If we wanted to be there, we would not have started from here!
A recent article in the Telegraph commented that Supermarkets need to be smaller and smarter
Large retailers like Sainsbury’s, they said, have a capacity conundrum, but filling the excess space with toasters and hoovers isn’t the answer. The Telegraph are, of course, absolutely right in suggesting that “old speak” – build it and they will come, no longer works. So ranging as if your goal is simply to sell more to a surplus of shoppers must be replaced by a ranging that will actively pull people in.
It is, of course, entirely true that smart money is building smaller, more local stores. A trend that was foreseen in a Coca Cola report in the 1990’s. So not exactly new. Tesco, then, are to be congratulated for seeing this trend earlier, and building their Express convenience chain.
In fact retailers tend to be very change averse even though they are typically very proud of their systems, and, to various extents, their insight into their customers. Normally the last thing they criticise is themselves. Typically it takes a seismic shift – such as we are seeing now – for retailers to see the writing on the wall. Often, of course, the writing turns out to be an epitaph in the case of KwikSave, Somerfield, Athena, Comet, Woolworth and many more.
Some recover. Sainsbury have already come back in the last century from rapidly losing their lead grocer status to Tesco. Amongst the issues they had to face was the fact that they were very upwardly reliant for their decisions. Board level policy handed down from the Sainsbury Family in tablets of stone proved to be as out of touch with the new reality as dunnhumby data has been in predicting the recent flight from Tesco.
Tesco grew to the premier position with the famous slogan “Pile it High and sell it Cheap”. This growth policy has now become “lets have little piles, make a good margin, and rely on being the biggest with the best range”. They all rely on their famous systems to allow them to thrust all of their stock costs onto their suppliers.
Sadly, both they, and Asda have suffered from a pretty simple issue. If you rely on your suppliers to manage a Just in Time delivery system you really do need to make sure that you get your promotion forecasting and ranging right. At the same time, you also need to be locally responsive to make sure that your store delivers what the locals need. Why is this important?
An example here. In the City of London, financial companies report their bonuses at the end of January. Tesco stores all de-stock their champagnes just after Christmas. Stores with an astute eye can cream hundreds of thousands of pounds by having a local view. Store Groups are very variable in the extent to which they allow local demand to influence store supply. Many – despite real evidence to the contrary – persist with the feeling that their supply chain has all of the answers.
Asda, as an example, have local initiatives such as trade my store, and trade my promotion. This allows managers to flex their supply to meet local demand. Except that they have recently started to close down all of these avenues. Even, and perhaps this is worse, if managers express a preference to have additional stock, they can ask for it, plan for it, but find the depot does not deliver. This is simply because a store order goes back no further than the depot – certainly not far enough back to influence supply chain and buyer. Asda seem to have stopped all demand based allocations to stores.
So their recent decline in form, by retrenching to a centrally held belief in their all powerful systems is letting them down too.
Lastly in Tesco, clients have struggled to find a way of getting demand based additional allocations out to a select few stores. Discussions at conferences right at the top lead to conflicting views on the possible, and eventually giving up.
The benefits of giving stores more to work with is two fold;
- The promotion uplift is much greater as the initial demand can be met to a much greater extent than normal
- The tendency for stock computers to over-order in the last week of a promotion is reduced since if you satisfy demand earlier, it drops away faster.
Overall stock turn stays the same or actually improves, while sales goes up, often dramatically as with the chart – where the core (amber stores) had just a few outers more. In order to appreciate this you need to understand that these specific stores with more of the target market in them respond much more to a special offer. Not a surprise. Where would you expect to sell more Pot Noodles, the University of Westminster campus, or the Palace of Westminster. And how much more would they sell if you halved the price?
Yes, a great idea. The problems for these retailers lies in the fact that they don’t seem able to envisage a happy medium. That is to say, one where they allow flexing within a system that can deliver it, but also offer advice to managers on what to flex, and give them the space to do it. At the moment 60% of purchases are on promotion, but only around 30% of space is actually flexible. This space, gondola ends, mid shelf etc. is typically sold en bloc to a manufacturer for money. A manufacturer expects to find his product in all of these store-critical positions even though they may not be brand critical at all.
Where to from here?
All of the majors have noted that they are not great at managing their smaller stores. To their credit, Asda said so after their effort to turn their newly acquired Netto stores into mini Asda’s showed that the difference was much more than simple scale.
What retailers have always needed is a credible offering bought into by their shoppers. Not just those with a “loyalty card” but all. The discounters have hijacked value – even though it is actually simply price – that is drawing AB’s in, in droves. The large stores have to discover value again, but with a note that the old days of price competition between themselves has now gone. The Sainsbury advert comparing their prices with ASDA is not only laughable, but when they are mainly losing to the discounters (AB customers now make up 31% of Aldi/Lidl customers), demonstrates a level of out of touch they will regret when the discounters open up more stores next door.
Ehrenburg said that the first duty of marketing was ensuring real, and virtual, availability of your product to your core customers. He did not say, “Oh, and by the way, they are all the same everywhere in the country”. That’s what the retailers say, and of course, it is not true. “Oh”, if Tesco were here they would say, “that is simply not true. We have our Finest stores, and our price sensitive stores, and we adjust ranges accordingly”.
Yes, they do. However, our local Express worked out that we were an upmarket neighbourhood. So they gave us an entire store full of Tesco Finest products. If you want own brand there is a Lidl a mile away with quality own brands at half the price. Tesco range their own brands at eye level, despite the fact that people navigate by brand. Another example of “old speak”. We Tesco are confident you will continue to visit, so we make life difficult for you to shop the aisle deliberately so you will spend longer.
I am minded to recount here the millionaire at the turn of the century who left his entire fortune in non-negotiable buggy whip shares. As he said in his will. There will always be a need for efficient urban transportation…..
What you want – when you want it
The only credible positioning is relevance. Discounters keep costs down by having a really tight supply chain, and a restricted range. Large stores need to focus on local needs, and recognise that, if they do this, they need to flex more promotion space locally too. Shopper Value rests in being able to see more in one place of what they want, and actually working much harder to bring more people in to see the range.
This actually means paying attention to your local market. What do they want, and when do they want it. You can advise your local manager of what might be likely to happen, So he can decide whether to take your advice, or not.
Then you can fire the ones that don’t take a risk.
Can you offer advice on local ranging? Absolutely.
Will this happen? You tell me. Please.