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Amazon just passed Go

Amazon is a retail disrupter. Many retailers still hold a fear of what the world’s largest retailer will do to their established business models. On the other hand, many other retailers, rather than let fear paralyse them, use Amazon as a sharp stick to remind them to keep adapting, to never be satisfied, to move with the customer.

What Amazon are good at, above all else, is their relentless observation of the customer. This enables them to spot trends and opportunities and make the experience better, and they are never satisfied that they have ticked all the boxes. Amazon Go is a perfect illustration of that, adapting to smaller basket sizes and time poor customers with technology.

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Tesco, of all the UK grocers has taken this on board; the phrase “customer-centric” litters every Tesco press release and it’s not just lip service, sales are growing again. Sainsburys has acquired Argos and is now sniffing around Nisa, citing customer synergies and improved shopping missions and prices for more customers.

And then there is Morrisons. There isn’t that much to suggest Morrisons are moving with the customer at the same pace as its competitors and yet they have a relationship with Amazon and it could be argued are the more forward thinking of all the Big 4.

When the deal was first announced we thought, yes, that’s a good deal for Morrisons who at the time were faltering with little excitement on the agenda to entice customers into store. In hindsight, and with the new knowledge that Amazon have acquired Whole Foods, there is a more unnerving scenario forming in our minds.

Has Morrisons been astute enough to recognise that Amazon will not stall in their desire to penetrate further into the grocery market and that by entering into a relationship with them in the early stages of their market penetration gives them an advantage? Or has Morrisons positioned itself ready to be consumed by Amazon in one big bite?

Amazon Go, the grocery format with few staff and no checkouts, is a disrupter if it moves into scale. The benefit to the bottom line from reduced staff, where margins are recovered and inflation managed in a struggling economy, is a very attractive model. It is likely that Amazon have acquired Whole Foods as a vehicle to accelerate Amazon Go.  There are trademark applications for Amazon Go in the UK already so it is only a matter of time. And Morrisons already have a relationship with Amazon, the biggest retailer on the planet. Smart or foolhardy?

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Fashion Retail Urgently Needs Better Productivity

Fashion retail is in a tough place, and it’s becoming tougher. Sales are more difficult to achieve, margins are under pressure from rising costs, and the weather is being no more predictable with every season.

Just like most retail business, the largest cost for fashion retail is the labour line so we are very surprised when we review a retailer’s wage and productivity model to see how much we can help them save.

Typically, the science behind the allocation of hours to stores is not based on fair and balanced decisions, or in fact, any science at all. The flag ship store is given an easier ride to help it stand out under the gaze of customers and stakeholders. All this does, however, is create an unbalanced and unfair wage model. Addressing this unbalance and getting all stores to work equally hard is a valuable place to start saving cost.

It is not just about redressing the balance; many retailers are carrying out non-value adding tasks too. It is amazing when sales are slowing, retailers can busy themselves with tasks rather than serving their customers. There are only so many times you can count the change float.

By helping retailers review these tasks, changing or improving the processes and therefore the efficiency, we have helped retailers save millions of pounds a year.

One of the most common places to find ‘tasks for tasks sake’ is in the store room, often labelled the engine room of the store. Unfortunately, this engine room is saddled with complexity, confusing and time-consuming processes that are expensive and ineffective.

Fashion retailing is not rocket science. When we are given the opportunity to help a fashion retail business cut through the task-treacle and get back to a simple retailing formula, we not remove unproductive processes, we also leave a fitter fashion retailer with lower costs and more to invest in its future.

Asda – Some Quality Decisions Needed

By Phil Dorrell

The woes of Asda have been well documented by countless newspaper columns and down beat interviews. After 11 consecutive quarters of sales decline the time has come for a response that moves away from what it has always done; after all the definition of madness is doing what you’ve always done and expecting a different result.

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Chasing the drifting spend by reducing prices further and continuing to reduce costs is frankly silly, yet the paymasters at Wal-Mart will want costs decreasing ahead of sales. With margin and operating profit apparently declining too, it all adds up to a bit of a pickle. The price perception brought about by the discounters is only going to lead Asda further down the wrong path.

As a store manager, competing against Asda in the 90’s was hard as they had a great non-food range, a burgeoning George range and an increased presence of aspirational food, something that Safeway prided themselves on. Now most of this has been washed away.

Asda’s food range is frankly cheap. It might be cheerful but it lacks excitement and is definitely unable to satisfy Sainsbury or Tesco customers. The George range that started off with Next type quality has been cost engineered down to the sort of product nobody is going to be proud to wear, and certainly not show the label. The non-food range is choker with cheap product and the seasonal aisle smacks of lazy buying trips to China. Where is the ambition? Where is the product to recapture the customers who migrated to Aldi for price and stayed because their quality was better?

I am an ex Asda colleague and want them to be better, but this just makes me, and countless others, frustrated that their myopic focus on price and cost will ultimately turn them into a poor man’s Wal-Mart. Asda need a comprehensive range review in every major category to identify where the quality at a great price product comes in. Opening price points should not be sacrificed but aspirational product needs sourcing to win back a consumer who is feeling a little, but only a little, better off than they did 5 years ago.

The other factor in all of this is regional ranging, and I don’t mean the local lamb or the farm cheese but a more discerning look at the product ranges aligned to the demographic mosaic of the area. If in a wealthy area of Wakefield I cannot buy a real French stick on a Friday then Sainsbury here I come.

M&S playing catch up on online grocery delivery

It feels odd to say it in 2017, but one of the UK’s most well-known food retailers are only now announcing a move into online grocery delivery.

M&S have announced their intention to trial online grocery deliveries within certain postcodes. Although the mechanics are still being decided, Ocado have been named as a possible partner for the trial.

Morrisons already partner with Ocado for online grocery and with the expertise of Ocado and the strategic turnaround of Morrisons, the relationship appears to be flourishing. The model operates out of Dordon customer fulfilment centre but is expanding into store picking using technology developed with Ocado.

Different customer, different model

The M&S model will probably look a little different, primarily because the range is much narrower than that of Morrisons, and the basket size smaller. Nor is the customer shopping mission comparable, with M&S catering more to the convenience, meal for tonight, market compared to Morrisons family shop mission.

If the Ocado deal goes ahead there will be a couple of options: will M&S list its range on the Ocado website, like Waitrose, or will Ocado assist M&S in fulfilling its own orders? The later seems more likely but with smaller orders the economics would be challenging. Scale is imperative: more orders, more picks, more journeys, equals higher costs.

Smart move

Ocado launched Smart Pass, like Amazon Prime, where customers pay a subscription rather than for each delivery. This has resulted in more transactions but smaller basket sizes for Ocado, shopping more often and completely aligned with the convenience supermarket shopping mission. M&S would fit that model very well, loyal customers shopping frequently but with smaller basket sizes.

Playing catch up has its advantages

Amazon reportedly took a punt on Prime, more on gut feel than substantiating data. Ocado may have made a similar decision. But by the time M&S launch, Ocado will have data to support a decision and this knowledge will be attractive to M&S. Sometimes playing catch has its advantages.

The timing of M&S online grocery shopping while late, has the advantage of learning from other grocer’s business models and Ocado’s now profitable operation. M&S will understand the pitfalls to avoid and the points of advantage to seek out. Expect small incremental steps rather than giant leaps.

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Planning ahead puts Tesco ahead of plan

It’s a far cry from the £4bn Tesco earned 5 years ago but it is still a very healthy improvement on last years profit in a grocery landscape that has changed almost beyond recognition.

In order to compete in this climate David Lewis has adopted a multi-pronged strategy: product ranging, cost cutting and market penetration.

The introduction of entry level sub-branding was designed to compete head on with the discounters: quality at good prices to deliver great value for money. Despite initial challenges, mostly by the press rather than actual customers, the sub-brands have found their place in customer’s baskets and a comfortable market share. Such it the range success, further products are being added.  On their own, however, they are not enough to dent the discounter’s market share.

The need to compete without going head to head on price sets Tesco apart (and ahead) of Morrisons and Asda. Cost cutting through switching to twilight rather than night filling gives Tesco room to manoeuvre although the effect of this hasn’t been without it’s negatives. On our recent visits we have noticed availability issues coupled with a slip in the standard of presentation.

Cost cutting looks to have a continued focus this year given the drop in the number of 24 hour stores so we will be looking for Tesco to improve standards if they are to maintain customer service. Currently this feels like an area in which Tesco are exposed.

The other strategic move is market penetration and the proposed acquisition of Bookers. There are some hurdles to overcome here, namely some heavy weight shareholder resistance who are concerned by the price, how distracting it is from the core UK business and how difficult it will be to create shareholder value from the deal.

In our opinion this is a good longer term strategy for Tesco. It will result in increased buying power and adds a revenue stream from day 1. If the deal fails to progress a gap will be exposed in cost saving synergies already planned and there will inevitably be a trail of debris to be cleaned up, distracting resource that should be focused on moving forward.

Further out, we are still expecting a move back to overseas markets for Tesco. Now is not the right time for far to many reasons but depending on the pace of change nationally and a signed deal with Booker, we would still expect this to be within a 5 year outlook.

What is clear is Tesco is a retailer with its finger on the pulse of the UK grocery sector. There may be bumps in the road ahead but these are manageable when you have a clear sense of direction and a team that is fuelling the engine. Even the discounters are watching their backs.

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Poundland, Pep&Co and Toblerone

Following the Steinhoff owned PepKor acquisition of Poundland in August 2016, Retail Remedy were invited to a briefing at Poundland, Woolwich to discover what we can expect for the price sensitive shopper on the High Street.

The Woolwich Poundland store was chosen as much for its future as its past: formerly a 99p store, across the street from an existing Poundland, and before that an M&S, it is now a Poundland, and significantly, one of the first to have a Pep&Co shop in shop.

Bricks and mortar retailing is in decline

Pep&Co, set up by Andy Bond, burst onto secondary High Streets in 2015, with the ambitious but delivered plan to open 50 stores in 50 days. Now with 88 stores, the next target is 100, which will be realised 674 days after opening their first. No mean feat at a time when we are told bricks and mortar retailing is in decline.

Now with the acquisition of Poundland, and the ability to run the two brands under PepKor UK, the next milestone on the horizon is 100 Pep&Co shop in shops by the Autumn of this year. Pepkor has a strong leadership team, premiership quality even, but hopefully not with the short tenure ‘premiership’ is normally associated with.

So, what did we learn?

Poundland – Loving the Pound

The road ahead looks positive, starting with addressing the legacy issues of Poundland and the 99p stores acquisition. The fact that the remaining un-integrated 99p stores has now been placed into administration, demonstrates the priority of this. Additionally, it was communicated that of those stores, most were unprofitable and no 99p stores colleagues are losing jobs.

We have commented previously that the inclusion of higher priced items in Poundland was a risk, and could derail the simple pricing mechanic for which Poundland is famed. The theme of “loving the pound” and ‘simplifying multi price” was high on the agenda of the briefing.

The bulk of Poundland sales come from items priced at a pound, but when Poundland add simple price points outside of this, which still drive great value to the customer, then it does work.

Expect price points of 50 pence, £2 and £5 to appear in Poundland stores, but expect them to be clearly defined, segmented in separate bays and ends and expect those items to represent great value. In doing this, Barry Williams said, “we can access other products in other categories”.

More Toblerones

More on the agenda for Poundland is creating more Toblerone. Famous for selling 170gms of great branded chocolate at £1, everyone inside Poundland is passionate, almost obsessed, about Toblerone. But what other lines can they become famed for, obsessed about and convert to best sellers?

Ultimately the customer will decide: items that represent great value, that they shop Poundland for, the cross-town deals that people talk about and keep coming in for. With these high volume unit sales, comes even better purchasing from suppliers and greater margin opportunities.

The potential “Toblerone” of the future could be reading glasses at a £1 and quality phone charging cables at, you guessed it £1.

Simple but effective, focused retail processes

The introduction of a new availability process for the top 600 lines sold in Poundland, means store colleagues and managers can highlight the best sellers, and ensure 100% availability to the customer. Items on the top 600 list are highlighted on the shelf edge, have space flexed to ensure greater shelf fill, and are subject to daily reports to check for missed sales and potential issues.

Why 600? Well they account for 40% of the trade, and could be worth 2% LFL this year; simple but effective ways to drive sales, much like Poundland itself.

The next challenge is product, how to generate more new products and ensure the store is always fresh. The price lever has been pulled to the max, so product needs to be the differentiator. From what we saw today, there are plenty of reasons to be optimistic.

Helping customers discover Pep&Co

Fashion for the whole family and aimed mainly at Mums with kids, the Pep&Co brand is price conscious. There was concern at bringing the shop in to Poundland, but so far it has been well received. Poundland stores are often alongside stores such as Primark, Select and independents, so the customer is already there.

Pep&Co’s biggest challenge is customer awareness. Still a brand in its infancy, and although a great success story, there are still only 88 stores to date. It is hoped the integration into Poundland will help spread the word. The target, as well as 100 full Pep&Co shops by Autumn this year, is also 674 Poundland stores selling 5-6 bays of Pep&Co basics.

The team are anxious to show that Poundland has brought in a fashion retailer, and not that Poundland is now selling clothes. Although Pep&Co does range some £1 price points such as the kids school polo shirt, the highest price point is £20 and 95% of the range is under £10.

The focus now is continuing to simplify and drive Poundland, whilst growing and integrating Pep&Co. GHM has now gone and all the stores have become Poundland which does help to simplify the offer. At a time when UK Inflation is increasing, Poundland’s answer is give the customer a fixed price retailer. Makes sense.

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Is the thinking at Sainsbury’s as joined up as it could be?

The latest Sainsbury’s “Food dancing” advertising campaign wasn’t to everyone’s taste. The POS in store seemed random and did not obviously connect with the aisle ends it highlighted. However, once the TV ads launched, the dots were joined. Sainsbury’s, rather than selling groceries, wants to sell an experience. An experience that brings people together and an experience that is highly enjoyable: cooking and eating.

Buying groceries in itself is a bit dull, let’s face it.

The in store experience can be more entertaining but ultimately it is what happens at home with the product you have bought that is the fun bit.

Sainsbury’s recognise that. They are building brand associations with fun in the family kitchen.

And it’s not just food.

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Tu Clothing interactive ads respond to weather

Sainsbury’s is launching Tu Clothing outdoor responsive ads which change depending on the weather. We all know how weather affects clothing sales and the challenge customers often face with fashion seasons being out of sync with British weather.

Playing with the fact that the weather is changeable in Spring, and showing clothing that is weather appropriate in the ad, makes TU clothing immediately relatable.

The caveat to what is, in our view, a clever campaign, is what the customer finds in store.

From advert to in store experience

We have challenged TU clothing in-store execution in the past and we are still to be convinced that Sainsbury’s aren’t leaving sales in the aisles by not addressing merchandising, signage and simple stock principles.

Reporting on Sainsbury’s Q4 we see that clothing sales have increased 5% which is ahead of the market. Very commendable for a range that is of high quality and competitively priced so we can only imagine what it could achieve if store standards were addressed in all stores.

We hope that the dots have been joined and that what the customer’s perception is of TU clothing after seeing the advert, is supported or surpassed in store.

Whether the campaigns succeed or fail will depend on meeting customer expectations in store. No advertising campaign can deliver sustainable growth if the dots are not joined and the whole operation isn’t working to the same agenda and timeline.

Sainsbury’s are also working to a cost cutting agenda and to date this looks like it is in conjunction with improving customer service. We feel confident that this will continue to be the case and yet there is still the niggling doubt that re-investment may be directed towards the ‘hot’ projects like Argos digital stores, Habitat when store standards are key to future growth in an unstable market.

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Is your retail strategy on the back foot?

Welcome to a week when retailers look back in hindsight and wish they had started the process sooner.

Clarks are reviewing their estate with a view to exiting sites that are no longer paying back. Asda are looking at another quarter of sales declines and are questioning decisions of times gone by, regretting being over-zealous when they trimmed muscle along with the fat.

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A retail strategy review is underway in both retailers, and will take them forward. The regret is that it is a reactive review and not proactive.

Hindsight is a marvellous thing.

The fact is it is typically when a retailer finds itself in a challenging position that we are called in. They are looking for an objective point of view and solutions to restore the business to growth, reactive rather than proactive. The back foot is an awkward position to push forward from and means you are off to a slower start and are playing catch up.

If it ain’t broke, don’t fix it.

But then inevitably it does break. Retailers should be continually revisiting its retail strategy, tweaking and testing to move into the next gear. A static strategic plan, is a static retailer. It does little to prepare a business for the future and does little to protect a business from what will be coming around the corner.

Preparation is key. No, actually evolution is key.

A business that is continually evolving, re-assessing the market and its customer’s needs is one that will out-pace its competitors. While it will not be 100% right 100% of the time, it will be better prepared for change, more agile and more proactive. It will be a business that doesn’t put up barriers. It will be a business that is positioned for growth.

Our advice to retailers in a reactive position is to identify the problem, address it but be proactive from here on and build in regular temperature checks when the retail strategy is assessed and tweaked.

While the retailers in this week’s headlines try to push off from the back foot, we would welcome the opportunity to help you get onto the front foot and help you discover the value of evolving.

 

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Asda leaving market share on table for Aldi

Research published this week by Shoppercentric reveals that customers rate quality and service over price as critical factors in determining where to shop.

In the same week, Aldi reach new highs in market share overtaking Co-op into 5th position in the UK grocery market.

Coincidence?

Aldi and Lidl were in the right place at the right time, with discount prices on everyday grocery items. Price was critical at the height of the economic crisis and those prices were hard to ignore. Asda held their position well in those early days also benefiting from their price positioning.

In today’s market however quality and service are taking a lead. And Asda’s market share is still dropping.

Aldi have found a sweet spot

Prices are low, quality messages and premium products are evident and have traction and customer service is acceptable. What Aldi lack in time at the till, they make up for in friendliness and well stocked shelves with staff on hand and willing to point you towards your desired produce.

Asda have relied too heavily on price and haven’t been keeping pace with customer’s need for quality and service.

In the same Shoppercentric research, convenience stores saw the biggest gains (47% of shoppers used them in the past month – an increase of 4% on 2016) compared to supermarkets. Asda are in need of a convenience format if they are to regain lost market share. It is highly unlikely that they will launch a new format directly, but it has been mooted that they might buy a facia to occupy that space.

Asda can buy into the convenience sector can they buy quality and service?

Service can be addressed. Our productivity model has saved retailers millions of pounds already that has been re-invested into the business to support customer service and operations. It allocates resource appropriately across stores and schedules labour hours to maximise efficiency at store and department level. In store availability is improved, customer service is optimised and margins are supported through cost reduction.

What productivity modelling can’t do on its own is change organisation culture and quality perception. If there isn’t a customer service culture, change must come from the top and quality perception can come through marketing and an adjustment in key messages.

Aldi operates a model that Asda can learn from. Asda has brand equity that can be leveraged and together with operational effectiveness can deliver the growth that has been lacking. Naturally there is the temptation to look forward and guess how close Aldi could get to Asda’s market share. Closer than it is now is a certainty, but how close depends on Asda.

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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.