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Exceedra Revenue Management Forum

Opportunities and Threats for Revenue Management in Retail, now and in the future

etc Venue Fenchurch St, 6-07-2017

Brian MooreEMR-NamNews

[email protected]


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Reminder: Free NamNews offer to Exceedra delegates

• A two week trial of our daily NamNews email bulletins

• A personal copy of our latest monthly in-depth edition• Simply email [email protected]

• This slide-set contains an expanded version of my presentation made to the Exceedra Revenue Management Forum 6th July 2017.

• Please contact me with any queries at [email protected], or 07977 273409

mailto:[email protected]:[email protected]

© Copyright EMR-NAMNEWS Ltd.Ref: inhouse/bh.ppt

EMRNAMNEWS

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CLIENTS past & current

NAMNEWS - Monthly Global Newsletter for Key Account Managers and Kamcity website & KAMBLOG

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Supplier:n Anton Berg (travel retail)n Adams Gum & Candyn Brita water-filtersn Beiersdorf (Nivea)n Bona (floor treatment)n Coty internationaln GSKn IPC magazinesn J&Jn Lansonn Le Creuset n LEGOn L’Orealn Philip Morrisn Reckitt Benckiser n Sara Lee

Retail:n BAAn Tescon Dansk Supermkdn Delta M (Serbia)n Trinethra (India)n Musgrave Group (Ireland +UK)


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Managing Revenuein an unprecedented world


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If you doubt unprecedented…

• Think Brexit, Trump, Italian banks, Dutch election (March), French election (May), UK election (June) & German elections (Sept)…

• Resulting a fall in currency value, increase in VAT, more unemployment, Amazon domination of your category, etc

• ..then something really unprecedented: Tesco-Booker


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Managing Revenuein an unprecedented world

• Unprecedented since 2008…• Financial pressures on consumers, retailers and suppliers (debt reduction, cutting

expenditure, savvy buying)

• Growth of the discounters Aldi & Lidl• The savvy consumer wanting demonstrable value for money• Flat-line demand, growth at expense of competition• Concentration of supply and retail/wholesale• Amazon…• Food dominates the landscape, brands under pressure• Danger of awaiting emergence of trends (act while others await a return to

normal…)• Opportunity in unprecedented market conditions

– Making sense of the chaos– Back to basics, courage to simplify

• Need to understand, prioritise and factor radical change into our business strategies…


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Such circumstances represent real opportunities for those that can adapt to

business change… ..while others await a return to

‘normal’…


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Agenda• The current state of UK retail

– major retailers’ latest financials and their sources of income– emergence of the savvy consumer

• Opportunities and Threats for Revenue Managers• Where UK retail is headed

– large space redundancy– discounter impact– online role

• Impact on the role of Revenue Management• Action required


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The current state of UK retailersWhere they are now:

Assessing the damage..


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Retailer Ratios 6/07/2017

Retailer Sales Op Profit NBPT Net Margin ROCE Stockturn Gearing(bn) (bn) (bn) (%) (%) (times p.a.) (%)

Walmart $481.3 $22.8 $13.6 2.8 15.2 11 58

WBA $117.3 $6.0 $5.14 4.4 9.2 13 63

Amazon $131.8 $4.2 $3.9 2.9 9.8 11 --

Tesco £55.9 £1.02 £0.1 0.0 0.54 24 139

Sainsb’s £26.2 £0.63 £0.50 1.9 4.5 15 31

Asda £22.4 £1.045 £0.975 4.4 10.7 19 --

Morrisns£16.3 £0.468 £0.325 2.0 11.3 27 38

Boots £9.20 £0.576 £0.542 5.9 28.6 15 --

Superdrug£1.11 £0.062 £0.057 5.1 15.8 7 (65% to ASW)

Lloyds £2.02 £0.036 £0.020 0.1 8.0 16 -


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Market Capitalisation

What the stock market thinks


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Market Capitalisation vs Sales (30/06/2017)

Market Cap Turnover Mkt Cap / (bn) (bn) Turnover

Walmart ($) 229.1 481.3 47.6%WBA ($) 84.9 117.3 72.4%Amazon ($) 462.7 131.8 351%Tesco (£) 14.0 55.9 25%Sainsbury’s (£) 5.6 26.2 21%Morrisons (£) 5.6 16.3 34%

WBA: Walgreens Boots Alliance


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Impact on retail profitability

• Sales go down by £1, meaning the retailer loses two pence of profit each time..

• Average gross profit i.e. say 24% , so that a lost sale of £1 loses the retailer the 24p gross profit, i.e. a 12x multiplier


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Retail consolidation

Amazon-WholeFoodsSainsbury’s -Nisa

Sainsbury’s – McCollsAmazon-Morrisons?


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Multiples vs. the discountersWhere next?


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UK Consumer behaviourKantar Worldpanel, comments: • “The big four have collectively grown by 1.6% overall, while

Aldi and Lidl together grew at their fastest rate since January 2015.

• With sales up 19.2% year on year, the pair achieved a record market share of 12.0%.

• 62% of the UK population shopped in an Aldi or Lidl during the past 12 weeks, compared to just 58% this time last year

• – that’s an additional 1.1 million households visiting either of these stores.

© Copyright EMR-NAMNEWS Ltd.Ref: international tu/world.ppt

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Large space redundancy

A challenge to Bricks & Mortar?


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Large space redundancy• Large space retailers finding 20% redundancy, • Meaning dilution of £1,000/sq. ft./annum sales• 80% of sales are generated by 20% of the SKUs• Long tail unproductive in physical retail• 50 year property lock-in (2% depreciation)• Mass outlet sell-off impact on real estate prices• Online

– Space - and its cost - are irrelevant online– Long tail not an issue – can offer infinite choice


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Sales/sq ft/annum

• Multiple grocers £1000• Dept Stores £500 - £750• Apple stores £4,000/annum (!)


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Online not the answer..

Offline Limit to Online Growth


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Offline Limit to Online Growth • Compared with the relative simplicity of

serving a customer instore• Meeting consumer’s online needs means

additional fulfilment costs including picking, packing, shipping and handling returns


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Online grocery complexity• Typical online shopping basket contains more

low value and bulky items• Reduces number of orders per van• Dilutes van productivity• Consumers generally unwilling to pay for

delivery• Home delivery costs £20, at £5 per order,

retailer loses £15 per drop, only partly recovered via margin on delivered goods


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Improving online profitability

• Shifting to more lucrative categories (i.e. bigger margin non-foods)

• Then pick up additional profit-dilutor of online returns, where shoppers send back goods at four times the rate of returns made to Bricks & Mortar stores…


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Catch 22…

• Given that B&M retailing can be more profitable than online, it follows that, as a retailer grows their online business faster than their B&M sales, the overall profitability of their business will be diluted


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Click & Collect not the full answer

• Shopper shoulders burden of the last mile• Leaving retailer to cover cost of picking,

packing, order admin, payment and returns


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Amazon as online standard setter

• 100% availability • 1-Click Ordering• Returns as easy as ordering• Fast delivery (4 hours to 1hour M25)

• NB These are now entry-level requirements in online

© Copyright EMR-NAMNEWS Ltd.Ref:inhouse/pm hun.ppt

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Pure-play Online Retail

• Amazon and other pure-play online retailers will grow at the expense of physical players

• …until a point is reached where even their growth is limited by consumers' refusal to pay adequate rates for order fulfilment


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A challenge to the definition of a shop…


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What is a shop? (Sales outlet?, showroom?, sales aid?)• ‘Maximum’ selection, matched to shopper need• But online can offer ‘infinite’ selection ( ‘Amazon 300m items…’)• Tesco cull 90,000 SKUs to 60,000 SKUs (Cull 1)• Discovery of 80/20: 80% sales via 20% SKUs• ( Focus: try to Revenue Manage the 20%?)

• Sales/sq ft: (Standard £1,000/sq ft/annum determines value of property)

• Redundant space: ‘large space redundancy’, but alternative uses of redundant space need to generate equivalent of £1,000/sq ft per annum

• UK retailers own their stores, locked into the space (2% annual depreciation means 50 years life.., in current market conditions!)


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Meanwhile, for the other trade players..

Why Money Matters…


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When a customer goes bust…

• Customer goes bust owing £150k • Supplier makes 5% net profit• Supplier needs incremental sales of £3m to

recover lost profit…!• (i.e. 5% of £3m = £150k)

• For suppliers feeling secure by dealing via wholesalers, apply the above using a wholesaler net margin of 1% (£15m incremental sales…)


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Opportunities for Revenue Managers


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Ansoff Matrix

A way of prioritising opportunities for Revenue Managers

© Copyright EMR-NAMNEWS Ltd.Ref: slides/general/account planning.ppt

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Business Development Options

Current Products New Customers

New Products New Customers

Current Products Current Customers

New Products Current Customers

15% 5%

50% 30%

Sheet: Sheet1

Current Products New Customers

New Products New Customers

Current Products Current Customers

New Products Current Customers


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Building and maintaining credibility with the consumer-shopper

• Shrink-flation: diluting brand credibility• Consumer:‘If they are cheating me on quantity, what are they

doing to quality?’• Quality reduction: diluting brand credibility• Expectation management: ‘Deliver more than it says on the

tin’• Letter of the law vs Spirit of the law is no defence…

Consumer-shoppers’ perception is driven by the spirit of the law.. i.e. a supplier saying the weight is printed on the pack is no defence

We have spent years building brand credibility. Why throw it away by short-changing our best customers just because we could not secure a price increase…?


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1Current Products to Current Customers

Current customers (Optimise existing traffic):• Brand profile & Shop Traffic congruency• People who know and use the brand• Vital to preserve credibility• They know what they are accustomed to pay• Probably the best option (of the 4 ways of growing a

business)


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Current Products to Current Customers (contd.)

• Need predictability of pricing for the benefit of the consumer-shopper, but these price-moves also known to competitor retailers

• Competitor retailers will either align with, or price against the ‘surge-price’

• Build consumer confidence in the brand, such that when they open the tin, it exceeds expectations rather than disappoints

• 'tell a friend' x digital multiplier (i.e. via analogue media: ‘please me and I tell a friend, disappoint me and I tell 10 friends.’ Social media: just think potential multiplier/viral…)

• Tailor RM initiatives to store traffic profile, brands’ profile congruency, focus on whatever makes that retailer unique to that shopper


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2 New Products to Current Customers(Products that are new to them)

• Current users of our products• Know and trust our brand and company• Will probably forgive a few ‘mistakes’• i.e. fail quickly


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3 Current Products to New Customers

• In-depth profiling of current customers ( using their experience of our current and ‘new’ products)

• Use this profile as way of identifying similar, non-user consumer-shoppers

• Take them through Ansoff Stages 1&2


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4 New Products to New Customers

• They don’t know our product• They don’t know our company• Tread carefully…• In practice, feed in our best products to start


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Threats for Revenue Managers


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Threats in Revenue Management Include:

• Regulatory/Legal/Political developments• Cultural/Social change• Technological change• Trade concentration/power/internationalisation• Competition (innovation/substitution/wealth/

risk-policy)


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Regulatory/Legal/Political developments

• Curbs on abuse of power (‘acting in concert’) – GSCOP– CMA

• Consumer privacy/data protection (use of personal information to optimise price sensitivity)

• Brexit unsettlement


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Cultural/Social change• Prediction of consumer behaviour no longer

predictable? ( ask Mrs May, or the opinion pollsters!)• Understanding customers' perception of product value• Consumer theoretically more rational, fact-based,

savvy• Price sensitivity, seeking value-for-money• Expectation of uniform pricing (less regard for shopping

occasion)

• Resentment at paying more than ‘the neighbour’• Surge-pricing vs. ‘publicise when lowest’• Amazon-convenience


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Technological change

• Price-comparison (mobile, in aisle)• Show-rooming (ensure our online sale)• E-pricing on shelf (Retailer expectation that suppliers

share cost?)


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Trade concentration/power/internationalisation

• Less concentration within channel• More ‘vertical’ concentration

– Tesco-Booker– Sainsbury’s – NISA– Sainsbury’s - McColls– ? –P&H– Amazon-Morrisons? (Following Whole Foods)

• Resulting in channel leakage (compromising Revenue Management?)• Less internationalisation• More Amazon…


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Competition (innovation/substitution/wealth/ risk-policy)

• Wealth– Competitors buying market share (Ignoring ROI logic)– Limited ways of competing

• Risk policy– Risk averse– Risk neutral


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Where UK retail is headed

• Large space redundancy• Discounter impact• Online role


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Where retailers need to be


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Where retailers need to be

• ROCE 15%• Net margin 5%• Stockturn 25/annum• Sales/sq ft• Gearing 30%


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How branded revenue managers can help


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Suppliers’ financial contribution to retailer

What the retailer is accustomed to…

© Copyright EMR-NAMNEWS Ltd.Ref:general/channel management.ppt

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Suppliers’ financial contribution to retailer

• Margin (average gross margin 25%)• Credit (interest-free money, 45 days = 1.25% sales)• Trade & Marketing Investment + cost management (up

to 20% of purchases)• Stock rotation (UK average 20 turns per annum vs.

delivery frequency)• Deductions (up to 7% of purchases)• Relate each contribution to each part of retailer’s P&L


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Value of Trade Investment

Or levels of retailer appreciation!


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Incremental sales equivalent of £10k trade investment

Sales £bn OperatingProfit £m

Operating Margin

Incremental Sales for £10k

Tesco £55.9 £1,020 1.8% £555k

Sains’s £26.2 £ 630 2.4% £417k

Asda £22,400 £1,045 4.7% £213k

Morrns £16,300 £ 468 2.9% £345k

BootsLloydsSuperdrug

£9,198£2.02£1.11

£ 576£ 36£ 62

6.3%1.8%5.6%

£159k£555k£179k


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Dilemma:

• Do we invest in retailers that are less impressed with its value to their business…i.e. the more successful retailers

• …or do we invest in ‘weaker’ retailers that are ‘grateful’ for the money..?


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Impact on the role of Revenue Management


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Revenue Management increasingly about persuasion of other functions

• Functional/Job needs of other stakeholders: (within our business and the retailer’s business) Anything that makes their job– Easier– Faster – Cheaper to conduct

• Essentially we need to express the objectives of revenue management in terms of benefits to other stakeholders in the mix


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Action• Ensure integrity of brand and that contents exceed expectations

created by on-tin description• Focus on the 20% of SKUs in 80/20 rule, in retailers that have

most brand-shopper profile congruency• Express benefits of revenue management in terms of functional

needs of main stakeholders• Place revenue management initiatives in a real-world context as

a means of solving financial needs of retailers• Work on relating our initiatives to growing top line by

optimising existing traffic i.e. More current products to current shoppers

• Relate Revenue Management investment in customer to the retailer's sales equivalent

• Act now while others await a return to ‘normal’…


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Appendices


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Reminder: Free NamNews offer to Exceedra delegates

• A two week trial of our daily NamNews email bulletins

• A personal copy of our latest monthly in-depth edition• Simply email [email protected]

• This slide-set contains an expanded version of my presentation made to the Exceedra Revenue Management Forum 6th July 2017.

• Please contact me with any queries at [email protected], or 07977 273409

mailto:[email protected]:[email protected]


EMRNAMNEWS

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Optimising Trade News items(Why we write NamNews items like we do)

• Interpretation-structure to help optimise trade news issues for NAMs– Where at– Where headed– Effect on you– Action

• Help in analysis of issues• Helping readers think with the issues, prioritise and

factor into their customer strategies


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Consultancy and Training Assignments Global Account Management: UK, Americas, EU, Asia Trade Spend Management (supplier & retail): Australia Pricing Negotiation & Management, Supplier/retailer: UK Managing Global customers locally: Dubai, SE Asia Global Acct Planning: Europe, NAFTA, Canada, South America, SE Asia Global Acct Management policy with local application: Europe, SE Asia,

China and US + Latin America: International/local customer planning, management and negotiation:

Central & Eastern Europe Local Customer management & negotiation: Dubai, Saudi Category Management & ECR: European Union Category Management with Key Suppliers: UK Multiple Retail Customer Management, Account Plans, Negotiation: Europe & SE Asia Category-based joint Negotiation Workshops with suppliers & retailers:

Multiples & Forecourt Retail Modern Retailer development: India, Serbia Category Mgt: UAE, Saudi Contract Law in supply/retail


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Publishing• Namnews Daily and monthly Newsletter & Kamcity.com• Articles published, monthly/2-monthly:

– Admap (Marketing & Advt Agencies)– Australian C&I (Convenience & Impulse Store)– Checkout Ireland– Cue Entertainment (UK Home entertainment trade magazine)– The European Retail Digest (Oxrim)– European Cosmetics Marketing– Middle East Grocer– Middle East Pharmacist– New Zealand Convenience Store– South Africa Supermarket & Retailer magazine– Retail Asia

– Output: Google: Brian Moore NamnewsSee www.kamcity.com/kamtraining/magsbm.htm


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Kamcity Options • Use www.kamcity.com/Library/ for papers on key ideas/issues in the

presentation• See KamWords section of Kamcity for definitions of financial terms

www.kamcity.com/KamWords/• See NamCalc building for financial calculations

www.kamcity.com/NamCalc/• See www.kamcityblog.com for topical blog postings• See Namnews archives in Kamcity for background news on customers

www.kamcity.com/Namnews/• See World-of-Retail in Kamcity for customer factfiles UK, EU and global

www.kamcity.com/wor/• Latest details of our training? See www.kamcity.com/KamTraining/• Output: Google: Brian Moore Namnews• Any problems, contact Brian Moore on [email protected]

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Exceedra Revenue Management Forum �Opportunities and Threats for Revenue Management in Retail, now and in the future ��etc Venue Fenchurch St, 6-07-2017Reminder: �Free NamNews offer to Exceedra delegatesSlide Number 3Managing Revenue�in an unprecedented worldIf you doubt unprecedented…Managing Revenue�in an unprecedented worldSuch circumstances represent real opportunities for those that can adapt to business change… AgendaThe current state of UK retailers �Where they are now:Slide Number 10Market CapitalisationSlide Number 12Impact on retail profitabilityRetail consolidation�Multiples vs. the discountersUK Consumer behaviourLarge space redundancyLarge space redundancySales/sq ft/annum�Online not the answer..�Offline Limit to Online Growth Online grocery complexityImproving online profitabilityCatch 22…Click & Collect not the full answerAmazon as online standard setterPure-play Online RetailA challenge to the definition of a shop…What is a shop? (Sales outlet?, showroom?, sales aid?)Meanwhile, for the other trade players..When a customer goes bust…Opportunities for Revenue ManagersAnsoff MatrixBusiness Development Options�Building and maintaining credibility with the consumer-shopper 1Current Products to Current CustomersCurrent Products to Current Customers (contd.)2 New Products to Current Customers�(Products that are new to them)3 Current Products to New Customers4 New Products to New CustomersThreats for Revenue ManagersThreats in Revenue Management Include:�Regulatory/Legal/Political developmentsCultural/Social changeTechnological changeTrade concentration/power/internationalisation�Competition (innovation/substitution/wealth/ risk-policy)�Where UK retail is headed�Where retailers need to beWhere retailers need to beHow branded revenue managers can helpSuppliers’ financial contribution to retailerSuppliers’ financial contribution to retailerValue of Trade InvestmentIncremental sales equivalent of £10k trade investment�Dilemma:Impact on the role of Revenue ManagementRevenue Management increasingly about persuasion of other functionsActionAppendicesReminder: �Free NamNews offer to Exceedra delegatesOptimising Trade News items�(Why we write NamNews items like we do)Slide Number 63Publishing

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