Government Plans to Soften Sunday Trading Laws Facing Defeat

This week, the government plans to soften the Sunday trading laws for the large retailers is facing defeat, with the SNP fearing it could drive down Scottish workers wages. That combined with the fact that other MPs and some Tory rebels are voting against the motion means that it is most likely that the law will be defeated.

With the current law set at a maximum of 6 hours trading on a Sunday for the large retailers, this can have a big affect on current and future business in both the grocery and wholesale markets.

They competition is from online ordering – whereby orders can be made any time, any day and so with the shorter trading laws on a Sunday the online presence is looking even stronger.

The wholesalers with a strong online presence, like JJ Food Service, Booker and Bestway will continue to grow their business away from the retail side. However, other smaller wholesalers who do not have an online presence yet may see their share of the market slip as those looking to order online can only do so with the larger established wholesalers.

This is even more important in the wholesale sector with the convenience store owners typically do their stock takes and replenishments over the weekend when they have a break from running their business, or another family member can fill in for them.

Thus, the impact of the vote on the local wholesalers and retailers will be very interesting to see over the next couple of months.

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54% of Supermarket Products are on Promotion

This week, market research firm IRI Group has announced the results of their research shows that 54% of products sold by the supermarkets and major retailers were on promotions such as ‘multi-buys’ and Special Offer promotions.

This compares with 28% in Europe overall, making the UK the country with the highest number of promotions in Europe. The impact for manufacturers is immense, as the promotions are no longer having the big impact on sales they once had, and the manufacturer is no longer seeing the uplift on promotions that are subsidised at the retailers. That combined with the misleading promotions means that something has to be done to tackle this problem, perhaps by introducing a cap or percentage of products that can be promoted by a retailer or supermarket on promotion.

So how does this fair in the wholesale sector?

The wholesalers all have their own ‘Special Offers’ for the week and also for the month and these are usually the most popular products to help bring the customers in through the door with seasonal variations. So soft drinks may be on ‘Special Offer’ in the summer, and alcoholic drinks in the winter close to the Christmas period. This product range is usually limited and no more than 10% of the range of products the wholesaler will sell.

Most wholesalers also feature a ‘multi-buy’ offer where if you’re buying 2, 3 or 4 products then you will receive a discounted price. This is prevalent and a ‘multi-buy’ is available on almost all products. Indeed, Start Catering and JJs Food Service offer a ‘multi-buy’ on more than 80% of their product range.

With our analytics software, a wholesaler can keep track of the ‘Special Offers’ and ‘multi-buy’ prices charged by competitors and so that they can time their own ‘Special Offers’ accordingly.

We will be looking in more detail at the ‘Special Offers’ and ‘multi-buys’ offered to customers to see if these really work and will report back with our findings!

The Living Wage Standards – How will this affect the Wholesale market?

The big four supermarkets have all announced varying responses to the Living Wage Standards which will come into affect next year, but have been trumped by the discounters Aldi and Lidl (again!).

Aldi said that it would pay its employees £8.40 an hour or £9.45 in London and Lidl has said that it will be paying at least £8.20 in England, Wales and Scotland and £9.35 for those in London.

Both Aldi and Lidl have been able to offer this as they already pay their employees a higher hourly rate than the supermarkets, and so it’s not so much of a big jump for them. Its also great publicity and advertising for them too, showing that they are the best paying retailers in the market today and looking after their staff. But essentially it’s also a business decision, as paying higher wages for staff reduced staff turnover and the costs that come with it.

So far, the supermarkets haven’t had much of a response with Sainsbury’s saying its employee wages are £7.20 for the workers over the age of 25 from April 2016. Tesco’s are at £8.80 and Morrison’s at £8.20 and so still behind the discounters but this could change.

With the wholesalers employing vast numbers of staff then what is their position? Well, Charles Wilson, CEO of Booker plc mentioned at the last AGM that they constantly monitor pay against retail sector standards and although they are keeping an eye on the situation they feel that they offer a fair wage.

So far, no other wholesalers have come out to comment on their current wage structure and the new Living Wage Standard and whether they will be increasing employees’ hourly pay to reflect this.

However, there is another big factor to consider here. With the rise of the Living Wage Standard then a large number of cafes, restaurants, bars etc. will be affected and the increased employee cost will hit the bottom line. Many of these bars, cafes etc will not survive and go bust, which in turn mean that wholesalers who supply them will be affected too.

So it would be interesting to see the affect on the wholesaler market next year, once the Living Wage Standard is live!

Wholesalers – How to Get the Price of your Products Right

Over the last month, we’ve been having a look at how to help wholesalers to get the selling price of their products right. Typically the selling price has always been a fixed mark-up on the price of a product.

So if a wholesaler bought a product for 80p, then he would be adding a 25% mark-up and selling the product for £1 which should have enough margin to cover the overheads of storing the product, handling and delivery etc.

However, today using this pricing strategy has its limitations, and why is that? Firstly, there are competitors in the marketplace and each competitor is setting their own price of the product based on their own specific cost structures e.g. storage, distribution and how much they bought the product for in the first place. The larger the purchasing power of the wholesaler the better discounts the wholesaler can get from the manufacturer.

Hence, to be able to set your own price, you’ll need to see how much the competition is selling in the marketplace for. If you’re price is too high, then the customers will go to the competition. If you’re too low then you’re throwing away good margin. Hence, getting the price right is essential and the first step to doing this is to know what your competitors sell at.

Secondly, there will be products which are bring customers in e.g. Coca Cola cans, Red Bull etc. which are very popular products and can be promoted at a special price to lure customers into buying. These products will be on promotion and typically loss leaders.

However, you will also want to see what the competitors have on promotion and whether you can beat or compete with that price. It may be the case that a competitor has such a low price on a promotional product, that you cannot compete with the price and so best to promote a different product or wait until the competitors promotional period is over.

This is what our ‘Improve That Price’ analytic’s product does.

A wholesaler can see the competitor pricing for all products, and then decide how to price their own products. They can also download variance reports which will show which products are 5%, 10%, 20% etc higher priced than a competitor and make changes accordingly. The can do this instantly for all of their product range, and even against the closest match of a competitor.

This is a great piece of software and now used by some of the largest wholesalers in the UK. So if you want to see how this works, then email faisal@improvethatprice.com and he would be very happy to give you a demo!

Poundland Sees 12% Rise in Profits – Should you be stocking Value Brands?

Poundland this week reported a 12% rise in profits for the half year to £9.3m, and like-for-like sales were also up 4.7%.  This clearly suggests that shoppers are going for the discount brands, and looking to get their shop as cheap as possible. What impact does this have on the convenience stores in local areas?

Well, for a start, consumers are becoming more price sensitive and so are trying to save money at any suitable opportunity. This puts pressures on the price competition between convenience stores, Sainsbury Local, Tesco Metro etc.  and the discount stores too.

So should the local convenience store be selling more of the low value branded goods, then the branded goods themselves E.g. should a local convenience store sell own label tomato ketchup rather than Heinz ketchup? Or are these customers still going for the branded goods, and are only after the convenience? And with limited shelf space, then the shop owner has to be very picky about the products that they sell too, so the choice is even more important.

It’s very difficult for the local convenience store to compete just on price – any Sainsbury’s Local or Tesco Metro can blow them away on the price, with their enhanced buying power. The main reason why a customer is coming into the convenience store is literally for convenience – if they went to a Tesco Metro then they would have to walk there, try and find the product, walk around the large store, queue up to pay etc, which takes time. To buy something simple like a bottle of tomato ketchup, then it is easier to go to the local convenience store and be in and out in a few minutes.

Hence, as speed is the key, seeing the product the customer wants to buy very quickly is important. Hence, the brand is very important in this regard as the customer can identify with the brand quickly and easily, and make a choice easily.

Thus, for this reason we recommend that the convenience stores continue to stock the popular brands and stock own label products for non-key items e.g. custard cream biscuits.  A focus on the gross margins of the products and the convenience aspect will ensure that convenience stores will continue to flourish and be a central point for the local community for the foreseeable future.

Lidl and Aldi Enter Convenience Store Market – a New Threat for Retailers?

Both Aldi and Lidl have announced that they will be opening up convenience stores to compete with  Tesco Metro and Sainsbury Local which is big news in the convenience store market.

Aldi trialled their first store in Kilburn which has proved to be a great success, and Lidl is to follow with a store in Kentish town. The convenience store market has been one of the few growth areas for the supermarkets, with all keen to continue expansion too.

However, this could come to a pre-mature end with the emergence of the discounters into this market space. How will this affect the current crop of independents and retail outlets already there, and in turn affect the larger wholesalers too?

With the emergence of cheaper goods from Aldi and Lidl in a convenient format, this will have an impact on the current crop of Sainsbury and Tesco convenience stores, as well as all other independents. Customers are going for convenience and a cheaper price, and hence the new Lidl and Aldi stores will experience more customers which will be taken at the expense of the existing independents and supermarket chains.

As the independents buy their goods at the large wholesalers e.g. Bestway and Booker then the sales of these wholesalers could drop too, as they are dependent on the convenience store trade. Those wholesalers who have a large food service offering will see less of an impact than those who rely on convenience stores.

It’s interesting times for the retail and wholesale market and there could be some major changes happening over the next ten years in this market place.

Tesco Reported £250m Profit Error – A Warning to Wholesalers?

As you must know by now, Tesco had a disastrous week recently, reporting a £250m profit error and seeing its sales crashing to 11 year lows. How such a big retailer could have got into such a mess, and is this a time bomb waiting to explode for other retailers, and indeed wholesalers too?

To see how this loss came about, we need to understand where this profit adjustment came from.

In most retailers and wholesalers, the big manufacturers e.g. Kellogg’s, Coke, Gillette pay them to help fund promotions to shift their goods. In this way they may contribute to advertising campaigns, special displays, or when items are discounted e.g. from £1.99 to £1.49. Here the suppliers typically pay the difference.

Most of this is linked to performance, so the rebate may be paid for the number sold. e.g. a penny in the pound for every 100 items sold.

Tesco had to estimate how much rebate it would receive from suppliers by forecasting sales. If this was too high, then the rebates are more than collected and the profit is overstated.

This rebate system also is prevalent with the wholesalers, and so if this could happen in the largest supermarket, can it also happen within the largest wholesalers too?

The answer would depend on how they book these rebates in their accounts, and how good the Finance Director is at his job. Tesco was in an awkward position as it didn’t have a Finance Director since April, and so this is where the error has occurred as nobody was taking control of the situation. Now may be a good time for all existing wholesalers and supermarkets to review their accounting practices in regard to the rebates received from manufacturers.