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.

 

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