................... 14
Asda ......................................................................... 5
Auchan .................................................................. 43
B&M ....................................................................... 18
Bestway ................................................................ 14
Booker ......................................................... 8, 9, 16
Boots .............................................................. 19, 20
Bricorama ............................................................ 28
Bunnings .............................................................. 18
Campbell Soup ................................................... 38
Coles ...................................................................... 32
Costco .................................................................... 28
Dairy Farm .......................................................... 33
Danone .................................................................. 39
Dansk .................................................................... 27
DIA ......................................................................... 30
eBay ....................................................................... 21
Edeka..................................................................... 29
Esselunga ............................................................. 29
Geant ..................................................................... 32
GlaxoSmithKline ................................................ 24
Holland & Barrett .............................................. 20
JDE .......................................................................... 38
Kesko .............................................................. 27, 28
Lactalis .................................................................. 39
Lawson .................................................................. 34
Lidl .................................................................... 6, 36
MAF ........................................................................ 32
Magnit ................................................................... 30
McColl’s................................................................... 7
Mercadona ........................................................... 30
Morrisons ............................................................... 6
Musgrave .............................................................. 22
Nestlé ...................................................... 24, 38, 39
Nisa ................................................................. 14, 15
Ocado ..................................................................... 21
One Stop ............................................................... 15
Oriola ..................................................................... 27
Parfetts ................................................................. 16
Picard .................................................................... 28
Premier Foods .................................................... 25
Reckitt Benckiser............................................... 25
Rewe ............................................................... 27, 29
Rite Aid ................................................................. 37
S Group ................................................................. 28
Sainsbury’s .......................................... 7, 8, 14, 40
Savers ................................................................... 20
Seabrook Crisps ................................................. 25
Sears Canada ...................................................... 35
Shinsegae ............................................................. 34
Shoprite ................................................................ 34
Sligro ..................................................................... 31
SPAR ...................................................................... 27
Staples .................................................................. 36
Stockmann ........................................................... 28
Subway ................................................................. 17
Superdrug ............................................................ 20
Tata ........................................................................ 33
Tayto ..................................................................... 25
Tesco ....................................... 8, 9, 10, 15, 23, 33
Tim Hortons ........................................................ 17
TuoDi .................................................................... 30
Waitrose ............................................................... 11
Walgreens Boots Alliance ............................... 37
Walmart ........................................................ 35, 37
Wessanen............................................................. 24
Whole Foods Market ........................................ 13
Woolworths Ltd .......................................... 32, 34