Tag Archives: Tesco

 

About ten years ago the BBC ran an excellent drama series about fictional east end villain Harry Starks. He specialised in defrauding suppliers by using a ‘Long Firm’ – a fraudulent variation on the ‘Baby shark’ system perfected by Leo Albrecht, founder of Aldi. Harry established a legitimate business, built up his credit then placed a large order with his suppliers before disappearing with the goods. Along the way the way he developed a nasty habit of using a red hot poker on his business rivals. It was great TV thanks to actor, Mark Strong.

It took the announcement of a £240 million ‘accounting discrepancy’ in Tesco’s accounts to open up this can of worms

Over the years a fair few contractors to Tesco have also been left feeling like Harry’s suppliers – are we going to get paid and when? They could see they were being turned-over but hardly any spoke out for fear of losing a supply contract to the UK’s biggest retailer. It took the announcement of a £240 million ‘accounting discrepancy’ in Tesco’s accounts to open up this can of worms twelve months or so ago. The government-appointed Groceries Code Adjudicator, Christine Tacon, has since published a damning sixty-page report cataloguing their treatment. It can be downloaded from www.gov.uk/government/publications/gca-investigation-into-tesco-plc

This rather basic breach of accounting standards was somehow overlooked by long-standing auditors PriceWaterhouseCoopers

The accounting scandal kicked-off when a whistleblower in Tesco finance revealed how their profits included so-called ‘commercial income’ from suppliers before it was received. This rather basic breach of accounting standards was somehow overlooked by long-standing auditors PriceWaterhouseCoopers and coincided with a crash in the share price and unexpected departure of Chief Executive Philip Clarke and Financial Director Laurie McIlwee. The Serious Fraud Office then opened an inquiry into what looked like share price manipulation and Christine started to ask what commercial income actually meant. Her report gives a startling insight into the terms imposed upon suppliers in return for putting their stock on Tesco shelves. They include:

  • CODBA: The ’Cost of Doing Business Allowance’ i.e. a contribution to building new or refitting stores
  • The ‘listing fee’ payable for establishing a new supplier account
  • • An ‘eye level fee’ for positioning products on the prime ‘eye level/buy level’ shelf
  • Discounts in return for paying the suppliers invoice on time
  • A ‘new store opening’ contribution towards new Tesco outlets.

Of course everyone in retailing has known for years

Of course everyone in retailing has known for years this goes on so the report came as no surprise. Unfortunately though the steely-eyed Christine can’t do anything but name and shame the company and put the frighteners on others – a bit like Harry Starks. Without the poker though. The breaches of the GCA code of practice took place before it was given the power to fine anyone. However the Serious Fraud Office investigation is another matter. Executives in public companies who do that sort of thing are very naughty and can go to prison. Remember Gerald Ronson and Ernest Saunders who did porridge for boosting the Guinness share price to support a takeover bid for Distillers?

Tesco is now being pursued with so-called ‘class actions’

If the SFO does successfully prosecute executives that is not the end of the matter. Tesco is now being pursued with so-called ‘class actions’ from institutional investors who bought shares when their value was soaring and have seen their investment halved in value, post-scandal.

‘There is mounting public evidence that Tesco’s management were aware that the financial statements were untrue or misleading.’

Litigation finance group, Bentham Europe, seem to think they had the wool pulled over their eyes and are looking for blood – preferably that of Clarke and McIlwee as between the pair of them they allegedly trousered £2 million in bonuses after being suspended. Benthams specialise in large scale actions to recover shareholder losses and point out: ‘Investors have recourse under the Financial Services and Markets Act…following its misreporting of commercial income in 2014. There is mounting public evidence that Tesco’s management were aware that the financial statements were untrue or misleading.’ Auditors, PWC are also doubtless looking over their corporate shoulder and having interesting discussions with their professional indemnity insurers. Lots of lawyers are going to make lots of money out of this one.

The GCA does now have some teeth

The GCA does now have some teeth, but too late. I’d recommend Christine talks to a few quantity surveyors – the Gods of the building industry – to beef up the GCA code of practice. Building contracts usually oblige employers to pay the main contractor on fourteen days so a sharp QS sometimes slips in a ‘proof of payment’ clause to ensure subcontractors are not left dangling for ninety. A topic close to the heart of all small businesses.

Harry Starks was last seen sailing off into the sunset to begin a new life in Morocco, poker in hand. I wonder if he’d like a job at the GCA?

 

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.

Tesco’s plans to close 43 ‘Express’, ‘Home Plus’, ‘Metro’ and ‘Superstores’ by mid-April has been well publicised, as has their proposal to scrap another 49 NEW stores planned for the UK. The Company has also scrapped plans for 13 new stores in Hungary, but it’s not clear whether the sites will be ‘land banked’ as it’s called or sold-off, and if so on what terms.

He seemed oblivious to the relief of independent retailers in Bilston Market Hall and on the High Street and those locals who’ve stared at this derelict site for the last 14 years

The announcements provoked outcry amongst MP’s protesting at the effect on their constituencies. One of the most strident was Pat McFadden MP (Labour, Wolverhampton South East) indignant at Tesco’s decision to scrap development of the former Royal Hospital site in Wolverhampton. He seemed oblivious to the relief of independent retailers in Bilston Market Hall and on the High Street and those locals who’ve stared at this derelict site for the last 14 years. He proclaimed the news from Tesco was a ‘betrayal’ and proved the Company ‘could not be trusted’. No-one can accuse Pat of jumping to conclusions – he’d taken 14 years to work that out. Nor did the news have the earthshaking effect he’d hoped for amongst dispirited locals. No member of the Hungarian National Assembly was available for comment.

Provided your pockets are deep enough there is nothing to prevent you from buying premises ‘just in case’ and very little to prevent you from leaving it derelict thereafter

But Pat’s comments DID highlight a major flaw in the UK town planning system – how all supermarkets (not just Tesco) ‘land bank’ future development sites, then leave them derelict. This practice has been criticised by the Competition Commission as an underhand means of preventing competitors from expanding into their business – which is of course exactly the intention. Provided your pockets are deep enough there is nothing to prevent you from buying premises ‘just in case’ and very little to prevent you from leaving it derelict thereafter. Effective legislation to prevent land banking does not exist so supermarkets and housebuilders continue to buy-up sites as soon as a new Local Plan is released which zones areas for future development. As the Commission has pointed out, if a developer can snap them up quickly and on the cheap – often by an initial payment plus top-up bonus once it is built-out – then that effectively blocks the competition. Between purchase and build-out the planning authority is largely powerless to prevent the site being left derelict and has to tell anyone applying for a similar use: ‘Sorry – there’s another site already allocated for that use’. That’s why draft Local Plans generate so much interest from developers.

There has been talk about forcing developers to relinquish land-banked sites under threat of Compulsory Purchase Order, or forcing them to put the land to ‘beneficial use’ – but who will pay for it?

This problem has not been helped by the Dept. for Communities and Local Government (DCLG’s) shiny new National Planning Policy Framework (NPPF) introduced in 2012. Secretary of State for Communities and Local Government, Eric Pickles MP (Conservative, Brentwood & Ongar) has been widely-criticised for replacing 1500 pages of national planning policy built-up over 40 years with 50 pages devised in 40 months. The new slimline NPPF is accused of being far too pro-development and lacking a means to counter land-banking – frustrating local planning authority efforts to phase development to a rational programme. There has been talk about forcing developers to relinquish land-banked sites under threat of Compulsory Purchase Order, or forcing them to put the land to ‘beneficial use’ – but who will pay for it? Not local government for sure. To compound the problem local planning authorities are under pressure to meet DCLG targets for more homes for our expanding population. Landbanking means green fields are often built-out It will be interesting to see whether Tesco hold onto or sell-off their cancelled development sites. Councillor Roger Lawrence, leader of Wolverhampton City Council, said: ‘The Council has done everything it its power to support Tesco to proceed with their plans, and I and senior council officers will now be seeking urgent discussion with Tesco about how to take forward the development of this key gateway site.’ Well, unless Wolverhampton CC make some outrageously expensive taxpayer-funded concession there’s not a lot they can do to force Tesco into action. And if Tesco do sell-off then you can bet they’ll slap a restrictive covenant on the title deeds to frustrate any competitor from acquiring the site in the future.

A 23% drop in Waitrose operating profits has meant bonuses have been cut for the second consecutive year

Another group which is far from happy are the 94,000 staff who own John Lewis and Waitrose. Traditionally some 45 – 50% of trading profits have been paid-out as bonuses to the ‘partners’ each year but a 23% drop in Waitrose operating profits has meant bonuses have been cut for the second consecutive year, from 15% to 11% of annual salary. This was despite the upmarket grocer increasing like-for-like sales by 1.4% and gaining market share against its rivals. The boss of Waitrose, Mark Price, said the Company is battling against shoppers ‘moving away from a single, weekly out-of-town shop to multiple smaller purchases from convenience stores and online’.

Tesco is trying to rebuild its fraught relationship with suppliers.

Finally, after it’s £260 million false-accounting scandal (booking ‘supplier discounts’ before receipt) Tesco is trying to rebuild its fraught relationship with suppliers. The Company is waving the magic wand of a friendly online Tesco Supplier Network to help 5,000 suppliers communicate with their Buyers and each other – complaints included. Given their rough treatment of suppliers in the past the rumour has it few are likely to let bygones be bygones. The magic wand is seen as a big stick in disguise.

 

 

The start of 2015 saw a very old saying amongst stockbrokers come true: ‘Sell your shares in any company when it buys a company jet or builds a new headquarters’ they say. Companies lose touch with reality as they get bigger and one person who seems to agree is ‘Drastic Dave’ Lewis, the new Chief Exec. of Tesco. He announced the closure of both their Cheshunt HQ and Kansas Transportation Ltd, the Company subsidiary which discreetly operates a fleet of 5 executive jets.

From now on it’s RyanAir only for Tesco directors as they struggle against falling sales and a £260 million accounting scandal

This must come as a disappointment to former CEO Phillip Clarke (currently under investigation by the Serious Fraud Office). It limits the possibility of doing a flit in the £31 million Gulfstream jet delivered last month as part of the £29m cost of flying executives around the world 2005-2012. From now on it’s RyanAir only for Tesco directors as they struggle against falling sales and a £260 million accounting scandal. And now we know who owns all those private jets parked at Luton airport.

The good people of Cheshunt, home to Tesco’s ugly concrete HQ since 1973 were also less than happy about job losses and a move for remaining staff to Welwyn Garden City. ‘I can’t believe it’ Ward Councillor Mike Iszatt told the ‘Hertfordshire Mercury’. ‘I don’t know why they want to move out of the Borough – it’s so convenient for their employees next to the station and we’ve got crossrail coming in the near future. I hope they will reassess their decision’.

The international credit rating agency Moody’s downgraded Tesco’s credit rating to ‘junk’

Apart from that, Drastic Dave suspended yet a ninth executive – Chris Robinson, finance director at food sourcing – and confirmed the closure of the defined benefit pension scheme for staff, 43 convenience stores and cancellation of 49 new store developments. Stockbrokers seemed mildly pleased and shares rose to £2.20, still less than half their pre-scandal level. Nevertheless the international credit rating agency Moody’s downgraded Tesco’s credit rating to ‘junk’, saying “structural changes in the UK grocery retail market will continue to challenge the Company’s operating performance”. Whether that enables suppliers to demand better terms from the retailer is unclear.

The announcement of a new ‘Retail Ombudsman’ has been greeted with mixed feelings

The ‘Kipper season’ is now upon us. It’s always a good time for everyone to have a moan so the announcement of a new ‘Retail Ombudsman’ has been greeted with mixed feelings. The response to this ‘new independent service to resolve disputes with supermarkets, high street brands and online retailers’ has been less then overwhelming. Like several other Ombudsman services it lacks teeth as it is unofficial i.e. not established or vetted by Parliament. Its adjudications are not binding on anyone unless they happen to subscribe to it, but if you do and it does find in your favour don’t feel too smug – the complainant can still take you to court.

So why establish a toothless Ombudsman?

So why establish a toothless Ombudsman? Apparently this is a mainstream retail response to the forthcoming EU ‘Alternative Dispute Resolution directive’ which will take effect in July. This says the retail sector must have an ‘Alternative dispute resolution body’ – but Parliament has already decided the new watchdog must be official i.e. vetted by the Trading Standards Institute. So whilst toothless in the interim it may morph into that in due course but the meantime is funded by subscriptions from 3,000 or so retailers who have signed-up to it. You can offer it as part of your Customer Care Charter which is one way to take pressure off your Customer complaints department. Especially if you run the notorious ‘No-help-whatsoever-desk’ at RyanAir which has an annoying habit of emailing an apology to your mobile and not accepting replies.

Although the new Retail Ombudsman may be a bit of a crock in terms of Consumer protection it’s a different thing if the Ombudsman is regulated e.g. for energy, financial advice, mortgages, insurance and savings. If you receive or want to make a complaint then go to http://www.ombudsmanassociation.org to see if there is a relevant ombudsman and if its findings are binding.

 

 

 

Meanwhile suitably-barmy advocates of ‘Workplace Wellness’ in the USA are hoping 2015 will be the year that ‘Standup Desks’ take off. These have been favoured by great minds such as Leonardo da Vinci and of course Michael O’Leary, the Chief Exec. of RyanAir. He once suggested RyanAir were considering ‘standing-only’ spaces on their flights and charging people to use the loo. Despite criticism from the Guild of Chairmakers, Joe Nafziger, the Californian inventor of Standup desks said “It’s definitely a worldwide thing that’s picking up speed”.

Advocates of ‘Workplace Wellness’ in the USA are hoping 2015 will be the year that ‘Standup Desks’ take off

Joe would love to hear your opinion of whether standing behind a stall all day in January is good for your health.

Whistleblower

Some years ago a mate of mine was Sales director of an Engineering Company in the Midlands. The Company had grown off the back of supplying ‘gondola’ display racking to supermarkets. A big roll of galvanised steel went into one end of their factory and lots of uprights and shelves came out the other. Supermarkets were expanding like crazy and he’d shaved the margins when bidding for a mega-deal for 10 miles of racking for 40 new stores. He was understandably delighted to be invited to a contract-signing at a certain Supermarket’s head office but when shown into the boardroom found several competitors sitting at the table, all looking very hacked-off. Then in walked the Supermarket Head of Procurement who announced they would each be given an office, a telephone and one hour to reconsider their price. This was not a nice way to be treated. He lost the contract and his Company had too many eggs in one basket so went belly-up a couple of years later. Lesson learnt – the hard way.

Half-year profit forecasts to investors were being overstated by some £250m.

Quite a lot of hard-done-by suppliers may be taking quiet pleasure from Tesco’s problems at the moment – well the ones who can find another customer anyway. Back in September a whistleblower in Tesco’s finance department thought the new Chief Executive, Dave Lewis should be told that half-year profit forecasts to investors were being overstated by some £250m. When this profit warning was announced the institutional shareholders reacted in horror and the share price plunged. If you can’t trust the published accounts of a FTSE 100 Company then who can you trust? An internal enquiry was launched, payments withheld to former executives and others politely asked to step aside. Tesco has now handed the results to the Financial Conduct Authority amidst allegations that a small group of people in Britain’s biggest retailer deliberately misled its auditors to boost the trading accounts.

Tesco also confirmed withholding pay-outs worth millions of pounds to former Chief Executive Philip Clarke and former chief financial officer Laurie Mcilwee. The Serious Fraud Office is taking a keen interest and Tesco could face ‘significant fines’ and claims from investors says Mr Lewis. He is also wondering why he answered that job advertisement.

Screwing your suppliers is standard practice for any supermarket but Tesco seems to have refined the art. The allegation is they credited ‘product supplier discounts’ to an earlier accounting period than when actually received. This is naughty and contrary to the Groceries Supply Code of Practice as well as proper accounting standards. You can get away with it if sales turnover is rising and increased revenue in the next period cloaks it – but not if sales turnover is falling which is what’s happening at Tesco. These ‘discounts’ are demanded by Supermarkets in return for the retailer placing the suppliers product on the best shelf. ‘Eye line is buy line’ and all that – a bit like paying key money to get the best pitch next to your Market entrance.

Tesco’s share of the UK groceries and household goods market share has fallen from over 30% to 28%.

This little accounting irregularity is the icing on the cake for Tesco. Sales have been falling for several quarters largely due to German discounters Aldi and Lidl. Tesco’s share of the UK groceries and household goods market share has fallen from over 30% to 28% and the share price was already on the slide before this announcement. Chiselling £250 million or so out of your suppliers every 3 months is no mean feat but it seems likely someone told the auditors the discounts were already in the bank, not an anticipated receipt. Tesco shares which were nudging £5 a couple of years ago now stand at under £2.

So it looks like our Dave may need to raise cash to pay a hefty fine and reimburse shareholders who bought-in on fraudulent figures. Someone may even do porridge. Dave has now penned a long apology to Tesco Suppliers which looked good in the press and stopped them looking round for other retail outlets. It also softened them up for the next round of supply negotiations which are bound to follow. He might have to sell-off of an asset or two such as Tesco Banking or a juicy overseas operation. Cost-cutting in the UK such as a halt on new store openings had already been implemented by his predecessor Philip Clarke who switched to store refitting with posh coffee shops, restaurants and digital businesses. And falling sales.

Dave Lewis says he is a fan of ‘brand archaeology’ i.e. returning Tesco to its original roots. That sounds like he’ll focus on becoming Britain’s cheapest retailer once more and taking-on Aldi and Lidl. It’s the suppliers I feel sorry for.

Meanwhile the 5-yearly commercial property revaluation used to calculate business rates has been postponed yet again.

The last revaluation was due in 2013 but HM Government postponed it until 2015 claiming it would cause ‘uncertainty for businesses’. It’s now been postponed yet again until 2017 i.e. after the next election and assessments continue to apply based on pre-2010 rental values. The total revenue ‘take’ collected by the Treasury is supposed to remain the same but because many High Street businesses have collapsed thanks to online shopping etc the burden is going to fall on those that remain. The British Retail Consortium has kicked-off big time about the effect on their Supermarket members and the PM has promised a long-overdue review of this archaic system. To do so he’ll have to fight his way past all the HMRC District Valuers. Good luck.

In the meantime as a ‘Small Business’ which occupies only one premises you’ll hopefully remain clear of liability thanks to the Small Business Rates Relief Scheme. But this is due to expire in March 2015. It will be interesting to see if Chancellor George Osborne extends that to 2017. He’s bound to – isn’t he?

Happy Christmas!

News-Fresh and easy

The year-end announcement by Tesco of a stunning £3 billion gross profit from worldwide operations was soon followed by the announcement it is expanding it’s F&F fashion offer into the growth economies of the Middle East and Central Asia through franchise deals. They seem to have learnt from their disastrous foray into the USA with the Fresh & Easy store brand. Partnering with an established local retailer ensure stores reflect local preferences rather than imposing a ‘one-size-fits-all’ approach, as used for Fresh & Easy.

Knowing your customers and adapting your offer to suit is more important than ever if you’re selling into a non-European culture.

The Fresh & Easy format is much smaller than most American supermarkets and stores are located mainly in ‘blue collar’ neighbourhoods on the US West coast – California, Nevada and Arizona. When it was launched at the end of 2007 it planned to open up to 1,000 outlets based upon a projected break even of 2013. The site of their equally-ambitious distribution centre acquired in Southern California is bigger than Disneyland.

Fresh & Easy lost some £120 million last year and Tesco have mothballed many new openings.

But sales at the first 100 stores to open have been so poor that Fresh & Easy lost some £120 million last year and Tesco have mothballed many new openings. They seem increasingly likely to pull out of the USA altogether at a cost to themselves of some £1 billion which is affordable to the mighty T but must hurt neverthleless.

Given that the US economy is so enormous and self-reliant (only 39% of US citizens own a passport, versus 71% in the UK) there’s little appetite for new-fangled British retail methods like self-service checkouts.

Tesco have blamed poor sales on the economic recession but US analysts say that’s wrong. What they failed to appreciate was just how deeply conservative (with a small C) American shoppers are – especially in blue collar neighbourhoods. Given that the US economy is so enormous and self-reliant (only 39% of US citizens own a passport, versus 71% in the UK) there’s little appetite for new-fangled British retail methods like self-service checkouts. Shoppers have complained about portions being too small for American appetites (have you ever seen the size of a US shopping trolley?) and short expiry dates on food items.

‘I’m paying for the groceries so they need to pay for a full service checkout’ is a common complaint despite prices being up to 15% cheaper than the competition. Marketing and products seem to be aimed at more affluent shoppers than the pickup truck-driving, steak-barbequing, good old boy. As one analyst said: ‘Fresh & Easy is a format muddle. Instead of promoting berry-flavoured gourmet cheese and Spanish sparkling wines, they need to focus on the basics: essential food and grocery items at the lowest possible prices.’ Sounds like an Aldi format to me.

And talking of getting a caning…

I tend to shy away from politics but the blistering performance of UKIP in the local government elections was so remarkable I assume the coalition government is getting the message. One of the many issues to have eluded the coalition is how everyone dislikes any government which messes with their home – ‘an Englishman’s home is his Castle’ etc. As well as reneging on the pre-election commitment to abolish Inheritance Tax, HMG have now introduced ‘empty-bedroom tax’ on recipients of housing benefit who occupy Council and Association housing. How unimaginative. No-one likes new taxes but everyone does like opportunities, so why not encourage people to move back into work and use the national property stock more efficiently by incentivising them to let-out empty bedrooms? This could be administered through HMRC and the domestic rating system – and in return the pointless individual rating assessment of Market Hall stalls could be dropped.

The worst recession for 60 years.

And here’s another bright idea – in the middle of ‘the worst recession for 60 years’ why not scrap the HS2 high speed rail line and instead spend a fraction of that on high speed broadband to everywhere in the country to stimulate business development? The government is promoting HS2 to overcome the ‘North-South divide’ but experience from Spain suggests High Speed Rail simply concentrates economic growth in the capital. PS: The business plan is based on a cost of £59 billion versus revenue of £33 billion. Do you reckon you could sell that to the Manager at your Bank?

And finally, the charming story has emerged of an unnamed 73-year old lady locked into a French supermarket over New Years Eve. Apparently she was doing some last-minute shopping in the Intermarche store near Lille when she felt dizzy and retired to the Ladies loo to recover. When she emerged ten minutes later the store was deserted and ferme. She then set off the alarm which was ignored by the local gendarmerie who were enjoying a knees-up, so instead she tried to get some kip in a back office. That didn’t work so she spent the night wandering the aisles looking for bargains before being discovered none the worse for wear the following day. A spokesman for Intermarche cunningly diverted attention from several rather fundamental management failures with typical Gallic sang froid. He announced the supermarket was packed with seasonal champagne and truffles but ‘she was too polite to help herself to food or drink’.

Having made her miss the New Years Eve I hope they had the decency to donate everything needed for a slap-up birthday party.

News-Horses racing

A couple of interesting news events emerged from the ‘Big Four’ Supermarkets in March – Morrisons are going online and Tesco have bought-into the Restaurant chain ‘Giraffe’. Look and learn.

Firstly, Morrisons – the Bradford-based chain is definitely worth watching. They announced as from 2014 they’ll be selling online so are negotiating a delivery deal with Ocado. For the last 13 years their management was sceptical about online sales but that has now changed. In the meantime they’ve swallowed-up the Safeway chain with less difficulty than predicted, dodged the horsemeat scandal because they run their own abbatoirs and developed their in-store ‘Market Street’ offer which, I have to say, is not bad at all.

But last year Morrisons lost market share from 12.4% to 11.8% and like-for-like sales fell by 2%. The resulting 7% fall in before-tax profits was their first for several years although sales in London and the South East grew strongly. But they recognised they had a couple of problems and announced in February:

‘We are at a structural disadvantage as we do not yet have a meaningful presence in either convenience stores or in online, the two fastest-growing sectors of the market.’

Not for long though, because they then snapped-up 62 stores in the South East from failed retailers Jessops, Blockbuster and HMV. This was much to the relief of High Street landlords and town centre managers. They were acquired at rock-bottom prices thanks to the recession and will now be converted into ‘M Local’ convenience stores. Nice timing.

So what else made Morrisons’ change their mind about online sales? Maybe because they recognised it as THE growth area in retailing and maybe because they’d done their homework. The essence of running a profitable supermarket is keeping overheads down e.g. food handling (use self-service) and transport to the consumer (offer free parking and get them to come to you).

Morrisons hit on the strategy of purchasing a 10% stake in New York-based online grocer Fresh Direct.

The problem with selling online is you get lumbered with the costs for stock-picking and deliveries, so an ever-cautious Morrisons hit on the strategy of purchasing a 10% stake in New York-based online grocer Fresh Direct. They then sent a team to the USA to learn how to run online sales profitably and are now using that experience to put the screws on Ocado. That’s the way to do it – learn from someone else’s experience.

Secondly, Tesco: The Company announced a purchase of the 50-unit Giraffe restaurant chain for some £48million as part of it’s strategy to turn Supermarkets into ‘all-day destinations’.

This is common enough in Europe where edge-of-town Supermarkets often occupy the same building as smaller shops – jewellers, bakers, newsagents etc – and Tesco have already tied-into coffeehouse chain Harris and Hoole, bakery group Euphorium and online film service Blinkbox.

Their commercial director, Kevin Grace said: ‘We’ve been doing a lot of thinking about retail destinations and how our stores might become somewhere that people spend more time, as well as shop. With more general merchandise moving online we have a great opportunity to rethink how we use the space in some of our larger stores. We want the dining experience to feel separate from the weekly shop because it’s a place where customers can take a break and relax.’

Being stuck all day in a Tesco sounds like the stuff of nightmares to me, similar to searching for an exit in an Ikea store. I’d question whether this can work outside the South East where retail sales are still buoyant. It all sounds a bit London’ish to me.

So finally, what lessons can be learnt from this: Self-service, free parking, online sales with a delivery service or a more leisure-based experience? Now that you have a long queue of impatient shoppers waiting to be served the dilemma is: How many tills do you need to provide?

At this point you need to study so-called queuing theory developed by Danish statistician Agner Erlang to improve the Copenhagen telephone exchange. Look it up on Wikipedia – this is heavyweight statistical probability stuff used by Supermarkets to calculate how many checkouts they need. It takes into account factors like balking (customers refusing to join a long queue), reneging (leaving a slow-moving queue) and jockeying (switching between queues). Somehow a Poisson comes into it as well – isn’t that French for ‘Fish’? You can also entertain yourself by testing the theory on your customers e.g. who has the sharpest elbows or heaviest handbag etc and gets served first?

Which got me wondering – could queuing theory be used to outwit Bookies? If there are X number of horses in a race over Y number of hurdles then making allowance for balking, reneging and jockeying will queuing theory predict which horse comes in first? I tried this at Cheltenham Gold Cup instead of my usual ‘bet on the jockey, not the horse’ system. And I lost the lot. Boo Hoo. The theory didn’t know that Barry Geraghty and Bobs Worth had won the Hennessy Gold Cup back in December but the Bookies did.

The Gold Cup destroyed my belief in queuing theory and replaced it with barefoot theory. This predicts that you will never see a Bookie’s children walking around in bare feet.