Gotcha marketing is over

But did anyone get the memo?

Two sales promotions caught my eye recently. One was from French retailer Relais, who offered “Your choice of sandwich plus any drink for 5,20€”. When the cashier asked me for 7,30€ I mentioned the offer and he pointed to some tiny print on the ad that basically said only one or two sandwiches were covered by the deal. It was “your choice*” — by which they meant: “our choice”. And the sandwiches actually included in the deal were not available on the shelf. Gotcha.

“It’s not illegal*,” the clerk said, apologetically. “But it’s not cool.”

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Troubled Fnac unveils new strategy

Fnac’s chief defect is that it sells things people no longer buy …

French retailer Fnac has seen its operational profits halved, according to a release. The retailer blamed a lack of elasticity in its cost structure along with pressure on margins due to a strong drop in sales of electrical and electronic goods. To address this, Fnac has announced a new plan, which it is calling Fnac 2015. The plan involves cost reduction moves as follows:

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Delhaize loses its Bloom, and other US stories

A&P in purgatory, Fresh & Easy struggling. And now for the news: Bloom is closing …

Last time I tried to take a couple of weeks off, India agreed to retail FDI. Luckily, by the time I was back at work the government had performed a swift U-turn, so I’m glad I didn’t bother panic-writing something about it. This time, a few major US retail stories slipped out of the net while I was still mainly eating brandy butter. And I don’t see them becoming non-stories by tomorrow so here goes.

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70% of brands useless, report claims

If marketing is about selling a dream, have consumers finally woken up? …

A majority of consumers would be perfectly happy if 70% of brands disappeared, according to new research from Havas, a media buying group. The survey, which polled 50,000 consumers in 14 markets, aimed to chart the extent to which consumers felt brands had a “meaningful impact” on their lives. Factors such as health, happiness, values, financial security, society and the environment were considered. In developed markets, the perceived impact was minimal: consumers in the US said only 5% of brands positively expanded their quality of life. In Europe that figure was 8%. In developing markets, brands had a higher resonance, with 30% of brands in Latin America deemed meaningful to consumers. The report said that “positioning brands as socially responsible” had a “moderate impact” on consumer sentiment towards the brand.

Comment: Havas comes to the conclusion that the marketing isn’t working and better investment is needed. That’s to be expected, since Havas sells media. I think there are conclusions to be reached in addition to this. If traditional marketing is based on selling a dream, it looks to me as though consumers have woken up. Either: the reality fell short of the myth, or: there’s a dwindling appetite for myth at a time when hard realities are coming knocking for an increasing number of consumers. Either way, the revelation that consumers have no time for 70% of brands will be welcome news to retailers and their private label partners.

Why no SKUs is good news : Private label marches on

Private label news: The FT had a rather interesting take on the SKU-editing trend. Responding to the revelation that Unilever is to cut 40% of its range, the article maintains that the manufacturers’ “trend towards less complexity is helped by the support of retailers, which are eager to clear more shelf space for their own-label products”. Meanwhile, Kraft and P&G say they have no intention of scaling back ranges.

Comment: “Helped by the support of retailers” is an interesting way of putting it. In truth, retailers’ SKU-delisting exercises and the rise of private label are forcing manufacturers to reconsider their ranges. But smart companies are turning the situation into something positive. Unilever is using the exercise to cut costs across its supply chain and leverage scale: the leanness will serve the company well. It’s a sensible and businesslike response to increased private label activity, as is increased collaboration with retailers over NPD. There is consensus that consumers will not abandon their “hero brands” for private label, but the endless flankers are helping no one, least of all the consumer. The cult of “new” is so ingrained in brand marketing strategy, however, that I doubt many manufacturers are ready to abandon it. Wall Street’s demand for growth is so insistent that it must seem so much easier just to add variants than work out how to get genuine organic growth from existing products. Such innovation is all very well, but if you can’t sell it in …

Supermarkets: the low-key wow

Good lord — for once I don’t fully agree with Seth Godin. Godin posted a piece yesterday about new media and how it’s hard to succeed these days unless you can provoke a “wow”. That may be true, but Godin used the example of supermarkets to contrast the elsuive and theatrical “wow” factor. “My local supermarket stocks waxy, tasteless tomatoes from Chile and Mexico and Florida,” Godin says, “when local tomatoes are delicious”. Defending the supermarket’s decision not to “wow” with tomato quality, Godin asserts: “This supermarket, like most supermarkets, is a checklist institution, one that is in the business of providing good enough, in quantity, at a price that’s both cheap and profitable.” But what if the supermarket “programmed” its stores, as theatres do, to provide something “magical or terrific” — something that would be “worth the trip”? Wouldn’t that be better, Godin appears to imply?

I think that Godin has missed the point about supermarkets and what consumers want to get out of the experience. Over the last five years

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The Scramble for Africa

Will Tesco buy Pick n Pay?

Now that the authorities in South Africa have cleared Walmart’s acquisition of a controlling stake in Massmart, the CPG world is abuzz with speculation about further retail incursions into the Sub-Saharan region and South Africa in particular. With reason: retail sales in the country are growing at about 8.2% CAGR, in line with GDP, while consumer spending is set to grow by just shy of 8% in the next five years. Consumer price inflation is just under 6%: the market is ripe for international retailers to introdce EDLP with globalised sourcing and private label. So far, foreign retailers have less than 1% of the market. There seems a lot to play for.

Market gossips report that growth-hungry Tesco is keen to snap up Pick n Pay, which has just entered Mozambique. That may be so, but how likely is it? It’s clear why Pick n Pay would be attractive to Tesco. It’s South Africa’s third-largest retailer (Kantar Retail ranking), behind Shop-Rite and Spar and ahead of Massmart, turning over about ZAR 55 billion (EUR 5.6 billion) annually … It has a solid food offer, a presence in seven African countries and Australia, a couple of million loyalty card holders and a range of formats that could dovetail nicely with Tesco’s multi-format strategy.

Family story

Despite the “good fit”, it is not a foregone conclusion that Pick n Pay would sell. Although the retailer is publicly traded on the Johannesburg Stock Exchange, the company is controlled by the Ackerman Family Trust. Yes, a deal with Tesco might give the family firm the deep pockets and buying power necessary to compete with a Walmart-driven Massmart. But it would surely do so at the expense of its brand. The brand is something that’s vitally important to founder Raymond Ackerman and is something his son, Gareth Ackerman, who took over as chairman of Pick n Pay in 2010, has always appeared to embody.

Since 1967, Pick n Pay has meticulously built its identity as a socially-reponsible family business and a fierce consumer advocate. Outspoken on matters of racial equality, politics, and social mobility – and comfortable with controversy – its brand seems uniquely tied into the personality and values of Raymond Ackerman and his family as members of the South African community. Ackerman is hailed as an icon, a pioneer and philanthropist, unafraid to take on Apartheid and business cartels alike in the name of a fair deal for all. Tesco, good neighbour though it tries to be, cannot boast quite the same bombastic credentials.

If Tesco acquired Pick n Pay, could it wholly embrace Brand Ackerman and keep running the stores as Pick n Pay? That doesn’t really fit with Tesco’s modus operandi – it’s too fond of its own brand and I’d expect to see the multi-format model rolled out, along with its excellent Tesco-branded private label. Surely that would be the whole point. But could it wholly obliterate the Pick n Pay story, rebadge everything and start with zero goodwill, as it did with Fresh and Easy in the US? That doesn’t seem right either: there might be a backlash and then there would be all those Pick n Pay franchisees to bring on board. Yet, some kind of clumsy brand mash-up, à la Tesco Lotus, seems to offer the worst of both worlds. All options would therefore carry risks for the UK giant, whose success abroad has not been universal.

For many reasons, I prefer Shoprite for Tesco in South Africa and beyond. True, the core grocery stores come with some baggage, including 112 “Hungry Lion” fast food outlets and 224 homeware and furniture stores. But the fast food business could be sold and Tesco has been adept at running diversified non-food formats. Controlling shoprite would put Tesco in a top-two position in grocery in 12 African countries and a top-three position in a further four. While it doesn’t have the showing in apparel that Pick n Pay does, Shoprite’s multi-format approach is an equally good fit and Tesco could teach Shoprite a thing or two about running convenience, which the South African retailer can’t seem to grow. I don’t see the same brand conflict here either. The only stumbling block might be the price: Shoprite turns over about ZAR 74 billion, making a controlling stake a far pricier proposition than Pick n Pay.

Legacy

In the end, if Tesco really does want Pick n Pay, its ambition will depend on whether the Ackerman clan can make its collective peace with the idea of a sell-out. While I can see the long-term business advantages such a tie-up would bring them, I can equally imagine Raymond putting his foot down.

Raymond Ackerman turned 80 this year and his current official title is “Advisor”. I wish Mr Ackerman a long and merry life, but should he one day move on, the redoubtable patriarch could still influence decision-making at Pick n Pay from the other side: at a trade event I once witnessed him promise to “come back and haunt” his sons if they ever compromised the company’s philanthropic goals.

I do believe he meant it, too.

The end of hypermarkets

Is it over for hypermarkets?

Increasingly urban, time-pressed and tech-savvy, consumers are shopping ever smarter and closer to home. In this context, has the hypermarket become irrelevant? We ask three senior retail analysts.

Spend enough time poring over company reports and financial statements and patterns will begin to emerge. Or, at least, it can seem that way.

About a year ago we began to suspect all was not wholly well with the hypermarket channel in Western Europe. The source of the hunch was negative sales growth or softness revealed in company financial reports or market data, but a trend was far from proven. Our feeling, given other trends impacting the market, was that the channel was probably losing traffic to proximity formats, which have been improving their penetration, their sophistication and their value proposition, or to convenient models such as click and collect. It stood to reason, but proof was elusive. The hypermarket remains the single most important volume channel for consumer packaged goods, so clarity on the health and future of the format is needed. We decided to dig for data.

It took a while, but some finally came in October 2010. Nielsen revealed some numbers at a trade event in Berlin, showing that hypermarket turnover per store in Europe had fallen by 7% on average over the last few years, across a sample of 20 countries. This was the first time we had seen any quantitative data on the subject. Presenting the figures, Jean-Jacques Vandenheede,  Nielsen Director of Retailer Insights, Europe, said hypermarkets had suffered in recent times. “There is a need to reinvigorate the hypermarket,” he told delegates.

Expert panel
In discussion now with Delevine Media, Vandenheede offers some theory on what might be causing the decline: “I think that the first issue is shopper missions. At different times shoppers have different shopping intentions: do I need a lot? Do I need something quickly? How much time do I have?  Shoppers will reconcile shopping missions with the most appropriate store. A big tendency is that urgent, immediate needs have gained over time.”

Joining the conversation is Natalie Berg, global research director at Planet Retail. Could recent price deflation account for some of the turnover decline? “Hypermarkets used to win on price and assortment,” Berg says. “Today we have discounters and the internet. So, yes partly price deflation in certain categories like electronics. However, it’s more a case of shoppers defecting to other more relevant channels such as discounters and c-stores, as well as online. The concept is dated.”

In what way, we wonder. “Consumers used to venture out of town to hypermarkets for low prices,” Berg explains. “However, today the blurring of discount and convenience means that low prices are readily available on the high street, leaving little incentive to travel to hypermarkets. Similarly, online continues to gain momentum throughout Europe, bringing all of the products (and more) and prices typically available in a hypermarket right to the consumer’s home.”

Vincent Verdier, director of insight consultancy at Kantar Retail, concurs with Berg and Vandenheede, but adds a proviso: “If you look at the blunt data over, let’s say, five to ten years, then yes the channel is losing share. That’s a fact. So, on that basis I would agree 100% with Jean-Jacques and Natalie. But are all hypermarket retailers doomed? No, I don’t think that’s the case.” Citing market share figures from Kantar Worldpanel, Verdier says that the downward trend is not evenly spread across the channel, even in Western Europe, where the format originated. “Some hypermarket operators are having trouble, while there is some growth being witnessed for others: Leclerc, Tesco Extra, Kaufland for example. Hypermarket is the fastest-growing channel in Russia and as far south as Turkey it’s not declining.”

“Western Europe is the problem child,” Natalie Berg says, adding weight to this argument. “The market is saturated and legislative restraints make it virtually impossible to open new stores. There is still plenty of growth for hypermarkets in emerging markets, but we are likely to see a new wave of expansion through the compact hypermarket format. Despite trading from a smaller footprint, compact hypers tend to be just as profitable as a traditional hypermarket. The advantages? Lower operating costs means lower prices, which enables retailers to reach out new consumers in areas that may not otherwise support a full hypermarket. Walmart has had tons of success with this in Latin America and they just opened their first one in China.”

Vandenheede also downplays the idea of a universal downward trend: “This chart is made up from trends in 20 countries: in each of these countries there are specific situations every year.”

The future
So what conclusions and strategies can we draw from this? Should retailers continue to invest in the channel in the face of traffic decline, and should brand manufacturers be worried? Vincent Verdier says the future of the hypermarket channel is a key topic for the majority of his clients. “Competition has heated up, but while the format is being challenged by more convenient, simpler and faster shopping trips and concepts, it is important to remember that hypers continue to deliver some sort of growth nevertheless.”

He points to recent examples of hypermarket operators innovating: “Casino is trying by improving its Géant layout and assortment, and obviously Carrefour is rolling out Planet,” a concept that attempts to boldly re-imagine the hypermarket shopping experience. Verdier adds: “The point is that hyper continues to deliver huge majority of sales for branded manufacturers; hence it is impossible to simply walk away from it.”

Natalie Berg develops this argument by saying successful retailers must adopt a multichannel strategy. “There is no such thing as a hypermarket shopper or a convenience store shopper. Retailers must be able to reach their customers on different shopping occasions, whether that is in a big-box out of town or while shopping on their mobile phones … Hypermarkets must create a more compelling reason to shop. The most basic rule in retailing is staying relevant to your customers.”

Jean-Jacques Vandenheede underlines the axiom that consumers don’t shop by channel: “Shopping missions are the key. Shoppers will not put in balance a trip to a hypermarket with a trip to convenience. The mission will define where to shop. Hypermarkets need to give shoppers the arguments and incentives they can’t refuse.”

That sounds like consensus. But with ongoing socio-economic trends pointing to more single households and more urban living, those incentives had better be compelling.

 

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Insolvent retailers

More retailers are becoming insolvent

Are we paying attention to the warning signs?

The decline of the CD has been a long train coming. The first publicly-available MP3 converter appeared in 1994. MP3 music files immediately began to circulate across the internet. The media was writing about MP3 long before Napster launched in 1999. Apple launched the iPod in 2001. The signs were crystal clear. As has been exhaustively documented elsewhere, both the record industry and the CD retail industry did precisely nothing.

Well, they pursued a few illegal file-sharers. How effective these high-profile examples were in changing behaviour is hard to determine. Some commentators maintain that the present drift away from illegal file-sharing to legal download sites or legal streaming sites is down to the fact that the record industry finally accepted that MP3 had arrived and began to licence pay sites instead of trying to shut them down. The record industry’s initial stubbornness, however, cost it dearly. Not only did its resistance effectively grant a temporary monopoly to piracy, enabling the delusion for a generation of music lovers that music is and should be free, but it gave a false hope to retailers of CDs that the format was sustainable as a business idea.

In October this year, online retailer Amazon launched the first international version of its electronic e-book reader, Kindle. The inescapable reality that creative media content, whether it is text, music or video, can now be downloaded via the internet and played or read on a range portable electronic devices is not a trivial detail in the recent news that Borders and cdiscount in the UK have failed. Unable to find a buyer, Borders placed itself in administration. Cdiscount , in which French supermarket giant Casino has a stake, has gone into provisional liquidation.

In France, luxury group PPR is hurriedly offering its own media retailer, Fnac, for sale. (While Fnac is not insolvent and is being disposed along with Conforama, PPR clearly sees the advantage in a swift exit from the mass entertainment media business.) Like Borders, Fnac mainly sells music, books and DVDs and is based around a significant rangeholding in each store. The company has already closed one CD-only store in Paris. Should a company be brave enough to buy Fnac, their first order of business, one would think, would be to scale back drastically its dependence on sales of physical entertainment media and focus on consumer electronics.

Facing up to consumer change

The Borders UK story is instructive. Its owners and management ignored the realities of changing consumer demand and denied the need to adapt the US business model for the UK. Borders stores have a lot of cash tied up in low-margin inventory and need scale to achieve profitability. The company was unable to achieve this in the UK, due to rent costs, planning restrictions and competition for sites. CEO Philip Downer did acknowledge digital disintermediation as a factor in the market. But he appeared to downplay its significance and plugged on, convinced that consumers really did want to buy books and CDs and that the business could trade itself well again by tinkering with category management and discounting bestsellers.

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Philip Downer: “I can guarantee that a significant portion of our income will come from something we haven’t yet identified.”

But with the gradual migration of book, CD and DVD sales to online retailers such as Amazon and latterly to downloading sites (Amazon offers this as well) the business was left with fixed costs that could only go up, pitted against demand that could only go down. Borders Group, the US parent company, realised this and sold off the UK arm to Luke Johnson’s Risk Capital, back in 2007. It turned out to be too heavy a risk for Johnson, who admitted defeat and sold it on in June this year to Valco, a specialist in troubled retail. As recently as October, in a poignant expression of misplaced optimism, Downer announced his vision for future success: “I can guarantee that a significant portion of our income will come from something we haven’t yet identified.”

The company’s descent into insolvency in the UK was slow and painful for the business, painful for the industry for which it was an outlet and is about to become painful for its 1,500 employees.

This story first appeared in Consumer Business News, 2009