Retail Bites

Friday 12th February 2016

In case you missed them, a round-up of interesting retail related stories from the last  fortnight or so.

Are the big four grocers fighting back?  We don’t think so.  Not yet at least.

Post-Christmas results for the grocery sector were initially heralded as being encouraging for the traditional “big four”. Monthly data from market researcher Kantar showed that Sainsbury’s grew sales and market share over Christmas, Tesco announced that like for like sales were up 1.3% and Morrisons’ own trading update showed a first rise in underlying sales since 2012. Some commentators interpreted this as the first stage of a fight back against the German discounters.  I wasn’t so sure.  That’s easy to say with hindsight of course, but as Kantar’s figures for the sector as a whole emerged, it transpired that Aldi and Lidl had grown sales by 13.3% and 18.5% respectively, against a backdrop of a 0.2% decline in total sales for the sector.  Suddenly that fight back doesn’t look so impressive.

Asda plans ‘hundreds of job losses’

It is always sad to hear that someone will lose their job. In Asda’s case, this January, that sentiment extends to hundreds of people. Asda is struggling to maintain market share, like the rest of the Big 4, but Asda has done an excellent job of retaining profitability. Cutting costs is the approach from Asda and job losses are probably part and parcel of that process. Asda is cutting jobs, cutting canteen facilities for employees, it has joined a buying group, European Marketing Distribution, and it has bought two of its key meat suppliers, Forza AW and Kober (see more below). From the looks of things, Asda’s strategy is to cut its overheads and prices. That might mean it slows the rate at which it is losing market share and retains its profitability.

Asda’s acquisition of meat manufacturers Forza AW and Kober

Asda recently acquired meat manufacturers Forza AW and Kober, following a five-year joint venture. They currently supply Asda’s cooked meat and bacon products and have a combined turnover of £440 million. The acquisition represents an extension of Asda’s vertical integration strategy through its International Procurement and Logistics (IPL) arm. Having worked closely with Asda’s rival Morrisons for a number of years, I have seen first-hand evidence of the benefits that vertical integration can deliver for a food retail business, and view Asda’s latest move as an extremely smart one. A vertically integrated supply chain has the clear benefit of cutting out the ‘middle man’, which not only enables the retailer to make more margin, which it can share with customers through price cuts, but also provides a greater degree of control over the provenance and traceability of the products. A counter-argument is that developing an in-house manufacturing capability requires significant financial investment, but having witnessed how a well-run in-house manufacturing division can deliver huge benefit, I would have to disagree, and I will be interested to see whether Asda makes further moves in this direction.

Sainsbury’s to ‘future-proof’ with £1.3bn Argos deal

Wesfarmers, one of Australia’s largest retailers, buys Homebase which enables Sainsbury’s to get its hands on Argos for £1.3bn.  Of course, technically, that £1.3bn translates into around £250m in cash up front to Home Retail Group’s shareholders, but it still exceeds the £1.2bn Sainsbury’s, apparently, said it would not exceed. Analysts and commentators have mixed opinions on the tie up. For those in favour, the tie up will see great synergies, fewer stores for Argos, a better delivery system for Sainsbury’s, a crossover of customers and an expansion of ‘click and collect’ in Sainsbury’s stores. That sounds great! Of course, it does, that is the intended outcome. So, the other side of the coin? There are a few concerns, but there always are.  Sainsbury’s takes on Argos’ consumer debt, the ‘buy now pay later’ customers, which is said to be ‘mixed’ (aka ‘not great’). And, although Sainsbury’s has done well, against Morrisons, Tesco and Asda – who are having a difficult time incidentally –  that has a lot to do with its ‘taste the difference’ range doing so well. In other words, because its quality own label goods are doing better than ever. That success could also indicate that in truth, Sainsbury’s and Argos do not really share the same consumer demographic and if that is the case, then the customer sharing dream may be just that, a dream!

EasyJet founder launches 25p discount food store

The ‘Easy’ group opened its first discount store at the beginning of February. Its 76 products look to be cheaper than Aldi and Lidl. Well, at least in the short term because the products currently cost 25p and will, apparently, increase to 50p in March. Consumers are more open to discounters now and it looks as if the Easy brand has a reasonable idea. Cut out even more overheads and sell ‘cheap as chips’ (pun intended)!

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