Sustaining Profitability
UK Retail Market
Finn Cottle
26th February 2009
UK Retail Climate
•
•
•
•
‘Lowest’ price messages
Market share’ war
Trendy Discounters
Consumers being encouraged
to trade down!
• New shops and new jobs
Commercial Climate
• Buyers are under pressure to maintain
yoys
• No of promotions rising again
• Buyers must ‘Buy Even Better’
• Buyers must know about
commodity pricing and
currency rates
No magic formula!
Margin is an equation between cost and volume
Margin is greatly influenced by mix of products
Margin is better from some customers than others
The Ingredients
Long Term
Approach
Obsessive
About Cost
Points of
Difference
Promotions &
Pricing
The
Negotiation
The
Relationship
Long Term Planning
• Buyer’ Demands are often short term
• A supply relationship is long term
business planning
• Contracts and Fixed Deals
• Account Investment levels
Cost Structures
Labour
15%
Gross Margin
30%
Distribution
15%
Packaging
15%
Raw Materials
25%
• True cost of product
• Supplier margins
• Gross margin
expectations
• Open book
• Currency can be a
distraction
• Offsetting
Cost control
• Keep buyers aware
of trends
• Value-engineering
or adding value
• Reduce complexity
if possible
• Make savings
Points of Difference
• Brand development
• Quality & uniqueness
• Packaging improvements e.g. Being
green
• Ingredient changes
• Achieve customer loyalty
Innovation
• Is there an obvious gap?
• Is it bringing real ‘newness’
• Is it supporting the brand
values?
• Will it trade customers up?
Promotions – ‘The Drug’
Once you get pulled in, it is very hard to kick the
habit!
“X shall not, directly or indirectly
unreasonably require a supplier
predominantly to fund the costs of a
promotion”
Volume
Sales
Use as
a lever
Annual
Net Pricing
Impact
on
margin
Depth
of deal
Extra
charges
To Say No
When is it appropriate?
a.Never
b.Once in a while
c.When your business’s
sustainability is at risk
d. No but yes!
The Relationship
•
•
•
•
•
Right level of contact
Open, fair and honest
Mark at the right level
Mutual respect
Making them think they are always
right!!
Feedback
Be Dogged
& Look
shocked!
You must remind
them of your point of
difference, so they
don’t want to drop
you
Reverse the
percentage
margin debate
Long term
sustainability
is a priority
If all else
fails, raise it
to a higher
level