Wednesday, 29 September 2010

Supermarket Watch - How Sainsbury and Waitrose Got it Right but ASDA Didn't

Americans call it “The Big Mo” and it means that happy state when a business has momentum - the team is winning, confidence is brimming over, and whatever is being done is a huge success. Sainsbury, with 19 consecutive quarters of growth under their belts have it, Waitrose, currently the fastest growing supermarket have it, but ASDA whose sales have dropped month after month for nearly a year, most certainly do not have it.

Confidence about doing the right thing and doing it well is illustrated by the way these three supermarkets have executed their recent new initiatives. Sainsbury have revamped their premium “Taste the Difference” range with trading director Mike Coupe claiming that “this is the best range of premium food available in any supermarket”. At the other end of the scale Waitrose is trumpeting value credentials by saying they will match the Tesco’s price on 1000 major brands. In the middle, ASDA have announced the launch of “Chosen by You” which is a quality upgrade of their standard range, with products selected after talking to 40,000 people across the UK.
So here are three major activities, but it’s the way they have been executed which marks out Sainsbury and Waitrose as confident winners, and ASDA as an outfit that, temporarily at least, has lost its way.

Sainsbury’s have made sure that food shoppers across Britain know about the new range. They took out three and sometimes four page advertisements in the papers, are running a TV ad with Jamie Oliver, and are giving away glossy leaflets in store. Customers who shop on line get a message about the new range as soon as they click on to the website. Waitrose also took out three page advertisements, are advertising on TV, and have the price cut message when shoppers click on the website. They have put up big displays of the newly priced products in their shops, pinned up labels on the shelves, and just in case the message has still been missed, the dividers shoppers put on the checkout belt to signify the start of their shopping also mention the price cuts.

And what about ASDA? The range was launched on September 21st, but on a trip to the Leamington store today I saw only a couple of overhead posters talking about the range - easy to miss as few shoppers were walking around staring at the ceiling. There were no displays, no markers at the shelves, and no in store tasting sessions. There have been no advertisements, and when clicking on to the website the first message is that prices are low, the second that there is 15% off furniture, and only the third talks about “Chosen by You”.

Possibly ASDA don’t feel that the new launch is that big a deal, but this seems unlikely as their recently promoted MD has made a point of criticising the quality of its food, and in the press release that accompanied the launch he talks about ASDA now driving as hard on quality as it does on price. More probably, the launch smacks of a company that has lost its edge, cannot decide what its main message is, and forgotten the attention to detail that is vital. Retail is detail as someone once said. The ASDA approach It is a big contrast to the super- confident actions of Sainsbury and Waitrose.

Sunday, 19 September 2010

Wiseman's Profits Warning - Deja Vu All Over Again

Robert Wiseman’s profits warning shocked investors who promptly knocked 30% off the share price. The problem, says the company, is “intense competitive pressures across all sectors of the market”, and so they are reducing second half profit expectations by £7m, and 2011 by £16m.

The background has been well documented. Basically a price war has broken out on milk, with ASDA starting the fight, and Tesco promptly retaliating. The cost is being borne by processors, and the situation is seemingly exacerbated by smaller dairies being prepared to cut prices to gain more volume.

The most surprising thing about this announcement is that everyone is so surprised. Wiseman has a history of profit problems due to negotiations with the big supermarkets. In May 2005 the Group warned that profits had fallen by 15% versus the prior year due to losing a contract with ASDA. In May 2008, the company warned that profits would take a hit of £8.5m because it was taking longer than anticipated to get retailers to agree to price rises which were needed to cover escalating costs.

Here it all goes again, and with the firm’s current business model, profit performance will continue to be volatile.

The big issue with Wiseman is that it sells one product, fresh milk, and is reliant on one distribution channel, the major supermarkets. It has nowhere to go if things get difficult – no other product sectors, no major brands, and few other sales outlets. Unlike its competitors Arla, and Dairy Crest, the latter rushing out an announcement of their own saying that they expected full year profits to come in as forecast. They did admit though that the fresh milk market was proving challenging.

The optimist would point to Wiseman’s cash generating ability, and a good record on cost reduction. Unfortunately neither seems to be enough to protect against supermarket whims and power.

Wednesday, 8 September 2010

Reviving Organic Food - The Waitrose Way

We can now see how Waitrose will handle Duchy Originals, the brand pioneered by the Prince of Wales, and moved into partnership with Waitrose 12 months ago. And the plans show impressive commitment to the organic market and the ideal of supporting sustainable food from small family farms which motivated the Prince when he started the company 20 years ago.

Basically, Waitrose is using Duchy as their organic brand, featured on a raft of products, from staples such as milk, eggs and frozen foods, to fancier products like Handmade Organic Hafod Welsh Cheddar. According to Waitrose there are plans to increase the range to 400 products.
The launch of “Duchy Originals by Waitrose” has been heralded by advertisements in the papers, a TV spot featuring Heston Blumenthal, and a 25% introductory price cut to tempt shoppers to buy. None of this comes cheap and it shows that Waitrose are deadly serious about the potential of organic food.

It’s not just the commitment to organics which is interesting (and should give producers soldiering on with the sector despite a big drop in consumer demand some cause for optimism). It’s the way that Waitrose have approached the market. Clearly the company has decided that calling a product organic is not in itself a sufficient reason for consumers to pay the organic premium. Consumers want something more, and Waitrose feel that by adding the prestigious Duchy name, and explaining the values which lie behind it, they are giving people that extra bit of reassurance and motivation to choose the more expensive option.

There may be another reason for Waitrose’s organic commitment. In a previous blog I suggested that supermarkets might be turning their attention to super- premium foods again to offset the costs of heavy price cutting on everyday items, a problem which is only going to get worse as food inflation strikes once more. Organic food is an obvious premium market for Waitrose to develop as they already hold a 21% share of the sector, but only a 4% share of the total grocery market.

Whatever the reasons, it would be great if the Waitrose move works. Many Duchy suppliers are small, and a foothold in the company will help grow sales. With the Prince keeping a close eye on things, they should get a fair return too.