Retail Bites

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

Aldi CEO cranks up pressure on big four supermarkets

In this Guardian interview Matthew Barnes, Aldi’s UK & Ireland Chief Executive, states “We will not let any competitor get to 5%. That’s a concrete commitment.” That’s a bold statement and bad news for the traditional big four. Barnes also said ‘he believes deflation in the market will slow by the end of this year as the major chains switch to competing on measures such as service or quality.’ Those sentiments are consistent with the findings of our recent report on The Future of Value Retail. Click here to download a copy of our report.

Government is sweet on taxing soft drink producers

George Osborne’s recent budget was not short of controversy but one item to attract headlines was the proposed ‘Sugar Tax’. Welcomed by health campaigners, most notably Jamie Oliver, as a way to fight childhood obesity, the tax will target producers and importers of soft drinks that contain added sugar. The hope is that the tax will encourage producers to amend their recipes. For more detail about how the tax will work, who will be affected and whether it will actually work please read our more detailed article.

New M&S CEO Steve Rowe to retain direct control of general merchandise

A busy week for M&S as Steve Rowe took the reigns as CEO and announced that he will retain direct responsibility for general merchandise including, of course, M&S’s troubled clothing division. Rowe took charge of GM last summer having previously been in charge of M&S’s successful food division. The news was swiftly followed by better than expected results showing a like for like sales increase of 1.9% in the 13 weeks to 26 March. Nevertheless there is hard work ahead for Rowe as these positive results were driven by further strong growth in M&S’s food division, whereas like for like sales in GM were down 2.7%.

Premier Foods to meet with shareholders after holding “constructive talks” McCormick

A week ago I was convinced a price would be agreed by now. How can it not have been? McCormick started at 52p per share, jumped to 60p and then 65p per share, which valued the business, including its debt, at £1.5bn and which is 2p more than the price Nissin, the Japanese noodle maker paid for 17.3% earlier this year. But Premier have said no and on 6 April, it told its shareholders that the bid still undervalued the business. Premier apparently believe it can increase sales by 4% as a result of its relationship with Nissin, who now own 19% of Premier. Apparently, Premier has told McCormick of its future plans, which it says justify a higher price for the business and that there would be some synergies if there was a deal. Notwithstanding all of this, I cannot see McCormick dropping its pursuit of Premier anytime soon. McCormick is, primarily, an ingredients business which raises 60-65% of its revenue from consumers, Premier owns some excellent brands, McCormick’s business is growing, but slowly, the UK grocery market is huge and Premier was once valued at almost £3bn. So, there are good reasons to ‘stick in there’ for McCormick, unfortunately, however, there are also good reasons for Nissin to stick around, it sees Premier’s potential and a chance to expand its own brands from the tie up with Premier.

Sainsbury’s wins battle to buy Argos

Mike Coupe and Sainsbury’s have won the day……….subject to due diligence, which is sizeable, ongoing and lawyers love.  Home Retail Group (‘HRG’) received a helping hand from South Africa’s Steinhoff which meant that HRG could leverage a higher price from Sainsbury’s. You may remember Sainsbury’s originally said, when the first bid was rejected, Sainsbury’s will not do a deal “at any price”. Unfortunately for Sainsbury’s it was prepared/forced to pay more than it wanted to. So is the deal a good one? I’m just not sure. Good points apparently include closing Argos stores (around 200 in the next few years) and placing concessions in Sainsbury’s stores. That uses spare capacity/space and reduces costs, so good! Sainsbury’s can sell a lot more general merchandise and get its hand on Argos’ logistic capability, again, good. But, there are also unknowns and risks here. Argos and Sainsbury’s don’t really share, for me, the same customer base do they? Argos’ loan book is…. mixed if I can put it like that and what type of business is Argos turning into anyway? It is not Amazon but it is also not a conventional retailer. Analysts/commentators say stores of the future will be showrooms, the tactile experience you cannot get online and that will be their function, it won’t really be to sell products in store. So how does that work for a business like Argos which still, in many stores, asks you to wade through a laminated catalogue to find the items you are after which you never see or touch until you have bought it? And if Argos becomes an internet business, is it really able to compete with Amazon? One thing is clear, this is Mike Coupe’s legacy and he will be judged on it.

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