Overnight, the Sainsbury’s stumble has changed the UK grocery game into a 2-horse race, thus bringing about a fundamental change in the ground rules for suppliers and their trade partners. Tesco and Asda have successfully used EDLP to weaken other contestants, leaving behind a Sainsbury’s seeking a new plot, a Morrisons likely to be distracted by Safeway issues, and a Co-op needing time to build upon its rediscovery of convenience and profit….

Tesco ideally would like to channel its main energies overseas, and delegate the UK market to operational management, but Asda is now too dangerous to relegate to AOB. Asda, meanwhile, can rely upon its parent to manage overseas expansion, and can therefore focus its energies on its new UK target of market leadership. Both players feel that they can now afford to ‘ignore’ the rest of the trade as they commence battle for No.1 position, using an escalation of existing policies.

However, as it has to be assumed that all obvious cost-surpluses have now been driven from the supply-chain, there is little gain for Tesco and Asda in further pressurising trade partners and damaging the market by extending an aggressive EDLP policy. Having seen off the opposition, it is now time to continue with EDLP in appropriate categories, but wasteful and pointless not to attempt a more positive and pro-active approach to the rest of the assortment. It is now time to change the gameplan.

Their focus now needs to be on direct competition via differentiation, all the way to aisle-level, for the heart and mind of the UK consumer-shopper. Differentiation via the whole store concept will then drive the behaviour of other retail players wanting to remain in the game, or cause them to suffer the consequences. This means being able to present a tailored assortment by store, using a realistic balance of brand and private-label, by category. Brands should be chosen on the basis of their consumer-profile fit with shopper-profile, and private-label should be evolved to its appropriate generation-stage, meeting real consumer-shopper need in harmony with the brand, and be priced accordingly.

Pricing should reflect an appropriate balance of the 8Ps, in terms of the shopper’s take from the total offer. Promotional activities outside the store and particularly within the aisle, should express and echo product positioning, and optimise consumer and shopper insights. Place, in terms of store location, should be developed to optimise available traffic. Retailers then have to find a way of helping all shopper-facing personnel meet consumer expectations in terms of competency and relationship, and reflect the total store offer. It is then key to ensure that supplier partnerships and internal supply chain efficiencies optimise physical distribution and handling, thereby making a quantum leap to 70% availability, hopefully….

If these offer-elements are put in place in an overall store presentation that appeals to the target consumer-shopper, some of the basic criteria of effective retailing will have been met. It only remains then to try to ensure that time, money and people are managed to a level of productivity sufficient to drive ROCE to acceptable levels and thereby keep the City in the bookies’ enclosure.

Suppliers in turn would be unwise to ignore this fundamental shift in market dynamics by remaining on the sidelines. In the current temporary lull, it is now essential to recast trade strategies to reflect these new realities, ideally within a global context in order to accommodate Tesco/Asda aspirations and new race-strategies…while there is still some time to place a bet…
By Brian Moore, NAMNEWS

KAMTIPS
Helping the Customer to Differentiate…

In order to realistically participate in the new UK 2-horse trade race it is essential to use Tesco/Asda as a starting point for an analysis of the source of your business in 2004/5.

The first step is to accept that fundamental change has taken place, in that Tesco and Asda’s relationship is more exclusively competitive than before Sainsbury’s moves into third place. It is important therefore to reassess the extent to which these 2 players fulfil your criteria for trade partnership, i.e. it is risky not to label them each as Invest. Part of this analysis should include a judgement of the shopper-profile and its degree of match with your key brands’ consumer-profile. It is essential to objectively assess your appeal to the top 2 customers, versus other suppliers, brand and private-label, within the customer’s definition of the category.

This should be followed by analysis of your key brands’ consumer-perspective, segmenting by the shopper-profile within Asda/Tesco traffic. A quick calculation of your risk profile (risk-seeking, risk-neutral or risk-averse) and comparing it with that of the customer will complete the analysis. A category level assessment in terms of the role of that category from retailer and your perspective will give a lead on brand/private-label balance, and may affect your willingness to become a proactive private-label supplier in the category. Only then is it possible to determine the level of dependence on the top 2 retailers tolerable in your business mix. On this basis it will be possible to estimate the sales turnover required (and achievable), compared with the cost of achieving the required level of compliance, resulting in the level of profit achievable per annum.

It is important to explore the extent to which the company is able/willing to take this thinking and execution to branch level, given the fact that the future success of brands will be determined in the aisle. This overall assessment then affects the balance of your reliance upon the remainder of the trade in delivering company performance in the next two years. Because so much company resource is devoted to the top two customers, it is important to be very clear in categorising the remainder of the potential customer base as invest/maintain/divest. Then a rigid evaluation of the potential investment customers, based upon key criteria for selecting a key trade partner:

– Potential: (Immediate importance, life-cycle, market share)

– Partnership: (Strategic alignment, relationship possibility, cultural fit, consumer match)

– Profit: (Share of profit vs. share of sales)

– Performance: (Relative competitive advantage within the customer, share of category)

This means a ruthless application of support at these 3 levels, based upon objective assessment of the company and its brands vs. potential customers. It is also important think of the brand in terms of regional, as opposed to national distribution, to reflect local strengths and weaknesses of the brand vis-à-vis the consumer-shopper base. Incidentally, one benefit of the Competition Commission analysis of the Safeway-bid, means that a wealth of information now exists covering the distribution of shopper-profile at store level. This, combined with brand strength analysis by region, should allow suppliers to determine brand strengths at least by store-cluster.

Again, application of the Buying Mix Analysis, can help in maximising the difference between the customer’s store and its competition. This means assessing the store’s marketing mix (8Ps) from the point of view of the target shopper-profile, compared with alternative stores available to the shopper. Taking the maximising of retail differentiation as the key objective in formulating a trade strategy by customer, and the needs of the customer’s shopper-profile as the driver of the marketing mix, the supplier should harmonise the brand’s 4Ps to best meet those needs at store level.

Finally, Customer Account Profitability should be the final criterion in assessing how far to go with any particular customer, and provide the basis for negotiation of minimum compliance…..

Date article published: 06/08/2003

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