tesco booker deal

Tesco is Back

The Tesco we loved to hate has resurfaced with a surprising move to merge with Bookers Group wholesalers.

Tesco‘s confidence, while constant internally, is being shouted from the roof tops again. It is confident in its strategy and prepared to make bold moves. Once that meant buying up space to dominate the UK grocery market. It then evolved into buying retailtainment businesses to keep shoppers in store longer drinking coffee and eating out.

Reality hit and we saw the arrival of drastic Dave. Till now the drastic element has been somewhat tempered, it has been a steady incremental strategy until today. This is the biggest move of Dave Lewis’s tenure to date and one that has its supporters and its critics.

The key critic was non-executive director Richard Cousins who quit over the Bookers deal. He was in a “different place” to the rest of the board, according to Lewis. Perhaps his concerns have been played out across the media today.

Tesco secured a significant slice of the convenience food retailing sector

Subject to CMA approval, Tesco has secured a significant slice of the convenience food retailing sector, the sector that is experiencing the fastest growth. It also secures space in the eating out landscape, from coffee shops to Michelin starred restaurants.

The quiet success story of One-Stop is set to be played out with higher decibels in the coming few years, giving Tesco more than a foothold in convenience food retailing.

How will the grocers respond?

Morrisons took the Amazon route, Tesco the wholesale route, Sainsburys tried the discount route, and Asda, well what of Asda? Asda Christmas trading is expected to be weak, market share is slipping and they do not have any presence in the convenience sector. It will be interesting to see how Asda responds, but respond they must.

Sainsburys will continue to plough its own path, with online and convenience performing well and Netto binned. That said, Sainsburys do need to evolve in line with the customer to remain competitive.

The pros of the deal for Tesco are many

The pros of the deal for Tesco are many: scale, penetration into growth sectors, getting Charles Wilson onto the Tesco board, access to more click and collect sites. In fact it is hard to identify any cons.

For Booker, range and buying strength cannot be underplayed with this deal. It’s customers could also have access to Tesco branded ranges putting pressure on brands to compete on price. Marmite-gate anyone?

It’s a fascinating new chapter in food retail that is opening before us. Let’s not read too far ahead though, surprise endings are much more fun.

grocers christmas takeaways

The Grocer’s Christmas Trading Takeaways for 2017

We were all nervous but overall the grocery sector had a good Christmas trading period. We are still waiting for Asda to report which will bring the average down, but with the other Big 4 retailers all in positive territory there is reason to cheer.

Taking the discounters, Iceland, M&S food and Waitrose into the mix, we can see a few commonalities that are worth noting. (Sean Clarke, take note).

Premium

Aldi scored well on sales for premium ranges, as did Morrisons. Sainsburys has been the grocer to trade up to, but this year the grocers delivered a good enough premium range themselves to negate that need to go elsewhere. Sainsburys didn’t deliver a compelling-enough reason to coax shoppers away from lower prices and suffered a weaker like-for-like sales growth as a result.

aldi premium

M&S food sales growth was also at the lower end of the range. While the grocers have been developing range at very competitive prices, M&S have taken their foot off the gas. Waitrose delivered strong sales too, but Waitrose 1 which launched this year has helped add sales to the top line.

Takeaway: Premium sector is out-performing total grocery. Develop unique ranges building on current trends like free-from, invest in its branding and marketing. Don’t rely on price in this sector.

Availability

In our Christmas store visits we saw some shocking examples of availability with Morrisons topping the leader board. They moved to sales based ordering in 2016 which is never an easy transition and suffered as a result.

Morrinsons Christmas availability

Despite that they delivered a remarkable like-for-like sales growth. Imagine what it could have been if the ordering process had been further embedded. Waitrose too had patchy availability throughout the store leading up to Christmas.

The missed opportunity should be quantified and made into a screensaver for everyone in the businesses.

Takeaway: Quantify the missed opportunity each week from poor availability and use it as a motivator for process improvement.

General Merchandise

All the grocers saw a boost from general merchandise and clothing, building grocery transaction size with additional purchases whether it was a Christmas jumper of the must have toy of the season. Tesco saw a fantastic lift in toys, outperforming the market by 17%. Argos saw a 4% like-for-like sales growth which makes Tesco’s seem all the more remarkable at this competitive time of year.

Morrisons Christmas review

Morrisons had a very strong seasonal aisle and Sainsburys reported 10% like-for-like growth on TU clothing. This all plays into the supermarket’s core strengths: the space to stock broad ranges and in depth where needed and feature merchandising in store for key ranges.

Takeaway: Build on customer shopping missions and support them with ranges that are merchandised and marketed well. Don’t be tempted to try to increase range in convenience stores to take advantage of GM growth when it will compromise shopping mission.

Promotions

Tesco admitted that they lost sales to dropping the clubcard boost on general merchandise compared to a year ago, and Sainsburys all but eliminated promotions pre-Christmas.

waitrose Christmas

Meanwhile Waitrose did one day only timed category promotions that drove sales early in the season. These promotions were advertised on till receipts through the week. There was minimal incremental workload as a result as whole categories were promoted and did not have to be moved.

Takeaway: while a strategy that is based on EDLP is right for the market, there are seasonal events that need the lift to remain competitive. Remain flexible and consider mechanics that stay true to the strategy but also true to customer needs.

As mentioned earlier, Asda are yet to report but we envisage similar learnings to come from their trading update. Availability wasn’t always consistent, excitement and promotions were lacking and there is a gap where trade-up and premium could sit.

Christmas planning for 2017 will be underway already and these lessons will be taken on board. The landscape will continue to subtly shift in the meantime, the economic climate will see a not-so-subtle shift at some point, making it another interesting year of retailing. But we wouldn’t have it any other way.