Tag Archives: Sainsburys

In Lewis Carroll‘s ‘Through the Looking-Glass’ Alice takes part in a race with the Red Queen only to discover that despite running constantly she remains in the same place. The Red Queen is not sympathetic: ‘A slow sort of country!’ says the Queen. ‘Here you see it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast!”

Do you run to stay in one place or do you sprint to expand your business?

And that is the dilemma facing all Market businesses. Do you run to stay in one place or do you sprint to expand your business? You certainly can’t afford to be complacent and stand still or you’ll be going backwards. That same challenge is faced on a grander scale by the ‘Big four’ Supermarkets. Between them they sell some 70% of UK groceries – Tesco has 28% of market share, Sainsburys has 16%, Asda 15% and Morrison 10%. If you factor in the ‘LADS’ (Limited Assortment Discounters i.e. Aldi 7% and Lidl 5% ) then less than 20% of the UK groceries market is up for grabs and where do you run TO? They have to keep running to stay in one place and keep their shareholders happy. ‘Where next?’they constantly ask themselves

If you are a truly international player like Walmart then you can play on an even bigger, global scale

Well, you can keep one step ahead by buying-up your competitors (Morrisons and Safeway) or buying better distribution (Sainsburys and Asda) or simply building more stores (Tesco in Eastern Europe). If you are a truly international player like Walmart then you can play on an even bigger, global scale. That seems to be one reason for the massive £12 billion Sainsbury/Asda merger announced at the end of April.

UK retail is arguably over-provided with supermarkets

Walmart bought Asda back in 1999 as a way to expand into the UK. But Asda has stubbornly lingered in third place because UK retail is arguably over-provided with supermarkets. The shift online has left many towns and shopping centres with ‘bricks ‘n mortar’ stores chasing Shoppers who have shifted online. This led to the downfall of Woolworths and BHS and has left House of Fraser and Debenhams struggling. As early as 2006 Walmart discovered their American retail formula did not work in Germany and sold-off 85 stores and took a billion-dollar hit.It clung on to its investment in Asda for another 10 years whilst privately conceding it was going nowhere so when Mike Coupe, the CEO of Sainsburys suggested a merger they must have jumped at it.

The merger of Asda and Sainsburys will with one leap knock Tesco into second place

The merger of Asda and Sainsburys will with one leap knock Tesco into second place. It will also enable Walmart to pocket £3 billion in cash whilst still retaining 42% of shares in the new business. That £3 billion can then beshovelled into the unconsolidated and rapidly-growing economies of India and China that ARE crying out for supermarkets. That’s globalisation for you.

And there’s another big reason behind the merger: Amazon.

Go online and search for Amazon Fresh Grocery. Amazon is only now establishing itself in the UK groceries market but in the USA it has bitten big chunks out of Walmart. Amazon works on wafer-thin margins and is building seriously big distribution centres around the UK for next day deliveries – bicycles, baked beans or bread. Take your pick. It challenges the Big Four because it is all online without the bricks ‘n mortar overheads. There are rumours it could simply buy its way into the UK groceries market by purchasing Ocado.

You could almost feel sorry for the Big four

This has prompted wry comments from retailers such as Sebastian James, Chief Exec. of Dixons PC World and Carphone Warehouse. He has been widely praised for his mergers and relocation out of town to fight-off Amazon’s online dominance of the electrical goods market. He knows better than most what motivates Amazon and made the pointed comment that:“Why is Amazon getting into the food market? Does it really think it can make money by selling food online? Definitely not. It’s all about getting customers addicted to Amazon Prime and the rest of the Amazon online offer. Amazon doesn’t want to make money out of food and that could make it a big threat for supermarkets.” You could almost feel sorry for the Big four. Their sales are likely to be hit in the same way they have made traditional Market Halls suffer over the last 10 years.

There are a lot of very worried Supermarket suppliers

According to a Sainsburys’ statement both Asda and Sainsbury will continue to trade as separate brands with Argos concessions being put into Asda stores. Not surprisingly, Sainsburys’ shares leapt 20% at the announcement whilst Tesco and Morrisons fell by 3%. Sainsburys announced the new, combined network of 2,800 stores will enjoy operating cost savings of £500m p.a. so employee trades unions are understandably nervous – the merger affects 330,000 jobs. And there are a lot of very worried Supermarket suppliers. The Federation of Small Businesses is pressing for assurances the £500m savings won’t simply be achieved by pressurising suppliers into lower prices ‘a la Tesco’.

The CMA will be looking at whether replacing the Big four with the Big three will be good or bad for Shoppers and Suppliers

The merger is expected to be completed in about 18 months after first obtaining approval from HMG regulator, the Competition and Markets Authority. The CMA will be looking at whether replacing the Big four with the Big three will be good or bad for Shoppers and Suppliers. Sainsburys/Asda are likely to suggest the rise of the ‘LADS’ plus online competition like Amazon still guarantees variety of choice and low prices for shoppers. The CMA will also have to assess whether the 2,800 stores need to be reduced in number. It can impose takeover conditions to ensure Shoppers get a choice of retail outlets in their area. The ‘proximity test’ could bar the merger from operating two or more stores within a mile or a five-minute drive of each other. Some estimates suggest at least 80 Asda stores are located within a mile of a Sainsbury outlet so may have to be closed. This would be bad news for institutional Landlords as well as employees.

‘We’re in the money…’

Mike Coupe has good reason to look pleased. The merger could be a brilliant move, knocking Tesco sideways at a single stroke (and increasing the value of his share options by about £600k). Unfortunately Mike then dropped a clanger. Whilst waiting to be interviewed by ITV someone switched on the microphone and he was broadcast happily singing to himself ‘We’re in the money…’ – the hit song from the musical ‘42^ndStreet’.

If you are an ambitious business promoting itself on the internet then you need to know about the General Data Protection Regulation which comes into effect on 25^thMay. The Customer database you are building is subject to the regs., especially if you ‘process’ the information e.g. categorise Customers so you can target them with special offers.

If you are ‘harvesting’ Customer details to promote or sell direct then you need to gear-up to comply

Online promotion and sales are THE growth areas in retailing, way ahead of ‘bricks and mortar’ sales. If you are ‘harvesting’ Customer details to promote or sell direct then you need to gear-up to comply. The new law replaces the Data Protection Act 1998 which introduced safeguards to protect personal privacy but this new legislation enhances the rights of ‘data subjects’. They now have the right to access data held on them and demand it’s deletion or correction or block its processing. The ‘Big Four’ Supermarkets have been gearing up for years because of the staggering amount of Shopper data they hold and the hefty fines for non-compliance.

Data collection, processing and sales is very VERY big business indeed.

Supermarkets and small businesses are affected, but the main target for the legislation is data collection Companies. Data collection, processing and sales is very VERY big business indeed. It drives everything from your credit rating to which special offer leaflet drops through your letterbox. It is no coincidence that adverts which reflect your interests pop-up when you log onto Google. Parliament has demanded Mark Zuckerburg of Facebook reveal what he knows about us and who he is selling it to so has sent a couple of minions to dodge the questions.

The Tesco Clubcard introduced in 1995 was arguably the cleverest idea ever devised by a retailer

Supermarket Loyalty Cards predated harvesting by a couple of decades. It is amazing what a seemingly innocuous flow of till receipts reveals about your buying preferences, your income, family members and where you live. This info is absolute gold dust to a retailer who can’t decide whether to open a new store in Mudford-on Sea and what to stock. The Tesco Clubcard introduced in 1995 was arguably the cleverest idea ever devised by a retailer. Within 12 months Clubcard holders were spending 28% more at Tesco and 16% less in Sainsburys, paving the way for the equally clever Nectar card now held by 50% of UK households. The tacit agreement of Shoppers to reveal personal details paved the way for data harvesting as (allegedly) used by Cambridge Analytica to target swing voters in the US Presidential election.

Ensuring responsible use of personal data is the purpose of the GDPR

Ensuring responsible use of personal data is the purpose of the GDPR. It includes the requirement that data subjects consent to processing via a ‘Privacy Notice’. If you operate a database I suggest you go online and search for GDPR obligations.

If you make a few bob on the side by shifting unsold stock on Ebay or Facebook remember that Big Brother is watching.

HM Treasury has not been slow in seeing the possibilities of data harvesting. If you make a few bob on the side by shifting unsold stock on Ebay or Facebook remember that Big Brother is watching. Particularly so if you close down your stall and start trading online from a sunny beach.You may remember Manchester trader John Woolfenden who was jailed in 2014 after pleading guilty to £300K of tax evasion and money laundering. He ran an online business from his home selling DVDs. Despite sales of £1.4m over six-years he somehow overlooked the need to register for Vat or declare profits on his self-assessment. One thing which really ticks-off HMRC is failing to pay Vat so they went for him and he went down for two years.

HMRC now pays up to £38k p.a. for ‘software analysts’ to compare your Facebook holiday pics with your tax return and Ebay transactions

That case was a bit of a wake-up call for HMRC. Since then they have geared-up to match the retailers. The September 2017 Finance Bill gave HMRC legal powers to force E-Commerce sites such as PayPal, Ebay and Booking.com to reveal customer transaction details. HMRC now pays up to £38k p.a. for ‘software analysts’ to compare your Facebook holiday pics with your tax return and Ebay transactions. If you and your missus lounge around on a Caribbean beach and send pics to your kids whilst selling online and declaring only £20k income p.a. you will not look kosher. HMRC can demand your transaction records from Ebay, Booking.com and Paypal and you won’t even know about it.

E-commerce leaves a lovely digital paper trail which is the price you pay for expanding your business

E-commerce leaves a lovely digital paper trail which is the price you pay for expanding your business. You can remain all-cash of course but remember that your accountant, bank and even your solicitor don’t guarantee client confidentiality any more.The 2017 Money Laundering etc Regulations require them to report any dodgy dealings. All in all it may seem a bit depressing but don’t despair. The data analysts don’t care about your unwanted Christmas presents sold on Ebay but whether your transactions exceed some mysterious threshold they have set. Remember that when you are boasting about your hols on Instagram.

Last month’s leaking of the ‘Panama Papers’ containing details of secret offshore investment funds caused some nervous squirming on parliamentary benches. With commendable alacrity the PM, Chancellor of the Exchequer and their shadow counterparts published their personal tax returns which showed they have nothing to hide and are in fact boringly normal. The most normal of all is Jeremy Corbyn who was fined £100 for his handwritten late return.

Government advisors are nervously gauging public opinion

The Panama leaks added another couple of layers to the EU In/Out debate after UKIP leapt in to ask why the government had not delivered their promise to repeal inheritance tax and why the EU continued to allow onshore members like Luxembourg to offer tax ‘sweetheart deals’ to help Starbucks avoid tax altogether. Government advisors are nervously gauging public opinion on the vote as it seems pretty evenly-split in the run-up to 23rd June.

Sainsbury’s buy Argos from the Home Retail Group

Meanwhile Sainsbury’s Chief Exec. Mike Coupe has finally bought Argos from the Home Retail Group, but only after HRG sold-off it’s Homebase business to boost the share price to 171p. That is 75% more than when Mike started sniffing round in January which may have left him a little bit nervous about the dividends he’s now expected to deliver. He had promised the City he’d not pay over the odds and still be able to generate profits by slotting Argos into underused Sainsbury stores and saving costs for both.

Sainsbury have been looking to diversify from supermarkets and eyeing-up Argos and it’s proven delivery service for some time

Sainsbury have been looking to diversify from supermarkets and eyeing-up Argos and it’s proven delivery service for some time. Mike announced ‘I genuinely have no idea in 10 years’ time how customers will shop but we need to anticipate the possibilities. There may be someone in California who is inventing the equivalent of Uber or Airbnb for our industry. You might want some of your grocery shop to be delivered to the local store, some to your home or you might have a really urgent problem where you want it within an hour or two’. And of course Argos can drop off your new X-box at the same time. Full marks for honesty Mike but it comes with a £1.4 billion price tag and leaves nervous City investment analysts and stressed Argos employees studying closure plans.

A proven way to soothe nerves and reduce workplace stress is to take your dog to work

A proven way to soothe nerves and reduce workplace stress (according to US Researchers) is to take your best friend – your dog – to work. Amazon, Etsy and Google now allow office workers to bring their furry friend into the workplace which lifts morale, reduces absenteeism and increases productivity according to the University of Virginia. In Northern Italy a privately-owned supermarket, Unes of Luino has taken this one stage further and allows customers to take their dog shopping in a specially-designed trolley complete with a hygienic lined basket so Fido can enjoy the view. There are some obvious size restrictions (have you ever tried lifting a Saint Bernard?) but apparently turnover has soared as delighted pet owners flock to the store.

The UK is of course a well-known nation of dog-lovers

Owner Gianfranco Galantini dislikes barking dogs tied up in the rain outside his shop. Shoppers can now take all the time they need to make purchases without worrying about their pet’s welfare. ‘So far’, Gianfranco says, ‘no dog has caused any problem except for one which barked the first time’. The UK is of course a well-known nation of dog-lovers so maybe Sainsbury should follow his example. Unfortunately, Korean shops have already done so but with Fido more likely to end up in a casserole.

Building surveyors also tend to get nervous during storms, often with good reason

Building surveyors also tend to get nervous during storms, often with good reason. ‘Storm Gertrude’ (who dreams up these names?) was no exception and exposed two major failings. Firstly it pushed over a school wall and made Edinburgh City Council ask if their PFI (Private Finance Initiative) partnership to build Schools with Miller Construction had been such a good idea. Someone seems to have pruned the specification too much or the brickies simply left out the wall ties or no-one checked their work – all of which is a bit basic. This prompted the City Council to order their very nervous Building Standards Surveyor to show this was nothing to worry about by standing under the partially-collapsed wall without his safety helmet. The Council then told him to go home and join all the other wee bairns whilst they closed down another 16 schools for investigation.

Secondly, it ruined my planned weekend salmon fishing on the Tay. These storms are appalling. The government must do something.

Christmas trading results confirmed the inexorable move to online plus another problem for struggling retailers – the gulf between ‘bricks ‘n mortar’ retailers who sell online and the ONLY online retailers like AO. Marc Bolland, boss of M&S did the decent thing and threw himself onto his sword when sales crashed 5.8% and the ‘Big Four’ supermarkets all warned of falling like-for-like sales despite improved online performance.

The big winners seem to be the ONLY Online retailers like AO who don’t have any Bricks ‘n Mortar presence

But card issuers like Visa and MasterCard confirmed turnover was UP by 2% – so the difference must have gone somewhere if not into the Big Four’s websites. The two usual suspects are German – Aldi and Lidl – but their sales turnover is still far too small to represent the difference. The big winners seem to be the ONLY Online retailers like AO who don’t have any bricks ‘n mortar presence. They reported a staggering 31% increase in sales – better even than Aldi could achieved. Admittedly much of this was in white goods rather than groceries but it still hurt the big boys efforts to diversify from groceries and household into durables. Changed shopping habits have now impacted on supermarkets just like they on markets when they introduced self-service.

The markets industry still remains predominantly cash-only and ignores the websites and plastic which fuelled the switch.

But if you’re a small retailer don’t take too much pleasure from watching ‘the biter bit’ until you’ve done your own reality check. The markets industry still remains predominantly cash-only and ignores the websites and plastic which fuelled the switch.

With over 80% of groceries and household goods sold by four companies the move online (and to those Germans) has left the big four with some very expensive property liabilities. They’ve been shelving projects and offloading poor performers sites as fast as possible but are left with the dilemma of who will buy them. The obvious purchasers are suffering as much as they are and anyway a vendor will inevitably slap a restrictive covenant on the title to prevent a competitor using it for retail. The clever money is now in redeveloping supermarket sites for housing – very much in line with government policy. The UK is OVER-provided with supermarkets but UNDER-provided with houses. Say Goodbye! to Asda and Hello! to Acacia Avenue.

Big retailers are seeking other ways to diversify and maintain profits whilst reducing their property costs

Small wonder then that big retailers are seeking other ways to diversify and maintain profits whilst reducing their property costs. Tesco tried with their new ‘Fresh ‘n Easy’ chain in the USA (which was a disaster) and still try to fill underused UK space with Harris & Hoole coffeeshops. Not that it’s had much effect – the H&H promos show suntanned South California beach babes with perfect teeth, not Tracey from the Mudford-on-Sea checkout.

Buying Argos and slotting their stores into Sainsbury units could save a lot of operational costs for both

One would-be diversifier is Mike Coupe, the dynamic new CEO of Sainsbury. He’s has been sniffing around the Home Retail Group, owners of Argos (and until recently Homebase DIY) to fill underused space in his stores. His rationale is that Argos has excellent home deliveries, a complementary offer and ‘mature’ property portfolio which would be cheap to offload. Buying Argos and slotting their stores into Sainsbury units could save a lot of operational costs for both and provide Argos ‘Click and Collect’ in Sainsbury convenience stores. Well that’s the theory anyway, but the secret is out. Home Retail shareholders are playing hard to get and have just sold off Homebase DIY to the Aussie retail group Wesfarmers to boost the share price. Mike will have to pay a lot more than he wants and seems to have cold feet. Watch this space.

After ‘Black Friday’ we had ‘Cyber-Saturday’ and now ‘Blue Monday’

And finally: the latest stupid-sounding name which no-one really understands. After ‘Black Friday’ we had ‘Cyber-Saturday’ and now ‘Blue Monday’ – the third Monday in January. This is – allegedly – the most depressing day of the year. Travel agents use it push February Citybreaks for WizzAir which sound like a steal with four romantic nights for two in Riga for £200 – flights, half-board and transfers included. Why Latvia in February? It’s perishing cold but their markets are housed in former Zeppelin airship hangars. It all seems slightly more funky than Mudford.

Unfortunately the name lives on but can be ignored by everyone in the Markets industry

‘Blue Monday’ was invented by the TV channel Sky Travel back in 2005 to drum up interest in their holiday offers but didn’t work too well. It’s owners, BSkyB closed them down after 5 years due to ‘intense internet competition’ which sounds familiar. Unfortunately the name lives on but can be ignored by everyone in the markets industry.

We already know about the kipper season – which, of course is NOT a stupid name.

Supermarkets suffer the same problems as market traders – but on a grander scale. This includes underestimating how long it takes to generate turnover and profit sufficient to cover borrowings. We’ve all seen the enthusiastic but inexperienced start-up who lasts 6 months before the savings run out and he does a midnight flit leaving unpaid rent and suppliers behind. ‘Turnover is for egotists but profits are for realists’ is a classic saying – and a classic argument for cheaper bank loans and more tax breaks. Hopefully George Osborne will consider both now he doesn’t need to worry about re-election.

It took Aldi 25 years to generate enough turnover to become the UK’s sixth largest retailer

It took Aldi 25 years to generate enough turnover to become the UK’s sixth largest retailer. This was confirmed by first-quarter figures showing they’ve secured 5.3% of the retail grocery sector. That puts them ahead of Waitrose (a mere 5.1%) but still a long way short of Tesco at 28%. But every little helps.

What a pity they’re German, not British

At the same time Aldi announced ambitious expansion plans with another nine London stores in 2015 and a nationwide target of 1,000 by 2022. Contrast this with Tesco who ditched 40 + planned openings in the UK plus more abroad before posting a £6.4billion pre-tax loss. The fact that Aldi is both foreign and privately-owned simply rubs salt into the wound. It is not subject to corporate shareholder pressure for increased profits, year-on-year so could take it’s time to understand an overseas market. What a pity they’re German, not British.

It cost Tesco £1.2billion in write-offs when they pulled out in 2013

Asda retained their second place at 17% whilst Sainsbury held on at 16% but is suffering the same fall-out from overseas expansion that characterised Tesco under former Chief Executive Phillip Clarke. Tesco thought the best way to maintain turnover profits was overseas so launched their all-new ‘Fresh ’n Easy’ brand in blue collar USA. But they underestimated just how ‘mature’ US consumers are and that car workers in Detroit don’t understand self-service checkouts. It cost Tesco £1.2billion in write-offs when they pulled out in 2013.

Sainsbury’s venture into the unsophisticated retail economy of Egypt went dramatically wrong

Maybe Sainsbury’s new CEO, Mike Coupe should have considered this last year when he took over from long-standing predecessor Justin King. Sainsbury’s venture into the unsophisticated retail economy of Egypt went dramatically wrong when the Egyptian Courts charged JK with some (admittedly very dubious) allegations of embezzlement. Unfortunately Sainsbury had got into bed with a local developer who then went bust which cost them a modest £111million in write-offs after 18 months. But the ex-partner continued to pursue Sainsbury for alleged embezzlement so when Mike took over he travelled to Egypt to appeal against a guilty verdict. He very sensibly caught the return flight before the outcome of his appeal was announced which was just as well because he was sentenced to two years in Cairo Clink in his absence. There’ll be no more Egyptian sightseeing holidays for Mike unless he wants to do it in handcuffs.

This is not what one expects from a FTSE100 Company

The amazing thing is that investors learnt about this from the media, not from a Shareholder announcement. This is not what one expects from a FTSE100 Company and must rank alongside JK’s 2007 denial of Sainsbury colluding with suppliers to rig dairy product prices. Until two months later that is, when he announced a £26million out of court settlement with The Office of Fair Trading to avoid prosecution. Hmmm…….

Taking your eye off your home turf and forgetting what you do well may be a big mistake.

It seems the bigger you get the more confident you are that size alone will enable you to do a better job than the locals, even if you choose the right partner. Taking your eye off your home turf and forgetting what you do well may be a big mistake. Tom Jones (yes, THAT Tom Jones) was top of the bill in Las Vegas for 40 years before being offered a lucrative partnership in a new Hotel development. He’s no fool when it comes to business and turned it down, saying: ‘What do I know about running Hotels – I’m just a boy from the Valleys who can sing a bit’ which was not unusual.

The ‘Big Four’ Supermarkets are now faced with an inquiry by the Competition and Markets Authority

The fallout of all this is going to get worse says Begbies Traynor, the corporate insolvency practitioners. They suggest 1,400 wholesalers face imminent collapse as price wars escalate and buyers cut out the middlemen and deal direct with producers. After all, someone has to pay for the ‘£1 deals’. More worryingly they predict a bleaker picture still when Aldi and Lidl capture up to 20% of market share as predicted. They point out that: ‘The majority of Aldi and Lidl’s packaged stock is own-brand sourced from overseas, so struggling UK suppliers could find themselves squeezed even further’ – particularly if Sterling continues to strengthen whilst the Euro goes South. To add to Sainsbury problems the ‘Big Four’ Supermarkets are now faced with an inquiry by the Competition and Markets Authority (successor to the OFT and Competition Commission). This was triggered by a so-called ‘super complaint’ lodged by ‘Which?’ magazine alleging they systematically mislead shoppers by reducing pack sizes without reducing prices and make seasonal offers where the ‘previous higher price’ only applied out of season etc etc. I can’t help thinking this will only restate the bleeding obvious and result in a few adjustments to the Pricing guidelines and Groceries code of practice.

Mind you, a bit of adjudication in favour of shorter payment periods for suppliers would be welcome. Tell me about it.