Making Business Matter (MBM)

Grocery Guru Episode 21: Hagglebots and Fishing Grenades

Join Andrew Grant and Darren A. Smith in the twenty-first episode of Grocery Guru discussing supermarkets using Hagglebots and Fishing Grenades

You Can Read the Full Hagglebots and Fishing Grenades Episode Transcript Below:

Darren A. Smith:

Hello. You're here with us on episode 21 with the Grocery Guru. Andrew, our grocery guru, how are you?

Andrew Grant:

Very well, Darren, yeah. You? You good?

Darren A. Smith:

Yes, very good. Andrew, this week we are talking about hagglebot, something you know something about, I think.

Andrew Grant:

Wasn't that Robbie Coltrane in the Harry Potter films? Big guy that lived outside the school, isn't he?

Hagglebots and fishing grenades

Darren A. Smith:

I think that was Hagrid.

Andrew Grant:

Oh, Hagridbot. Sorry, I misheard you. So not a Hagridbot, a hagglebot.

Darren A. Smith:

We're talking about hagglebot. So I've got this piece that I've done some research on with hagglebot, and what I'd like to do is get your take as the grocery guru on what's happening in the world of supermarkets, haggling, negotiating. So I'm going to read some of this out, but before I do, what's your understanding of hagglebot?

Andrew Grant:

Well, I suppose it's this new AI, artificial intelligence, way of negotiating. So obviously I think come out of the States. I think maybe we might use it where they automate the negotiation process. I mean in my world, it goes back to one of the scariest things I ever saw was an e-auction that we did years back. An e-auction for tinned tuna, I think it was. And Jesus, it was brutal negotiation I have ever seen when you let basically computers set the prices and suppliers don't know who they're bidding against. Absolutely brutal. And if I'd have been ... if I'd have been the suppliers, I'd have been in tears at the end.

Darren A. Smith:

It's like a blind auction, isn't it?

Andrew Grant:

Yeah, literally. You place your bid, a huge amount of business, and no supplier can afford to lose it, and yet you're bidding blind against a competitor that suddenly says no, you need to come down 50 more dollars a ton. So I guess you could call that ... I mean that was serious hagglebotting, to use your phrase.

Darren A. Smith:

Well, it seems to be coming up more and more. Let me share this with you. There is the Olympics for hagglebots, they're on their 11th year, and it's artificial intelligence pitched against artificial intelligence and/or pitched against humans. And tends to be universities. The winners tend to be Turkey or Japan with the best hagglebots. We're 11 years in but the first haggle bot was developed in the 1980s and was called Negoisst. Never heard of that. But here's a statement I'd like to share with you and see what you think, "Humans have the upper hand understanding emotion and subject matter expertise, but can falter when there are many issues."

Andrew Grant:

Yeah. I mean if you think about it, when you bid on eBay for something, that's a sort of electronic negotiation, isn't it? You place your bid and then you get told, "Oh, you're being outbid." And that works in a very black and white linear way, but it must come down to our world of food. There's a specification for product, there's delivery times, there's payment terms, there's so many, as we call them, [inaudible 00:03:32]. Could you program a computer to get all those nuances? And at the end of the day, it is looking somebody in the eye and doing a deal with them. So I can see electronic negotiation, haggling, whatever you want to call it, working when it's very simple transactions and you've got thousands of suppliers. I can see it being beneficial to an organization to use almost like tick box buying. And in the last week, there's been a few news items where a particularly large online player has been sending out tick box requests for terms of doing business. In my day, it used to be called something like a grenade fishing.

Darren A. Smith:

Grenade fishing.

Andrew Grant:

You throw an email out there with a whole load of outrageous requests, let it explode amongst the supply base, and you guarantee 50% of the fish will land up on the shore.

Darren A. Smith:

Wow. And I guess the online retailer, we're talking about Amazon had done some of this. They've been in the press with this stuff, haven't they?

Andrew Grant:

Yeah, there's been some press about them.

Darren A. Smith:

All right, well let me ask you this. Walmart, you've mentioned, I think. They have an AI system of negotiating called Pactum, Sounds like something else, negotiating contracts and prices. But let me try this one on you. If everything is known, so this is from the AI chatbot Olympics guys, the founder, negotiations should never have to happen at all. You need zero rounds and the deal is struck immediately if everything is known. What do you think about that?

Andrew Grant:

I think they need to get out more. Come on, the world's not like that. I mean think back to what we used to do, even if you knew absolutely everything, you'd still ask for that extra few P, wouldn't you?

Darren A. Smith:

Yeah, you're would. I think these guys are wrong.

Andrew Grant:

Yeah, well that's the bit that says ... I mean we've always said negotiation, and we do an exercise, don't we, at [inaudible 00:05:51]? Negotiation workshops, the first exercise we do. And we prove that if you put six sets of two people doing exactly the same negotiation with exactly the same brief and knowledge, you get six different results, because it's generally the person that's the most aggressive, the most pushy, the most-

Darren A. Smith:

Ambitious.

Andrew Grant:

Ambitious, yeah. The most ambitious gets the better deal. So yeah, computers can do so much, but the minute you stick human beings in the mix, emotions get involved. Some human beings are more naturally aggressive than others. Some are more passive. Some people are just having a good day or a bad day, and it'll change a negotiation.

Darren A. Smith:

Absolutely. Well, here's another bit. They're saying that within three minutes of a deal, the bots, by looking at our facial recognition, the pitch of our tone, how much it changes, can predict the outcome.

Andrew Grant:

I can imagine that. I mean anybody that's a card player, the best card players are those that can read their opponent's mannerism, what have you. We've never got into that. I've never got into that side of negotiation, the way people look and behave, but you do tend to pick up, don't you, whether somebody is comfortable? I remember we always talk about never look comfortable in a negotiation. If you're sitting back in your chair with your arms folded and your feet up with a great big Montecristo cigar, you're possibly making too much money, as opposed to sitting forward, looking a little bit on edge, and using the language of, "You'll have the coat off my back, Darren, next." We all do that gamesmanship.

Darren A. Smith:

Well between this, I think that makes us very good trainers. I'm very interested in the behavioral side of it rather than the techniques. So I'm interested in that body language that says what are you really saying to me? And those little words that we use, which are, "About 21%," which really means it's not 21%, it's much, much more or much, much less. All right, Andrew. So what does this mean for supermarkets, grocery? Is the account manager dead? We don't need them anymore. They're obsolete.

Andrew Grant:

I don't think so. I think we have talked in previous ones of this about how the account manager's job is going to morph into more of a shopper insight manager and that having the skills of understanding their shoppers almost as well as they do is massively important for account managers going forward. Yeah, more negotiation will go online. Relatively undifferentiated products, so bags of sugar, bags of flour, where there isn't a massive specification, pretty easy to buy that on a e or haggle platform. But once it gets complicated and the business gets big, you're going to need the human ...

Darren A. Smith:

Andrew, I think we've just-

Andrew Grant:

[crosstalk 00:09:13].

Darren A. Smith:

Oh, sorry. The broadband's just catching up. Slight glitch, but I think I got the gist of what you were saying. Horses for courses [crosstalk 00:09:20].

Andrew Grant:

Yeah, there does seem to be a bit of a delay. I hope the recording's better.

Darren A. Smith:

All right. I think we were talking about horses for courses there in terms of negotiation. If you've got a very standard, basic product, then it's likely more e-auction. Something a bit more complex is going to be more negotiating with a human. And then we've got shopper insight, which is going to be the real battle ground for the future. All right, Andrew, I think we've lost your broadband, so we're going to bring that to a close and we'll talk to you next week. Take care.

Take a look at the Hagglebots and Fishing Grenades video on our YouTube Channel. Also, check out our award-winning blog.

Grocery Guru Ep 20: Morrisons' Preliminary Results

Join Andrew Grant and Darren A. Smith in the twentieth episode of Grocery Guru discussing Morrisons' Preliminary Results for the 52 weeks to 31st January 2021.

You Can Read the Full Morrisons' Preliminary Results Episode Transcript Below:

Darren A. Smith:

Welcome to episode 20 of our weekly chat with the Grocery Guru that is Andrew Grant. Andrew, how are you?

Andrew Grant:

Morning, Darren. Very good, thank you.

Darren A. Smith:

Good, good. Okay, so in this week's 10-minute chat with the Grocery Guru, we're going to talk about Morrisons' preliminary results, because they're the first after COVID, is that right?

Andrew Grant:

Yeah, the first major retailer to put out full-blown annual results post COVID, January 31st. Obviously, you've got Tesco and Sainsbury's following in the next few weeks.

Darren A. Smith:

Right, okay. The general people, good, bad? What did you think of the results?

Andrew Grant:

It's fascinating actually because the headlines I think in the press yesterday were the share price dropped significantly because I think the city suddenly realized the sheer cost of this pandemic to the supermarkets. On the face of it, they've done really well, and the chief exec was praising how well the business had done, and they have done a phenomenal job if you think about it, all the supermarkets feeding the country with a little issue of Brexit in the middle.

Andrew Grant:

Yeah, they're like-for-like sales, the standard industry measure of sales performance up 8.6%. That would be ... supermarkets would've given their right and left arms for that two years ago.

Morrison's Financial Summary gives a quick view of their ups and downs for 2020/21 year

 

Darren A. Smith:

In comparison, 8.6, but 2019 on the previous year was down .8%, so it's really a 9. 10. stretch. You're right, would've given their arms or legs.

Andrew Grant:

But then, their profit's down 50.7%. Was it 290 million spent on COVID costs, restructuring, PPE, additional staff, additional vans and online delivery, and then 230 million of business rates that they handed back to the government, so they carried on paying? What's that, 520 million they could've made if it hadn't been for COVID. They made 400 million last year, and it's cost them 500 million. It's cost them a years of profits to survive COVID.

Darren A. Smith:

That's a good takeaway, isn't it? A year's profits to survive COVID, because all of us look at industries like hospitality, and think they're wiped out, they're struggling, it's going to be hard to come back. The supermarkets are doing really, really well, but they're not.

Andrew Grant:

Think about it, it's this spike effect, isn't it? The supermarkets have had this big, 10% spike, plus a massive spike in costs, and they're driving, at the moment, headlong into that. I think I'd rather be a pub chain, where all of a sudden when I open up in May, I'll be 300% up on the year. The figures will look fantastic.

Darren A. Smith:

That's very true. I guess, maybe don't look as hard and as fast as people like you and I and account managers out there, but if they are, you're right, they're going to be up hugely. I noticed other things like 300 McColl's stores to be converted to Morrisons Daily over the next three years. A new contract with McColl's signed to extend the partnership to 2027, so there's some good news in there.

Andrew Grant:

Yeah, becoming big in convenience, absolutely. One thing that got me, and whether I've done these ... because, I'm not a city analyst, I wish I was, but net profitability, the argument's always gone that the supermarkets in the UK are incredibly efficient, because basically their net profitability's 2% on average.

Andrew Grant:

2p in the pound is all they make from all the work they do, and Tesco always lauded, back in the day, that they got over 5 pence in the pound profit, and Dave Lewis left on a massive high last year getting it back to 4.2, I think.

Darren A. Smith:

4.2? Okay.

Andrew Grant:

Morrisons last year was bang on the average, 1.98% margin, net margin. What do you think it was last year when you do the sums?

Darren A. Smith:

Don't know. Go on, tell me.

Andrew Grant:

Just over a half, .5p in the pound profit for everything they did. That is a lot of hard work, effort, and energy for half a p in the pound.

Darren A. Smith:

That is not a lot, is it? It sort of reminds me of Thomas Cook, you look at big companies like that who have billions, but actually, do they make money?

Andrew Grant:

Yeah, so it is quite interesting. We spoke last week about Amazon Fresh opening, and how if they want to expand quickly, do they just take out ... overall the disused Topshop's and Dorothy Perkins littering the high streets, or do they buy a ready-made retailer?

Andrew Grant:

Morrisons operating profit, 254 million. I don't know what multiples supermarkets sell on, but say Amazon had to pay 10 times that, two and a half billion, they're working a couple of trillions, so it is small change for Amazon to say, "Let's buy Morrisons."

Darren A. Smith:

That's very true, and then they could dominate the market very, very quickly, and take a 10% share overnight. Very true.

Andrew Grant:

The fact that Morrisons share price dived so dramatically yesterday would say that Amazon isn't on the city radar, otherwise, it would've gone up.

Darren A. Smith:

Very true.

Andrew Grant:

I think the takeout of all of that for Morrisons, and for the other, because obviously as I said, Tesco, Sainsbury's, and the others will be published in the next four weeks, I'm sure it will be a similar story. They are driving headlong into some pretty horrific comparables. They won't get the same sales growth this year, because people will go back to restaurants and pubs, so a huge chunk of their food, and particularly the drink business will go back to normal, so big like-for-like declines there, but this continuing cost base, because they're still going to have to ... online deliveries have changed forever, so the extra cost of vans and people driving them and picking is still going to be there ...

Darren A. Smith:

It comes back to a point a moment ago about hospitality, there's an argument that because we've all been locked down for nearly a year, maybe we'll go out more. What was once a week treat, a pub might be twice a week.

Andrew Grant:

Yeah, and will all 60 million of us end up in Benidorm, because we're desperate to get a foreign holiday? Maybe the country will be empty in August.

Darren A. Smith:

It could be. Bird's Eye used to say, "It's about the share of stomach." Are we going to have two pub meals a week, and therefore we're not buying as many groceries, so what will they be like when per cent growth is going to go down even further?

Andrew Grant:

Yeah, so some big sales challenges, but then the costs, how do they get those cost under control? They've still got to pay the van drivers, they've still got to pay the in-store pickers, there's still going to be distancing restrictions, they're still going to have to keep investing in all the plexiglass, and the masks, and hand sanitisers, you would imagine, so where do they control their costs against falling sales to deliver any sort of profit?

Andrew Grant:

Only two ways, you cut your costs dramatically, and all of them have just announced in the last few weeks head office and store management restructurings, and then obviously, Sainsbury's in the last couple of weeks, "We're going to price match Aldi," and a very nicely worded letter to suppliers saying, "Please, help us on our journey to deliver better value for our shoppers," which in your language and my language is give us some cost reductions.

Darren A. Smith:

Also, the other part is Morrisons, very admirably, are the first to a minimum of £10 to all their staff?

Andrew Grant:

Yeah.

Darren A. Smith:

That's got to come from somewhere as well, which is all very admirable, but this is on top of costs that are ramping out of control.

Andrew Grant:

Yeah, you can imagine that the suppliers, many of them have been reeling over the last year. Some categories have done very, very well, as we know the comfort food area has done very, very well, but obviously, they'll have increased costs, and then I think we're going to get the supermarkets coming with requests.

Darren A. Smith:

We won't touch on this. I'm just going to bring out one other thing, so we're talking about the news released preliminary results for the 52 weeks ending 31st January 2021 for Morrisons, and one of the things I noticed, Andrew, was online sales tripled during the year, with capacity up fivefold? Not a surprise, but quite stark to read that. Morrisons on Amazon is available in 50 towns and cities, and already accounts for more than 10% of sales in the majority of stores.

Andrew Grant:

I saw that that is quite interesting.

Darren A. Smith:

It is, they're getting closer and closer, aren't they?

Andrew Grant:

Yeah.

Darren A. Smith:

A piece about carbon neutral with the British farming supply chain, and then one other bit I noticed was they've extended a 10% discount for all NHS staff for the whole of 2021. Again, another cost, very admirable.

Andrew Grant:

As I was told yesterday, I haven't seen it, but they're doing £10 afternoon Mother's Day teas. One of these meal deals where I think for 10 quid you get some nice little triangular sandwiches, some cakes, some clotted cream, all put together for 10 quid to take round to your mom's, or to leave on mom's doorstep probably, can't remember quite what the rules are anymore, for Mother's Day.

Darren A. Smith:

Okay, we'll see as it's two days to Mother's Day, I better go and try and book one.

Andrew Grant:

Yeah, go and get yourself a Morrisons Mother's Day cream tea, leave it on your mom's step. Ring the bell, and step back two meters.

Darren A. Smith:

All right. Andrew,...

Episode 19: Amazon Fresh

Join Andrew Grant and Darren A. Smith in the nineteenth episode of Grocery Guru. Today, the topic of discussion is the new Amazon Fresh store in Ealing, London and its innovative new checkoutless and frictionless operation.

You Can Read the Full Amazon Fresh Episode Transcript Below:

Darren A. Smith:

Welcome to episode 19 with the Grocery Guru, that is Andrew Grant. Andrew, how are you?

Andrew Grant:

Morning, Darren. Yeah. Very good thank you. Very good indeed.

Darren A. Smith:

Hey, hey. Good, good. Our topic this week, I believe is something to do with our friends at Amazon. Is that correct?

Andrew Grant:

Well, I think yeah, we try and make these things as topical as possible, and I don't think many people could have missed the fact that Amazon Fresh opened their first... Well, their first physical store, actually a physical food store in the U.K. yesterday, in Ealing.

Darren A. Smith:

Okay. Right, okay.

Andrew Grant:

On top of that, it happens to be one of these checkout less... Where you don't even have to scan the products, there's so much Artificial Intelligence technology in the store watching you, that it knows exactly what you pick up and charges you post your visit, which is quite clever.

Checkout just got fancy

 

Darren A. Smith:

It is. And I've got this article. This is the BBC's article, which you sent me yesterday across to discuss. And I can see some new terms coming out like, "Till-less. Checkout less."

Andrew Grant:

Yeah.

Darren A. Smith:

They're terms that are coming. That's what Amazon's driving here. And as you say, it's opened in Ealing. And you walk in, they scan you as you walk in, you grab your products and just walk out?

Andrew Grant:

Well, no. Interestingly, it's effectively a members-only club, because you've got to have Prime membership in order to be able to register before you go in. And I can imagine there'll be quite a few people wanted to grab a sandwich or grab a can of something and the barriers won't let them in because they're not a Prime member.

Darren A. Smith:

Never thought of that.

Andrew Grant:

Which yeah, would be quite interesting. So yeah, effectively, it's a members-only. A bit like a Costco, but on a smaller scale.

Darren A. Smith:

All right. So we've got Amazon Fresh with their first store in the U.K. It's in Ealing. Till-less. I'm just picking up some things here. It says, "Its first, just-walk-out shop outside the U.S." There's also some terms like, "Frictionless," that Amazon Fresh is putting out there. "Frictionless shopping." Never thought of that.

Andrew Grant:

Yeah. Do you know what? Is that the big thing? I mean, I think yesterday will go down as a seismic change in U.K. retail, and I think I know that sounds very grand, but not because of a checkout less store. A lot of people will think it's very trendy, very hip and very easy. There will be some people who... And the press was full of it yesterday. Big Brother's arrived. Infringement on our civil liberties, being filmed picking stuff. And I don't think many people will worry about that.

Andrew Grant:

But hey, checkout less store, what's it going to save you? At busy times in a Tesco Express or a Sainsbury's Local, you may be two minutes waiting, to wait for the self-scanner. So I don't think that is going to be the game-changer, the fact it's checkout less. The game-changer is how many of these things suddenly appear on our high streets and how fast will Amazon roll this out?

Darren A. Smith:

And that's the worry, isn't it? Because they've barely made a dent in the U.K. grocery market, but they've got the cash, they've got the position, they've got the status, the experience, the speed to go, "Boom," and grab our high street.

Andrew Grant:

Well, look at what they did to bookshops. I mean, they started with books. They've killed the high street bookstore, effectively.

Darren A. Smith:

Yeah.

Andrew Grant:

Absolutely. What are they worth? A trillion or something? Two options, actually, quite interestingly, because the word on the street is, "Why doesn't Jeff Bezos just go and buy Morrisons?" I mean, they've had a distribution tie-up with Morrisons for two years now. They've been selling Morrisons products online for two years. Why wouldn't you just get your wallet out and buy Morrisons, and suddenly you'd get, what is it, 80% share of the U.K. market, like that? At Hilton-

Darren A. Smith:

Sorry, go on. Sorry.

Andrew Grant:

No. Honestly, think about it. If they want small convenience stores on the high street, how many are empty high street fashion stores and other stores are there at the moment where landlords would be desperate for a new blue-chip tenant?

Darren A. Smith:

That's very true. You were telling me that... What used to be at this Ealing store before it was the Amazon?

Andrew Grant:

A Monsoon Accessorize.

Darren A. Smith:

Right.

Andrew Grant:

So a fashion accessory store.

Darren A. Smith:

Yeah.

Andrew Grant:

I mean, it's a small store. It's two and a half thousand square feet. So it's small, probably smaller than an average Tesco Express, but just think how many Next's, Topshop's, Topman's, Dorothy Perkins, Monsoon Accessorize. I mean, I've lost track of how many businesses have gone out of business.

Darren A. Smith:

Have you? It's a shame.

Andrew Grant:

So they could pick up leases and be in 20 shops in London within three months, five in Manchester. They could build scale very quickly that way.

Darren A. Smith:

Well, they could-

Andrew Grant:

But I think they have to because the interesting thing for me is not the checkout less. It's a gimmick.

Darren A. Smith:

Yeah. Yeah. And I can understand that. Yeah.

Andrew Grant:

It's the reports say... And I must get down there. Lots of brand new Amazon Fresh own-brand food products, so own-brand ready meals, and own-brand sandwiches and snacks. Now, I don't know if you shop Amazon, but certainly, in clothing, they've had their own-brand going for about a year.

Darren A. Smith:

Yep.

Andrew Grant:

And their Amazon Basics on things like batteries, and printer ink and what have you, I mean, the quality is superb for the price.

Darren A. Smith:

Oh, good.

Andrew Grant:

Amazon Basics batteries are just phenomenal. So if they can put that much effort into the food offer, then that suddenly then becomes, I think, a little bit scary for the likes of Tesco, Sainsbury's, anybody with a big convenience operation.

Darren A. Smith:

Well, it does. And do you think the U.K. is of interest by Amazon more than other countries? I mean, why here? Why not anywhere else? Is it because we are World-class grocers? Or...

Andrew Grant:

No. We're a very, very sophisticated and compact market.

Darren A. Smith:

Right.

Andrew Grant:

So unlike the States, which is effectively 50 different markets, one in every state, we're a pretty homogenous economy.

Darren A. Smith:

Yep.

Andrew Grant:

And 60 million people, still the fourth richest economy in the world. Why wouldn't you come here? The only thing against it is obviously, we do have absolute world-class retailers who won't go down without a fight.

Darren A. Smith:

Yeah. And that's what I was thinking. The bit that's particularly interesting to me about this report, is the shopper bit. So imagine I'm picking up a ready meal, something I used to buy as a buyer, but now, as a consumer, I pick one up. I do that sleeve thing, when you look inside it, put it back and pick the next thing up.

Darren A. Smith:

All a Clubcard and the like can do, is tell me what I've bought, or tell the suppliers and so on what they've bought. But now, with these scanners and these cameras, hold on, are they checking out that I've picked that, tried that, squeezed the apple, felt the pineapple? Are they now doing these things, as well?

Andrew Grant:

Well, they can. And if you think, the big suppliers like Unilever, and Coke or what have you, have for years put little cameras on certain parts of the fixture to watch people's eye lines and... For category management, work out how shoppers shop the fixture. Now, Amazon Fresh can do that 24/7 with every customer. That gives them a lot of data.

Darren A. Smith:

It does.

Andrew Grant:

Yeah.

Darren A. Smith:

And it's also, those cameras that you mentioned before with eye line. I remember there being hundreds of thousands of pounds of a project. And you get this much data and you go and do something. Now you've got it streaming all the time and updating. Wow.

Andrew Grant:

Yeah.

Darren A. Smith:

That's where the real win is, for me.

Andrew Grant:

Well, I think it gets even scarier than that, actually. There's always the quip that with Clubcard because Tesco knows what you eat, know where you live, know how old you are, they actually know, better than your doctor, how healthy you are. Amazon. Do you know what Amazon's next big move is? They're already doing it in the States.

Darren A. Smith:

No.

Andrew Grant:

One hour prescription deliveries.

Darren A. Smith:

Oh, wow.

Andrew Grant:

So you give Amazon your prescription details and they will get your pills to you within the hour. Now, all of a sudden, yeah? Amazon are the doctor. They know your health history, your age, where you live, what you eat, what you choose to buy and not use to buy. I mean, is there anything left that they actually don't know about you?

Darren A. Smith:

Well, and how long is it before they say, "Mr Smith, we see you've been having this diet for three months. We're just going to put forward some Vitamin B tablets because we think you need them"?

Andrew Grant:

Yeah. Yeah. Or, "We're going to send you some insulin because we reckon you've got type two," or something. Yeah. Or, "We'd rather you not be a shopper of ours because you're eating too healthy, you're eating unhealthy and it's not profitable." I mean, scary stuff.

Darren A. Smith:

Just for our last few minutes,...

Grocery Guru Ep 18: Discussing the New Normal and Impending Supermarket War

Join Andrew Grant and Darren A. Smith in the eighteenth episode of Grocery Guru. Today, the discussion focusses on the new normal and preparing for a fierce supermarket war. Forecasting budgets will be very hard, and the only certainty is uncertainty.

You Can Read the Full Supermarket War Transcript Below:

Darren A. Smith:

Welcome to episode 18 of Grocery Guru. And we're here with that guru, Andrew Grant. How are you?

Andrew Grant:

Morning, Darren. You well?

Darren A. Smith:

I'm good, I'm good. I saw Boris' announcement like most of the UK on Monday night. And the new normal... I'm confused. Andrew, what's going on? What's going to happen?

Andrew Grant:

Well, if I knew that I don't think I'd be here. I'd be putting some bets on the stock market. Yeah, it's all a bit weird, isn't it? It's like being handcuffed and you see the key at the other end of the room. It's like one of those Jeopardy movies.

Darren A. Smith:

Very nice. Very good.

Andrew Grant:

Or the Escape Room, or whatever it's called, where you can see how to get out, but you're not allowed out. It's a little bit weird.

The New Normal and Impending Supermarket War

 

Darren A. Smith:

I hear lots of contradictions around. This guy says this and this other person says that. And it's like...

Andrew Grant:

Yeah, when you look at the game we're in, it is a bit strange. On the one hand, you've got the head of Network Rail saying, "We're going to put 10% fewer trains on, because we're expecting 80% of normal capacity."

Darren A. Smith:

Right.

Andrew Grant:

Then you've got the head of Goldman Sachs saying, "Nah, everybody's going straight back to work the minute we can."

Darren A. Smith:

Right.

Andrew Grant:

So, that's a bit contradictory.

Darren A. Smith:

Yeah, yeah.

Andrew Grant:

And then you've got another thing saying footfall in shops will go up 50% post lockdown.

Darren A. Smith:

Plus 50%?

Andrew Grant:

Yeah.

Darren A. Smith:

Wow.

Andrew Grant:

And everybody talking about this massive spending spree. £250 billion pent up savings. So, it sounds like people are just going to go mental, which I imagine they will.

Darren A. Smith:

Wow. Because we've got the four-step plan coming over the next few months. Everyone knows that. So, we're going to talk about that. So, when's this £250 billion going to start being spent? Are we thinking during March or they're going to wait for a few steps?

Andrew Grant:

Well, I forget the exact dates. When non-essential retail opens. So, when all the clothing shops and the department stores and what have you open up, that'll be a big trend in spending. But obviously, the big one will be when pubs and restaurants will start serving again in... Is that May I think?

Darren A. Smith:

17th of May I think.

Andrew Grant:

Yeah.

Darren A. Smith:

That's five days after my 50th birthday, so you won't be able to pick me up.

Andrew Grant:

Okay, okay. There's the push for a card I could see. No, but what I found fascinating, coming back to our game and supermarkets and what have you, is they have been one of the clear winners of this pandemic because they're about the only place you can go.

Andrew Grant:

And I was looking at the Kantar data for January, which is obviously a slow month in normal retail land, but the grocers were up 12% year on year. Now there's bugger all inflation so that 12% is all growth. And of course, you imagine most of it's come from pubs, restaurants, and hotels.

Andrew Grant:

So, in 12 weeks, that's worth about a £3.6 billion bonus to the supermarkets, which is £16 billion a year. Round, round numbers. Now obviously, if that all suddenly goes back to what we call out of home, then they'll be in zero growth territory after a year where they've spent a fortune on being COVID prepared and dealing with the massive growth of online deliveries.

Andrew Grant:

I wonder what they budgeted for this year, because not only could they potentially lose that 12% growth, it could be a big-time the other way if people just decide, "Right, we're eating out all the time, because we've got a whole year of not doing it."

Darren A. Smith:

Well, that's very true. So, if you're a buyer looking next year back at this year, you're going to be down year on year. You budgeted probably up. You're going to come out to the suppliers with your begging bowl. It could be tough.

Andrew Grant:

Well, yeah, you're exactly where I am, Darren because I think exactly that. Because in a normal year, you've got... What? 160 categories in a supermarket. Yeah, some of them are going to be affected, because there was a royal wedding last year, or it was the World Cup last year. And you always budget for that like for like dip the next year. But the problem they've got this year is they've got the world's biggest like for like spike as a result of COVID, which potentially won't be there this year.

Darren A. Smith:

Yeah, yeah. That's right.

Andrew Grant:

And you never budget for reduced costs, do you? Because think of all the transit vans they've bought to do home deliveries. So, you've got costs going like that. You've got your potential like for like sales going like that. Who's going to make up that gap? I can bet you 10 pounds of your own money who they'll go to.

Darren A. Smith:

And this is going to create a very fierce competitive supermarket world next year while they all try and fight to get back to where they were.

Andrew Grant:

Well, I think it will. I think it will. It's almost like an artificial gap because the last year of supermarkets was a bonus if you can put it that way.

Darren A. Smith:

Yeah, yeah.

Andrew Grant:

But effectively a non-repeatable bonus, but business bake in what they take. So, yeah, I imagine it'll be a massive scrap to retain as much of that as possible, because if people are determined they're going to go and spend the money in the pubs and the restaurants, and what have you, then they're determined to do it. You're better off stealing your business from your nearest competitors to shore up the sales line. It's going to be really interesting.

Darren A. Smith:

And the bluntest tool to do that is always price.

Andrew Grant:

Say that again? Sorry. Oh, well, yes.

Darren A. Smith:

And the bluntest tool to do that is always price.

Andrew Grant:

Yeah.

Darren A. Smith:

Now we've also got in the midst of this, Asda just announced a bunch of potential job losses, haven't they?

Andrew Grant:

I think that's just all part of the mix. 3000 losses, but maybe job transformations into more forward-facing roles. So, yeah, a big restructure, because online is growing so fast.

Darren A. Smith:

Yeah, yeah.

Andrew Grant:

So, just following the trend that most of the others have jumped on in the last year.

Darren A. Smith:

Let me just add into this. I've got a report here. It's come across the MBM desk from Dojo, one of those payment guys where you tap your card on the thing that the barman hands you.

Andrew Grant:

Oh, yeah?

Darren A. Smith:

These guys are new on the market. What was that?

Andrew Grant:

I said, "All right." I was showing a bit of interest.

Darren A. Smith:

And what these guys have said is they've looked at the 500 companies across 36 markets and they've looked at something called purchase intent. Now the bits that are sticking out here for me are home furnishing is up 458%. Okay.

Andrew Grant:

Yeah, everybody's bought a bed or a sofa in lockdown.

Darren A. Smith:

That makes absolute sense.

Andrew Grant:

There's no point in getting up in the morning.

Darren A. Smith:

The second one is mail-order catalogues. Studio cards, I guess. Yeah, okay. All right, yeah, I get that. The one that I don't get is the fifth one is silver, but I think this is looking at company performance as opposed to absolute purchasing. The 18th one is copper.

Andrew Grant:

Right. That's strange.

Darren A. Smith:

It's very odd. But here's one of the biggies, what we're going to see is a huge hike in camper vans.

Andrew Grant:

Well, yeah, staycation has been... Supposedly Cornwall and Devon are sold out for July and August. Yeah, a bit like last year. One thing that you could not buy, canoes and kayaks and paddleboards for love nor money.

Darren A. Smith:

Well, that actually that ties into sporting equipment was up I think 110%, which makes absolute sense.

Andrew Grant:

And then the biggest queues our summer in our village was outside the bicycle shop. People and the deliveries of new bikes every week was staggering.

Darren A. Smith:

Yeah, that makes sense. We see them here. But coming right back to our industry and the number one here... UK public purchase intent rank by percentage change. We've got here supermarkets obviously up 6%. Now that's 6% on £205 billion industry. That's a big old oil tank moving around plus 6%, which is perfect for us.

Andrew Grant:

Well, Kantar would say it's 12% on £234 billion. So, the numbers... And that's ONS, which you trust.

Darren A. Smith:

Yeah. And then they've split down the categories. The one that fascinated me was snack food was down, but then I guess we're having more prepared, organized meals with the family.

Andrew Grant:

And less food on the go and lunches at your desk, which is where a lot of snacks are sold.

Darren A. Smith:

That's it. Of course, of course. Yes. I didn't think of that. And the other one I wanted to pull out was soft drink plus 3%. Just at home, I guess.

Andrew Grant:

Yeah, yeah.

Darren A. Smith:

Okay, okay. Property was up. And then these guys were trying to look forward to 2021 and there was a lot of contradictions in this report. A bit like what we were saying.

Andrew Grant:

Yeah.

Darren A. Smith:

Are people all going to go back to the office? Are they going to stay at home? I guess my answer would be thinking about it from a behavioural point of view. People want flexibility....

Grocery Guru Ep17: Micro Fulfilment Centres

Join Andrew Grant and Darren A. Smith in the seventeenth episode of Grocery Guru discussing micro fulfilment centres and the 15-minute ordering window. A new breed of start-ups competing with Amazon to take your order and deliver within 15-minutes.

You Can Read the Full Micro Fulfilment Centres Episode Transcript Below:

Darren A. Smith:

Hello, and welcome to week 17 of The Grocery Guru. We're here with Andrew Grant. Andrew, how are you?

Andrew Grant:

I'm very good. I'm glad to say spring is in the air by the looks of your shirt, Darren.

Darren A. Smith:

We had a chat a few minutes ago and he mentioned Laura Ashley and a few other demeaning things. I just passed it by. This week Andrew, I understand deliveries that get in your goat. And we're going to talk about deliveries.

Andrew Grant:

Yeah. It's just something that struck me and I'm slightly worried whether it makes me come across as a dinosaur. Which is the very last thing. But, you know when we talked a lot about data and insight and following the shopper over the last, what, 16 episodes? And I saw something at the weekend, which I just thought, do shoppers really want this? And obviously, as you always know, when you do any form of market research is you got to be very careful at leading the witnesses.

This podcast contains discussion on the 15-minute delivery window

 

Darren A. Smith:

Very true, very true.

Andrew Grant:

You take a classroom of seven-year-olds, and you say to them, "Would you like jelly and ice cream for your lunch every day?" What answer are you going to get?

Darren A. Smith:

Well, actually that reminds me, Henry Ford was famous for a quote. He wasn't talking about cost and the grids, I'm sure they didn't have them back then. But he basically said, "If we'd asked them what they would have wanted, they would've said faster horses."

Andrew Grant:

Yeah. Okay. Okay, well, it's sort of linked to that. What it is, it was in the Sunday Times. And it was talking about a couple of startups in London with some pretty serious private equity money behind them and very bright young people running it with McKinsey backgrounds and what have you. Offering, get this, 10-minute grocery deliveries in the city of London.

Darren A. Smith:

Ten minutes?

Andrew Grant:

Yeah, 10 minutes. I don't know if you've heard Getir and Weezy.

Darren A. Smith:

So Get Here as in get here. Those two words?

Andrew Grant:

Well its G-E-T-I-R Getir-

Darren A. Smith:

Oh, I see.

Andrew Grant:

And Weezy.

Darren A. Smith:

And how do you spell-

Andrew Grant:

Weezy is a London delivery service that promises delivery within 15 minutes

 

W, double E, Z-Y. So if you're lucky enough to live in Fulham, Clapham, those sorts of postcodes, you can get groceries delivered in 10 to 15 minutes. I'm not sure if anybody is that desperate for anything, although, think about it. I suppose you get home, you've run out of toilet paper, you've run out of coffee, you run out of beer. Are you that desperate for something in 10 minutes that you're willing to pay between 1.99 and 2.99 delivery charge for, and also potentially obviously pay significantly more than supermarket prices. I'm not sure. It reminds me, if you think back to 24-hour shopping, it was heralded as the ultimate convenience. You know, people can go and wander around in their slippers at three in the morning and shop and it lasted for what 18 months?

Darren A. Smith:

Yeah. It wasn't long. And I'm all for a push towards convenience and Amazon's really helped us with that. I'm not sure about getting down to a 15-minute slot. I'm sure some people will want it. I guess it depends on how much it's going to cost.

Andrew Grant:

Yeah. And the thing is you know, these startups, will they have the economies of scale? So the very first of these, we talked about the urban fulfilment centres the Tesco are converting some of their stores to, that's mass scale picking. These guys are, one of them is actually renting railway arches under Clapham station to be micro fulfilment centres.

Darren A. Smith:

Micro fulfilment centres. I don't think I've ever heard that term before.

Andrew Grant:

Nope. So micro fulfilment and you know, the equivalent, it's working big scale with the UberEats and the Deliveroos and the Just Eats are opening these dark restaurants where, you know, all the food you take away is not made in a takeaway restaurant it's made in a purpose-built dark restaurant, a dark catering facility. It's sort of the equivalent thing that, you know, these startups don't have shops. They have these micro fulfilment centres, but the costs versus the volumes, I struggle to see how it can work. But if you've got people with McKinsey backgrounds and gazillions of private equity money flowing in there, they can't be stupid.

Investment of private equity money is going into fulfilment centres

 

Darren A. Smith:

Well, they can't. But I mean, can they compete? They're going to see the likes of Amazon with their windows, which are so tight now.

Andrew Grant:

Well, maybe Amazon's of the past. I mean, good gracious. Amazon will take a whole day to get to you. It's outrageous.

Darren A. Smith:

I remember when I was a kid, I ordered clamps for my bike and it took 30 business days.

Andrew Grant:

Yeah. I mean, I've got a bit of a dispute guy on Amazon, I ordered a cordless drill and it didn't turn up for three days and I am incensed. But you're absolutely right. 15 years ago, 28 days, you would wait until you thought, oh, the parcel hasn't arrived yet, shall I write a letter and find out where it's gone? So yeah, these tech companies are victims of their own shopper offering. You know-

Darren A. Smith:

How do you think the supermarket's going to react? So they're going to think these guys are micro. We'll wait till they get bigger before we get too worried. Are they going to look at them and begin to offer different types of delivery slots in the country?

Different types of delivery slot could be the answer

 

Andrew Grant:

Well no, it's very interesting. Because obviously the big guys, the big sheds have benefited from people in lockdown, moving to more weekly delivered. We've talked about it a lot. The people who have struggled, they're actually the convenience stores. And in particular, Co-Op is embracing this micro fulfilment. So, Milton Keynes, you place an order with co-op and it turns up in a little wheeled buggy.

Darren A. Smith:

Yes.

Andrew Grant:

They've got these laser-guided wheel buggies, that the local kids just love to use for football practice. So Co-Op is embracing it. You can order via Co-Op via I think Deliveroo.

Darren A. Smith:

Yep. Yep.

Andrew Grant:

But again, it's just one of these things that, can you make the economics work and will it last, I think it's like 24-hour trading or get this, have you still got your 3D glasses for watching sky sports?

Darren A. Smith:

No, no, it's there, but it's pretty big glasses.

Andrew Grant:

Yeah, but how do these things quietly disappear? 3D television was a massive thing until, you know, and I'm sure in consumer groups, people were asked, would you like the idea of 3D television where things jump out the screen from you. But then people discovered they look like complete idiots wearing these horrific glasses to watch telly in their own lounge. And it's amazing how they just quietly disappear, you know, there's not a big announcement, we're stopping 3D TV, we're stopping 24-hour opening. They just quietly disappear. And I think this micro fulfilment and 10-minute orders, I think it will quietly disappear, but I'll be proved wrong.

Darren A. Smith:

Is the 10-minute delivery slot really necessary?

 

I think there'll be a certain, of course, there'll be a certain amount of the population that wants it. I think that will be very small. One can imagine people wanting to bring in booze for a party maybe, but why would you want a 10-minute slot? We've got friends come around, I can order. I guess it also depends on what the lead time is. Now, if I've got 10 minutes here on a Thursday, do I need to order on a Wednesday the day before, can I order four hours ahead? How far is it?

Andrew Grant:

It's now quarter past four on a Thursday. I will expect the delivery will be with me at 4:30. I will go on the app. Now the delivery will be with me in 15 minutes.

Darren A. Smith:

Oh, I see. I really misunderstood that, I thought you said the windows had come down to 15 minutes.

Andrew Grant:

No, that is why, as I said, I can't quite get my head around it. Weezy says your delivery could even be delivered by a guy or a girl on roller skates.

Darren A. Smith:

Oh, I see. So we're talking groceries at the pizza time. Get your pizza and 20 minutes. Probably can get all your groceries in 20 minutes.

Andrew Grant:

That's exactly. So sorry you missed this. And maybe that's a very telling point. So if you like left field for you, because I can't get my head around wanting anything in 15 minutes and be willing to pay for it.

Darren A. Smith:

I think the only reason I do it would be to test it. Can I get it here in 15 minutes and 39 seconds? Yeah, okay. All right, so the term coming out of here is micro fulfilment centres. I've never heard of that, but we've got two startup companies we need to be aware of. One is Weezy and One is Get here, Getir.

Andrew Grant:

Getir. G-E-T-I-R. Getir.

Are these super quick delivery services just a passing craze?

 

Darren A. Smith:

Okay, we've got that. We've spoken that it might be a passing fad, we'll see. Okay. And we talked about dark restaurants as well, delivering, catering services. Okay, all right.

Andrew Grant:

You know, you would think, Tesco pretty much at the forefront of everything all the time. They haven't gone into this. So we will wait and see. I'll be very interesting to be proved wrong....

Grocery Guru Ep16: Using Shopper Language

Join Andrew Grant and Darren A. Smith in the sixteenth episode of Grocery Guru: The Importance of Using Shopper Language in your category.

Not using industry terms or category terms because they are creating the buffer for what should be created. By eradicating industry terminology you will discover opportunities to communicate better with your shopper and then sell more.

You Can Read the Full Using Shopper Language Episode Transcript Below:

Darren A. Smith:

Welcome to Episode 16 of the Grocery Guru with Andrew Grant. How are you?

Andrew Grant:

Hi, Darren. Good morning. Yeah. Very nippy I think is the best thing to say this morning.

Darren A. Smith:

It's supposed to get to minus 10, but let's move on from how cold it is. Last week, we said to our viewers that this week we would talk about terminology. Now, I'm going to lead the charge on this one, because something that we're doing wrong as an industry, or as category managers, or as suppliers, or as supermarkets, is when we use terminology that the shopper doesn't understand.

Do you know the shopper's language?

 

Darren A. Smith:

And I'm going to give you an example. My dad used to run, he was a project manager in a Sainsbury's store back in the 70s. And they used to have those three-legged tables and he used to have the best top fruit display in the area. "But Dad, what's top fruit?" So Andrew, what's top fruit?

Andrew Grant:

Do you know, is top fruit, apples, oranges, and bananas?

Darren A. Smith:

Well, it's apples and pears, but I didn't know. I had to ask that. So there were the signs that say top fruit and I'm thinking, "Well, no one understands what top fruit is." When I asked that, he didn't know. So eventually, some years ago, I asked some guru in produce. And he said, "Well it's top fruit because it grows at the top of the tree."

Andrew Grant:

Okay. Yeah.

Darren A. Smith:

These can't be terms we can use in our industry if the shopper doesn't understand them.

Andrew Grant:

Well, I guess also, going back to your dad in the 70s, there's a lot of stuff. Obviously, supermarkets kicked off in the 70s in terms of the superstore format. And there's probably terminology that was invented back then, maybe meant something to customers back then. But because most people are used to sticking their dinner in a microwave and heating it up for two minutes, it's been lost. I mean, the one that gets me, condiments. Does the average millennial know what a condiment is? Would they expect to wear it rather than eating it?

Darren A. Smith:

That's condiments. So, our challenge to our viewers is, the more we can use language that the shopper understands, the easier the category is to shop.

Andrew Grant:

Yeah.

Darren A. Smith:

And the flip side of that coin, the more we use examples that the shopper doesn't understand, the less easy it is for them to shop, the more they'll go somewhere else. So I wanted to give you another short story.

Darren A. Smith:

I was buying frozen fish for a supermarket, many years ago. And in the conversation I used to have on the phone with my account manager, we called two products, the most popular selling battered frozen fish, 076 and 077, which was their scheme number because we could differentiate it away from 079 and 080. That's crazy.

Andrew Grant:

Well, I guess internally it's not an issue. There's a whole industry lexicon of three-letter acronyms, isn't there?

Darren A. Smith:

Yeah.

Andrew Grant:

Or four letter acronyms. There's your GSC, your PORS, your LFLS. Those never, if you like, leak out to the shopper. So I guess that's okay. It's the stuff that gets in the shopper's face that they just don't get. I mean, to flip the condiments one on its head, one of the more modern categories in world foods. Now, world foods. Okay. Pretty broad category. But why does just about every supermarket spit out pasta? Because I think pasta's a world food, isn't it? They have a world food section, they have a pasta section.

Darren A. Smith:

The bit that bothers me is when we try to be the buffer. So the 076, 077 was us using it. And when I think back, we were using that term because we couldn't differentiate it. But if we couldn't and we bought the damn thing, how the hell could the shopper at the merchant or at the fixture differentiate? And when I think now, I look back at those four products on the fixture, there wasn't a difference. No, actually, one had the skin on and one didn't, but we didn't tell them that. Crazy. Crazy.

Andrew Grant:

Yeah, yeah. No, I guess, going back to what we spoke about last week, it's that shopper decision hierarchy. How do you please most of the people most of the time in terms of what they're looking for? So, you're right. To some people, skin on skinless, it wouldn't matter if it's covered in breadcrumbs anyway. Is that one of the important things they're looking for when they're shopping? So yeah, maybe it's that the breadcrumbs are gluten-free, something like that is more important to certain people than others.

Darren A. Smith:

And that would have been much better. We were not tough enough on understanding our category, understanding the decisions and rooting out some big sellers because there was no differentiation. Now, here's the other one that really just batty.

Darren A. Smith:

We work with a supplier, we shall remain nameless for a moment, some years ago. And they had cooked ham and it was about this big. It's important that it's about this big. And it was four by four. So we said to them, "Why did you call it four by four?" "Well, it's four by four inches because that fits in a slice of bread."

Andrew Grant:

Yeah.

Darren A. Smith:

But on the fixture, four by four was never mentioned, but this was the biggest selling product. And they called it four by four to differentiate it from the other sea of pink cooked meats on the fixture.

Andrew Grant:

Yeah.

Darren A. Smith:

Crazy.

Andrew Grant:

Yeah. Yeah. I mean, yeah, that's where obviously, the marketers need to think of the right way to sell that product. And they haven't thought about consumer usage or the consumer benefits for it.

Andrew Grant:

I guess sometimes that can go wrong. What gets me is when the marketers actually... What's the right word? Hoodwink the shopper with some of the phraseology. So they call it pizza Donna Letta. And then it says, made in Grimsby. Fresh Italian-style pizza made in Grimsby.

Andrew Grant:

The one that always gets me is, in the good old days when you were driving around looking for a pub to have lunch in. And you drive past the first one and it says, "Home prepared food." You've driven past it before you can work out that actually, that means it came out of a big breaks truck. And what you're actually looking for is the home prepared, I think. No.

Darren A. Smith:

Home-cooked, home-prepared.

Andrew Grant:

Home-cooked is heated up.

Darren A. Smith:

Right.

Andrew Grant:

Home prepared is we took the lid off the packet first. Homemade, homemade is what you're looking for.

Darren A. Smith:

Ah, so it's three.

Andrew Grant:

Yeah. But as you can see, you've driven a couple of miles by the time you've worked out, "Am I getting fresh, prepared, cooked, and made food in my pub? Or am I just getting something that's had the lid taken off?" (silence)

Darren A. Smith:

Cheers.

Andrew Grant:

With the truth.

Darren A. Smith:

Andrew. Oh, you're back. Okay. You froze for 30 seconds.

Andrew Grant:

Okay. Well, yeah. A bit like the food, I guess.

Darren A. Smith:

All right. Let's talk about a few other examples. So I saw that even Amazon, who are obviously doing very, very well. We've got Amazon Prime instant video. I have no idea what that is and I'm fairly tech-savvy. Do you know what that is?

Andrew Grant:

Yeah. No, I'm just one of the people that whenever there was something like that, I think of whether the acronym makes up something rude. So, APIV. No, it doesn't. APIV.

Darren A. Smith:

Well, we're also working on a product slightly outside of training, but we'll talk about that at the moment. Cyber-security. Do you know what phishing is? I've learned about phishing. Do you know what phishing is? P-H. What is it?

Andrew Grant:

That's sending an email with a dodgy link, isn't it?

Darren A. Smith:

I think that's it.

Andrew Grant:

You then click on.

Darren A. Smith:

That's it. So we've changed the training course for phishing, which people can reach to, to something called email safety.

Andrew Grant:

Yeah. Yeah.

Darren A. Smith:

And then. Sorry, go on.

Andrew Grant:

As you say, it does what it says on the tin is usually the best starting point for deciding what to name something.

Darren A. Smith:

That's probably true. And we ought to turn the mirror on ourselves. So in our industry, we have things that we use at MBM, like individual ILO, individual learning objective. Okay. We use that term, but actually, what we're trying to say is what's in it for you? What the hell do you want to get out of spending five hours training to that?

Andrew Grant:

Yeah.

Darren A. Smith:

So, it happens in the training industry as well.

Andrew Grant:

Yeah. No. It goes back to your four by four. It should have just been called fits on a slice of bread.

Darren A. Smith:

It could be. And I understand what they did was by understanding there was a piece of the terminology they were using, the shopper wasn't, then they got to a point of sandwich ham. Ideal for sandwiches, ideal for bagels. So they had different hams. So by trying to figure out what terminology they were using that doesn't fit with the shopper, they found a new opportunity.

Andrew Grant:

Yeah. And I guess, talking of the bread analogy, we have toaster bread, don't we? So what came first? The toaster or the bread? interestingly, the toaster came second, and then they reinvented the bread to fit the toaster. Because otherwise,...

Grocery Guru Ep15: Purchase Decision Hierarchy

Join Andrew Grant and Darren A. Smith in the fifteenth episode of Grocery Guru. This episode discusses the purchase decision hierarchy, shopper map, analytic hierarchy process, and consumer decision tree... Whatever you call it, understanding how the shopper shops is key to category performance.

You Can Read the Full Purchase Decision Hierarchy Episode Transcript Below:

Darren A. Smith:

Welcome to episode 15 of the Grocery Guru with Andrew Grant. Andrew, how are you?

Andrew Grant:

Good morning, Darren. Yes. Very, very well. Thank you.

Darren A. Smith:

Good. Good. All right. Well, this week we're going to get stuck in straight away because I know you and I had a debate earlier about purchase decision hierarchy. What the hell is it?

Grocery Guru Ep15: Purchase Decision Hierarchy with Andrew & Darren

 

Andrew Grant:

Yeah, no, absolutely. The way customers decide what they're going to buy.

Darren A. Smith:

Okay.

Andrew Grant:

And a lot of commentators have said it's no longer relevant in the world of shopper insight. When a club card swipe can tell you everything you want to know about your shopper, category management's dead, isn't it?

Darren A. Smith:

Well... So it's also called customer decision hierarchy, consumer decision hierarchy. I like to call it shopper map because I think it gives you a map of how to shop something. And if you can't understand the map, you're not going to shop it or you're going to buy less of it.

Andrew Grant:

Yeah. But a lot of people would say, the minute you've got that club card or that loyalty data, you can see inside the basket and you can see what the shopper bought with what, when, from which part of the store, how often and how that links to his or her family situation. So why do you need to spend time at a flip chart, working out what the customer decision hierarchy is?

Darren A. Smith:

Because I think we need to know what decisions the shopper makes both before and at the fixture.

Andrew Grant:

Well, let's do a little test because I do believe that actually loyalty data is, as we kept going on about it, it's the future. And it can tell you a lot. There's one thing it can't tell you. So, Darren, I take you'd like a bit of wine?

Darren A. Smith:

Yes.

Andrew Grant:

I know you like to whine, but you do like some wine.

Darren A. Smith:

I like wine. Go on.

Andrew Grant:

Okay. So let's assume you are going on an essential journey to your local supermarket this afternoon.

Darren A. Smith:

Yep. Cool.

Andrew Grant:

And you're going to shop the wine aisle for the weekend.

Darren A. Smith:

Yep.

Andrew Grant:

Just do me a quick picture on a piece of paper of what you're going to buy.

Darren A. Smith:

Okay. Right, pen.

Andrew Grant:

Yeah.

Darren A. Smith:

Ready for rubbish drawing? Oh God, I feel like I'm back in art class at school. Now, this is what we buy as a treat. And I realized only six months ago, I've been saying it wrong for 20 years.

Andrew Grant:

What, Liebfraumilch? Oh, right.

Darren A. Smith:

Barolo.

Andrew Grant:

Okay. Right. That's interesting. You've drawn a bottle of wine.

Darren A. Smith:

Yes.

Andrew Grant:

So you're not in the market for a box of wine or one of those little miniatures that you used to be able to get on a train?

Darren A. Smith:

Not if I'm going this afternoon because it's Friday. No, for the family, who's the kids now drink wine as well. Kids in their 20's.

Andrew Grant:

So this is the bit where I think customer decision hierarchy is important because what a club card or a loyalty data can't tell you is that subconscious decision. You decided before, almost without thinking about it-

Darren A. Smith:

Yeah.

Andrew Grant:

... I'm in the market for a bottle of wine, not a five-litre box of wine.

Darren A. Smith:

Yep.

Andrew Grant:

You've made a subconscious decision. It's the same with cars. If I asked you to draw the next car you want, you would probably draw a four-wheel-drive SUV.

Darren A. Smith:

Yeah.

Andrew Grant:

Yeah? Because you've subconsciously said, well, I don't want a Supermini-

Darren A. Smith:

Yeah.

Andrew Grant:

Or I don't want an estate car. You draw a saloon. You wouldn't draw an estate car because subconsciously I'm not in the market for an estate car.

Darren A. Smith:

Nope. That's very true. That's very true. Now here's the bit that winds me up. And I'm going to get on my high horse just for a moment. Shopping wine, I can't see the data, but I would bet £5 of your money, Andrew, that people buy a lot of promotions online because they look at the wine fixture. They can't understand the map and they go, "Stop this. I'm going to the bottle at the end because it's on offer. So it's probably quite good. And I'm going to grab that."

Andrew Grant:

Yeah, no, absolutely. And that's what people... When people don't believe in category management and decision hierarchy is they often rubbish it by saying, "Well, people just shop on price."

Darren A. Smith:

Yeah.

Andrew Grant:

And actually, you're right. The vast majority of people are very price-conscious.

Darren A. Smith:

Yes.

Andrew Grant:

But let's put it this way. So you just drew you a nice bottle of Barolo, which if my memory serves me right, is a very decent Italian red.

Darren A. Smith:

It is. It's one of our favourites. Yes.

Andrew Grant:

Okay. If Blue Nun is on offer in Tesco at £2.49 a bottle, are you going to buy that? It's dead cheap.

Darren A. Smith:

No-

Andrew Grant:

No. Well, there you go.

Darren A. Smith:

Because I tried Blue Nun when I was 17, it was horrible.

Andrew Grant:

Okay. So the price isn't important to you because if the price was the sole decision, you would buy the Blue Nun at 2.49 bug off.

Darren A. Smith:

Absolutely. I agree. I agree. The other bit that winds me up, why is it that when I go to a restaurant it's so different?

Andrew Grant:

What, so much more expensive?

Darren A. Smith:

No, no, no, no, not expensive. The map. So I open the wine menu in the restaurant and I'm looking, the first thing I see is, as we call it pink, white, or red or sparkling. Okay. So that sort of matches what's in the supermarket-ish, but the next decision we make is a bit about the price because in a restaurant it was sort of £20-something much, much higher. And we're looking at the grape. The kids quite like a Merlot. We don't really spend that much about wine, but they quite like a Merlot, we like a Shiraz. That's how we're shopping. So why is it, it's all laid out by countries in the supermarket?

Andrew Grant:

Well, absolutely. Because lots and lots in there and we already burned three-quarters of our time because when we do this with clients, we spend a good morning, at least doing this because there are some fascinating insights that come out. But just talking about the restaurant experience, you've already decided the occasion.

Darren A. Smith:

Yeah.

Andrew Grant:

You're not going to order a five-litre box of wine because it's a restaurant occasion or I hope you don't. So occasion is probably the number one factor when deciding on a bottle of wine. And I don't want to denigrate any retailers here, but you're not going to take the cheapest bottle of Fred Blog's discount stores red to your mum's 70th birthday party.

Darren A. Smith:

Of course. Of course. The occasion's important. Absolutely. Yeah. I would agree.

Andrew Grant:

So occasion drives a lot of it, then as we've just said, it's not the price with wine. It's actually colour.

Darren A. Smith:

Yes.

Andrew Grant:

Because if you like red wine, are you really going to get tempted to buy Rose or white?

Darren A. Smith:

No. No.

Andrew Grant:

You did on occasion maybe.

Darren A. Smith:

Yep. So I'm looking at the first three decisions we make in any task. And I would guess with wine, it's colour first, probably pricing somewhere in there, and then there's something about the grape.

Andrew Grant:

I think it's the occasion, colour, and then it's grape or brand actually. When you do the research, and I bought wine for a number of years, it was really interesting. People think the grape variety's often the brand.

Darren A. Smith:

Oh, is that?

Andrew Grant:

They think Chardonnay is a brand as well as being an '80s footballer's wife. It's also in their head, a brand. As is a Shiraz. And they often get confused and people with wine, and this is a UK thing because we were fairly late to the party drinking house wine. They go to a restaurant and they have a nice bottle of something that says Jacob's Creek.

Darren A. Smith:

Yep.

Andrew Grant:

And instantly on the shelves, they look for that sort of brand beacon that says, Jacob's Creek, or actually, I had that nice Shiraz. So they get the brand and the grape mixed up. Unfortunately, some people like that also buy it because it's got a nice, big cuddly fat penguin on the label. I didn't know you'd be surprised. If you look at the wine aisle, there's lots and lots of bottles with nice, colourful lizards on it, big fat penguins, French men riding bicycles with a beret. A lot of people buy on that's a nice bottle, that looks fun.

Darren A. Smith:

Well, and that comes back to it's... And I guess some wine buyers out there are thinking we ought to be more educated, but I think they need to make it easier for us. Why am I presented by an aisle that's by country when I don't shop by country? I don't know Australian, I don't care.

Andrew Grant:

Well, again, that comes back to some of these ingrained habits. I mean, would you invent a category called frozen foods because you don't think I must have a frozen burger for dinner tonight.

Darren A. Smith:

No, no, very expensive.

Andrew Grant:

I want a burger, and then you decide whether you want to have it fresh or frozen or eat out or whatever.

Darren A. Smith:

Yeah.

Andrew Grant:

The fact that it's just so expensive to put frozen food cabinets in a sup

Grocery Guru Ep14: Range Reviews and Resets

Join Andrew Grant and Darren A. Smith in the fourteenth episode of Grocery Guru: Discussing Range Reviews and Range Resets.

You Can Read the Full Range Reviews and Resets Episode Transcript Below:

Darren A. Smith:

Welcome to episode 14 of the Grocery Guru with Andrew Grant. Andrew, how are you?

Andrew Grant:

Hi, Darren. Good, good. Thank you. You?

Darren A. Smith:

Yeah, I'm good, I'm good. Looks like you're at your mum's, am I guessing?

Andrew Grant:

I am at the homely palatial pile.

Darren A. Smith:

Very nice. Very nice. All right, looks lovely. This week I think we're talking about range reviews, range resets, that sort of thing. That's what we discussed?

Andrew Grant:

Yeah, I think we said last week, not a lot hot happening out there. About the only bit of newsworthy stuff to come out is Morrisons have had a virtual supplier conference and have announced a major category reset. What I found quite funny actually is some of the learned publications out there picked up the fact that it's a 170-category range review.

Range Reviews and Resets

Darren A. Smith:

Wow.

Andrew Grant:

But published it as Morrisons to change 170 products. Yeah.

Darren A. Smith:

Well, that's not many, so that shouldn't take long.

Andrew Grant:

Might take them about 12 minutes, I reckon. Yeah. But no, it's 170 categories, full-on range reset by the sounds of it and utilizing their new Morrisons Edge shopper insight technology.

Darren A. Smith:

And is this their hookup with IRI, am I guessing?

Andrew Grant:

Yeah, with IRI.

Darren A. Smith:

Okay. So a crazy time to be doing a range review, range reset?

Andrew Grant:

Well, yeah, exactly. That was my first thought. We don't know what the new normal is. So they're going to be looking at a year's worth of data when... just take a few categories. People haven't really bought any sandwiches for lunch. People haven't been doing meal deals. Everybody's been baking at home and cooking at home. So ready meals sales probably aren't reflective of whatever the new normal is. So I think it quite, quite difficult to do a range review when the world's been turned upside down. Why the timing now, is slightly bizarre to me.

Darren A. Smith:

I don't know. I mean, it's a topsy-turvy time obviously to do it, and you're basing it on data that may then change as shopper habits change, we come out of lockdown, blah, blah, blah. Is it a brave move to be doing it? I think not is my suspicion. Not a brave move.

Andrew Grant:

I suppose, as long as they put a common-sense rule over it. But obviously, we don't know what data will come out, but you can sort of, with some of the macro trends we've talked about over the last few months, you could almost imagine a situation where a whole aisle of flour, you de-list ready meals, you take out front of the store and fill it with masks. That ain't going to be the new normal back in, hopefully, in May, June, July.

Darren A. Smith:

You're right, it's not. And I think with what we could both credit our friends in Bradford with more intelligence, and of course, they're not going to put a whole aisle of masks in, but it comes down to the nitty-gritty, doesn't it? Are they going to extend baking by 20% and then try and change it again in June when they go, "Hold on, we're now not all baking"?

Andrew Grant:

Yeah exactly. So it will be interesting. And I guess for the suppliers out there, our clients, it's going to be quite a challenging range reset for them to go through. I guess our message is we've got a lot of experience of this. And obviously, the inevitable negotiations that will come to fruit from the winners and the losers being put under pressure. So I guess, yeah. I guess the message of today's webinar is that we're here to help if there's any Morrisons supplier out there caught up in this range reset. Quite important, I think, that they spend the commensurate amount of time on it because it's going to be a weird one.

Darren A. Smith:

It is. And also not forgetting we've got our new man in the office, Mark White. So GSCOP is looking down with a fresh lens at de-lists, which Morrisons could come a cropper on if they're not careful with those. I'm sure they are.

Andrew Grant:

Well yeah no, as always, yeah. There's a new adjudicator there, I think we've said way back in an early one of these. Yeah. He will want to make his mark. What is it, the famous first hundred days?

Darren A. Smith:

Yes, yes.

Andrew Grant:

He must be coming close to that, so I'm sure he'll want to make his mark. But we've seen that all the signed-up retailers under GSCOP, they do pretty much play by the rules.

Darren A. Smith:

Yes. Yes. And we've got the Code Confident pack, which was launched a couple of weeks ago by Mark, which we're having a look at. Yep, thumbs up to that. And then that made me think about Biden's first hundred days. A quick note to him. I think he's made some cracking decisions of basically overturning everything that Trump did.

Andrew Grant:

Yeah, yeah. Probably not a difficult first hundred days for him, but probably outside our remit, I think, Darren.

Darren A. Smith:

I think so. So let's come back to range reviews. Your experience, what would you tell the people watching this on range reviews? I've got a couple of things I'd share, but what would you say has been through probably hundreds?

Andrew Grant:

You've just got to immerse yourself in the data and come up with the... Well, stick with the shopper, as we've always said. The shopper is king. Start with the shopper and work back. I guess if you're a supplier or a brand that gets genuinely bad news, in the sense that your products are no longer shopper relevant, then you're going to have to do some very, very deep naval-gazing. Because otherwise you'll just end up basically spending money to keep listed, which might work in the short term, may buy you the time to sort of re-strategize in the medium term.

But other than that, suppliers need to be all over the numbers and really understand why, if we're talking Morrisons, why Morrisons shoppers buy their products. And build themselves an armoury of insights, so when the inevitable conversation comes along, be it good or bad, it will inevitably be attached to money. They can have a very forceful and logical argument based on Morrison's own shopper behaviours.

Darren A. Smith:

Yeah, I like that. My own experience of being on the sidelines and watching some reviews is that they don't start with an objective. So the objective should be we're going to make X more money. We're going to attract 10% more clients. And what's your friend's phrase? WOP, FOP and PEN?

Andrew Grant:

Yeah. Yeah.

Darren A. Smith:

Just explain that so these guys know what we're talking about.

Andrew Grant:

It's very simple. The only three ways you can add value to a category is to bring your shoppers in, which is penetration. The hardest one to achieve. Get customers to spend more, that's weight of purchase, valuated purchase, or get them to buy bigger packs, volume weight of purchase. Or get them to buy more often. Get them to come in every week, rather than every fortnight, which is frequency.

Darren A. Smith:

Lovely, I like that. WOP, FOP and PEN. That's right, isn't it?

Andrew Grant:

WOP, FOP, PEN. Yeah.

Darren A. Smith:

So you either get more shoppers in, you get them to buy more, or you get them to buy more often. And-

Andrew Grant:

Or ideally all three.

Darren A. Smith:

... or all three. And our suggestion should be that your range review would start with an objective of one of those. Now typically when you move one of those styles, one of the others goes back down, but overall you should add to your category 3%, 5%, we've going to get 10,000 more customers, 10,000 more shoppers.

Andrew Grant:

Yeah and we've got one of the dynamics of this pandemic is frequency has dropped considerably. So people have gone back to a bi-weekly or even a monthly shop. As we said right at the start this morning, people aren't popping in every day for lunch and picking up their dinner, because they're stuck at home and they're probably getting the delivery. We talked about home deliveries a lot. Again, a home delivery truck every two weeks. So frequency has dropped dramatically. But I remember Tesco's financial statement, the weight of purchase has rocketed.

Darren A. Smith:

Yeah, that makes sense.

Andrew Grant:

And particularly in areas like beers, wines, and spirits, obviously, because there are no pubs to go to.

Darren A. Smith:

Well, how else do we get through lockdown? One last piece for me on range reviews is that I see suppliers and supermarkets treating every SKU the same in terms of availability. But if we understand that this SKU is substitutable, then maybe this SKU will be bought in its place. We don't need to drive 100% availability of this one because they'll buy this one. You take Tabasco. 100% availability, of course, because you're not going to buy anything else. But there are other SKU's that'll be more substitutable. So one of the things I would advocate is an availability strategy along with the weight.

Andrew Grant:

Well, yeah, it's the basic building blocks of category management. Complementarity and substitutability, and it's where if you are a product that is not substitutable, and I'd say something like HP sauce. If you want, people buy HP sauce because it's HP sauce. A few people may buy their own label, but pretty much it's a non-substitutable product.

Darren A. Smith:

Agreed.

Andrew Grant:

So you can build yourself a very strong argument for being in a category if people will walk away if that particular product isn't available. But then complementarity is very important. If you're selling jam, you probably have to sell spreads and bread. So again, you can create yourself strong category arguments based on you're either not substitutable or you're highly complemen

Grocery Guru Ep13: The Basic Principles of Negotiating

Join Andrew Grant and Darren A. Smith in the thirteenth episode of Grocery Guru: The Basic Principles of Negotiating and the Squredance.

You Can Read the Full Principles of Negotiating Episode Transcript Below:

Darren A. Smith:

Welcome to week 13 of the Grocery Guru, and we are with Andrew Grant. Andrew, hello.

Andrew Grant:

Good morning, Darren. How are you?

Darren A. Smith:

Hey, I'm good, I'm good. Lockdown, blah, let's not go through that. We've got a few weeks to go, vaccine. Let's talk about Grocery, what's going on in the world of Grocery this week?

Andrew Grant:

Well, it's been a quiet week, actually. You look at the news-wise, not very much has happened, actually. Nothing stands out. So I thought maybe we'd talk about, I think we did mention it last week in the end. Let's go back to basics. Let's talk about negotiation 101.

The Basic Principles of Negotiating

 

Darren A. Smith:

Oh, negotiation 101, okay. Now, recently I wrote an article in The Grocer, name-drop, about negotiation. And a couple of people wrote to me on LinkedIn and said it was very good. It was about me selling my wife's Beetle. And short story, the guy, we took it out for a spin and he said to me, while he was driving the Beetle, he said, "You know I want to negotiate." I said, "Yeah, brilliant." And we came back here, this is my house. And we're looking around the car, as two men do, and I know nothing about cars. We're kicking the tires. And he said, "Right, I'm ready to negotiate." And I said, "Cool." And I pushed the price up by 250 quid. And he said, "No, no, no, we were going to negotiate." I said, "I am."

Andrew Grant:

A little bit cheeky, a little bit cheeky. I'd suggest if you're a small supplier to a Tesco, you don't do that. But fair enough. I think in the world of cars, there are no rules.

Andrew Grant:

But no, I was reading an article in one of the Sunday papers about the Brexit deal. And they were saying that the deal was only done because the EU convinced themselves that Boris was mad enough to go through with a no-deal. So effectively, that Boris was willing to cut his nose off to spite his face. And it was only because they were convinced he was willing to do something almost illogical that they came to the party. And it just got me thinking about, I always remember being told, taught, "Never threaten something you're not willing to carry through."

Darren A. Smith:

Absolutely, yeah.

Andrew Grant:

Because if you get called out on it, that is your credibility gone forever and a day.

Darren A. Smith:

Well, and that's it. And you've lost the negotiation, but not only that, you've lost the relationship long-term. Because every time you ever bluff in the future, they'll say, "Yeah, we'll call it." Yeah, I'd agree.

Andrew Grant:

Yeah, and I think that's probably the critical thing when it comes to supermarket negotiations, hopefully, they're not just one-offs. You selling your wife's car is a one-off, clearly, you didn't mind if you upset the other guy.

Andrew Grant:

Yeah, hopefully, you'll never see him again. But yeah, if you're hoping to have a long and fruitful supply relationship with a supermarket, you really do need to get into that win-win zone. Into a lose-win, or even... Yeah, win for the supplier, lose for the supermarket, probably not a good long-term option.

Darren A. Smith:

No, no. And there's Steven Covey, in his 7 Habits of Highly Effective People, talks about in the habit win-win. A great story, where it goes through win-win, or win-lose, or lose-win. And he talks about the long-term effects of that. Because lots of people talk about win-win, but actually what they're sort of thinking is win-die, "I'm going to take as much as I can, and the rest can go poke it." But Covey puts it really, really well. So I'm going to recommend the audio version of that habit.

Andrew Grant:

Okay, yeah. Because yes, I think you're right. I think when people start negotiating, and certainly, I'm sure we can both remember 21-year-old buyers pumped full of testosterone or what have you. It was negotiations about being aggressive. Negotiations about thumping the table, and threatening delists, and what have you. And it's only as you get a bit more mature, a bit more experience, do you realize, "Actually it's not about that." It's not about putting the Arnold Schwarzenegger underpants on in the morning. It's actually about being quite creative and being sensible about your negotiation plan.

Darren A. Smith:

And that makes me think that rather than aggressive, forceful, scary, which are the words that people often associate with negotiation. You're absolutely right, I'd like to add words like curious, exploration, creative, innovative. They, for me, are much more effective negotiators.

Andrew Grant:

Yeah, I think it's about planning. I mean, you'd never walk into a negotiation without a plan. And coming back to the Boris situation. Yeah, they talked about the whole of that four-year Brexit period was about red lines. And whether Theresa May would cross her red lines, and whether Barnier would cross his red lines. It's important you have the red lines in the right place. And going back to what I said at the start, that you don't set red lines which you then cross, because your credibility is gone. "That's my final price. Oh no, yeah, I'll give you a discount." You have no credibility in the future. So I-

Darren A. Smith:

It's a little bit like my wife was buying a leather coat on eBay. And she said, "No, I'm not going to spend more than £65, it's not worth it." And then she was bidding with this guy and ended up spending £77. Right past the red line, it was in the rearview mirror.

Andrew Grant:

Yeah. So yeah, no, yeah, be careful where you set those red lines. And, I guess, in the spirit of win-win, and we have said it before, it's being creative with what you negotiate about. Because I know we often play that game of, "Darren, I've got a £10 note here, will you give me 20 quid for it?" And you go, "Why would I give you 20 quid for a £10 note? I'll give you a fiver." And £10 is£10. If we try and negotiate just on £10, one of us is going to lose, or we're going to have the world's biggest argument.

Darren A. Smith:

Which often happens, doesn't it? Negotiators go into that negotiation, then they're surprised when they're in this head-to-head on price. Because they haven't got the variables, the tradables, the gives the wishes, whatever you call them. And I know you and I term that as the grease that keeps the engine moving.

Andrew Grant:

Yeah.

Darren A. Smith:

And without those, you just bang.

Andrew Grant:

So I guess it's a good introduction, as we were talking about negotiation 101. A good point for you to spend 15 seconds talking about our wonderful Squaredance tool, and where it came from.

Darren A. Smith:

Ooh. So the Squaredance is a simple template, and it encourages you to prepare for your negotiation, and it will give you confidence. My experience of watching people prepare for negotiations, is they start with PowerPoint. PowerPoint is not a negotiation preparation tool, it's a presentation tool. So you and I built Squaredance, and people are finding it fabulous. That was more than 15 seconds, wasn't it?

Andrew Grant:

No, but it is. And I guess we do these things to sell some courses and get some people working with us. And I think the Squaredance is one of the better tools out there, in the basis of its simplicity. But also the fact it comes out with something very focused, and very practically useful for anybody going into, actually, almost any sort of negotiation. Even if it is buying a used car privately, or negotiating with one of the supermarkets.

And I guess in the current climate, coming back to the news, there are all these reports of Brexit delays, and meat and fish rotting in Rotterdam. There's a lot of extra costs as a result of the friction caused by the new rules. I'm sure there's a lot of suppliers out there thinking about, "How do I approach my supermarket customer with a price increase this spring?" And that's inevitably going to come down to a negotiation at some point.

Darren A. Smith:

Yes, it is. And you and I have seen learners over the years increase their confidence through preparation, which is typically where confidence comes from. And they go into that negotiation with a much better approach and attitude. Because it's less this, and it's much more, "How can we work together? Here's a bunch of questions I'm going to ask you to seek information." In order to then get to stage three, four, which is around the proposal, and summary. And, "Okay, we've come out the other side, and we haven't just beaten each other up on price."

Andrew Grant:

Yeah. And I guess from the individual's perspective that often, I always make the analogy, "Maybe you shouldn't mention Jurgen Klopp after last night's result." But Jurgen Klopp, Guardiola, Jose Mourinho, they don't just say to their players, "Guys, we're playing so-and-so tomorrow at 5:00. Rock up at quarter to 5:00, get your shorts on, get your boots on. Let's go out and play."

Andrew Grant:

They practice, and they plan, and they practice, and they plan ad infinitum. So yeah, often we speak to national account managers, who the finance director has the bright idea of, "Oh, let's put a 10% cost price increase through." And the national account manager is sent over the barricades, literally with no practice, or planning and they have no armour. And obviously, some of the stuff we can give them, I think gives them confidence. Because they feel, "Look, we've got our suit of armour around us. We've got our Squaredance, we've got our tradables plan. We've got all the tools around us, therefore we're properly clothed for what we're about to go into."

Darren A. Smith:

Yes. Yes, you're absolutely right. Absolutely right....

Grocery Guru Ep 12: Tesco Christmas Q3 Results

Join Andrew Grant and Darren A. Smith in the twelfth episode of Grocery Guru: Tesco Christmas Q3 Results - 80% of sales in large stores are through Clubcard.

You Can Read the Full Tesco Christmas Results Episode Transcript Below:

Darren A. Smith:

Welcome to week 12 with The Grocery Group. It is Andrew Grant. Andrew, hello. How are you doing?

Andrew Grant:

Darren, good to see you again. How are you?

Darren A. Smith:

Hey, I'm all right. I'm all right. Lockdown, blah, vaccination, blah. We're not going to talk about any of that, are we?

Andrew Grant:

No. No. It's still the post-Christmas results season, and I thought today ... I think it was yesterday, Tesco's Christmas results statement was released. All very good stuff. Probably exactly what you would have expected. 8% like-for-like growth. People piling into Finest Christmas products. Lots and lots of online orders. So, I think the stuff we talked about last week in regard to Morrisons and Sainsbury's. So yeah, a very, very good festive season for Tesco, but-

Darren A. Smith:

You're talking about the Q3 statement for Christmas, aren't you, the results for Tesco Group?

Tesco Christmas Q3 Results

 

Andrew Grant:

That's it. Yeah.

Darren A. Smith:

All right. All right.

Andrew Grant:

Inside that statement, not particularly hidden, but towards the end of that statement was a fascinating fact. They talked about the ... And it's very rare; actually, retailers disclose their loyalty information because it's pretty sensitive stuff. So quite surprised that Ken Murphy actually said that in large stores, 80% of their sales at Christmas were Clubcard sales linked to people swiping their Clubcard at the checkout. That's phenomenal.

Darren A. Smith:

That is high. So 8 in 10 pounds that are spent in Tesco is by someone who has a Clubcard, who's swiped.

Andrew Grant:

In their larger stores, which you can understand. Because obviously in the Expresses, they're much more transitory.

Darren A. Smith:

Yes.

Andrew Grant:

People dining in for a sandwich or a bottle of water are less likely either to have a Clubcard or to swipe it. But in their bigger stores, which is obviously the vast bulk of their volume, to have 8 out of 10 customers loyal, if you like. Loyal Clubcard shoppers. And what do you think's driven that? I don't think it was just the Christmas effect. I think it was something else.

Darren A. Smith:

What's driven that?

Andrew Grant:

I don't know if you're a Tesco shopper if you're a regular Tesco shopper. You should have noticed.

Darren A. Smith:

We're more online, but then it still happens there. So I think because I've had a look at the Q3 statements. I knew what you were going to talk about. I think you're going to say it's promotions.

Andrew Grant:

Yeah. I think they'd been incredibly clever. I mean, most retailers with their loyalty promotions, they're sort of second-best. They're sort of add-ons and throw-ins. "Oh, use your loyalty card and get a minor promotion." What Tesco, I think, have done very, very cleverly is taken their mainstream, high-hitting promotions and made them Clubcard-only. I mean, there are some fantastic Clubcard-only offers out there. And if you haven't got a Clubcard, you're wandering around a Tesco thinking, "I'm missing out on some fantastic deals here." So probably, again, data they won't share. They probably recruited a whole army of new Clubcard customers since they've started those promotions.

Darren A. Smith:

Well, I read the Q3 statement because I knew you were going to ask about it, and one of the things I read was that the ... Let's have a look. Clubcard penetration has gone up 10 points to over 80%, which ties in with what you said, and there are 2 million more active users. Wow.

Andrew Grant:

Ah, I missed that bit. I should have read a bit more closely. Right. So another-

Darren A. Smith:

I mean, that's truly amazing.

Andrew Grant:

Absolutely. I mean, and I guess the two important points out of that for our dear listeners and viewers here is those Clubcard promotions, if you want to promote with Tesco going forward, then the biggest and beefiest promotions are going to be those Clubcard ones. If you're not all over Clubcard loyalty data, if you're not buying it of Dunnhumby, you're going to have another arm sort of tied behind your back when it comes to trading with Tesco. So suppliers are going to be encouraged, I guess, to spend more and more on shopper data.

Darren A. Smith:

Yeah, and understand it, and learn from it, and evaluate. Does the buy two, get third free work? I mean, my experience of working with a lot of clients and a lot of suppliers over the last 10 years is, they don't all have ... Actually, I'm going to go as far. I'll say most don't have a return on investment from the amount they spend on promotions. They don't say, "I spend £1, I got back £1.25." Now, this is a whole new level of complexity, which is going to make it even harder but absolutely essential.

Andrew Grant:

Yeah. Absolutely. Secondly, with we said that 80% figure, which is phenomenal, Tesco are now literally almost owning their shoppers. There is the old industry adage that Tesco with its Clubcard knows better than your GP when you're going to die. Yeah, because no. They know your postcode, they know your lifestyle, they know exactly what your diet is.

Darren A. Smith:

Yes. Yes.

Andrew Grant:

I'm sure we all go to the doctors and don't actually quite tell them how much we exactly eat. Eat and drink, and particularly how much we drink. Tesco knows exactly how much you drink when you put those seven bottles of cheap red plunk in your basket every week. They see it.

Darren A. Smith:

Well, it's very true, because you get the GP questionnaire. How many units of alcohol? You think, "Is a pint just one unit?" Only one.

Andrew Grant:

No.

Darren A. Smith:

I'm going to share a couple of other facts that amaze me in here. You mentioned the like-for-like growth of Tesco, 8%. Booker with 15%, which I thought was damn pretty good.

Andrew Grant:

Well, considering restaurants and hospitality are shut, that is pretty good.

Darren A. Smith:

Yeah. So, that one amazed me. And then just a couple of other stats. Over Christmas, 7 million orders, 400 million items. Wow. And Tesco are looking after, supporting 786,000 vulnerable shoppers. I mean, some big numbers there. Some really big numbers.

Andrew Grant:

No, I think as we've said before, the supermarkets that are clear winners out of this nasty virus crisis we've had, they've been doing the right thing. Was it Morrisons announced yesterday, they're going to be the first supermarket to pay £10 an hour?

Darren A. Smith:

Oh, are they? I didn't read that.

Andrew Grant:

Yeah.

Darren A. Smith:

Oh, okay, I was going to just say something else. They pay £10 an hour. Yeah. Okay.

Andrew Grant:

I'm going to be applying, Darren. So, it could be the last one of these. But yeah, they're firing on all cylinders. Just about all the supermarkets firing on all cylinders at the moment. But also, I think, tend to do the right thing as well.

Darren A. Smith:

Certainly seems that way. I've got one more stat before we wrap up. The other one I saw was that we've got +80% increase in online sales, which equated to another billion pounds worth of online sales over the Q3, which I think was 19 weeks at Tesco. A billion pounds worth of online sales additional.

Andrew Grant:

Well, I think we said at the very, very first one of these, where I trapped you into working out what UFC was, yeah. Probably their biggest challenge now is, how do they cope with that probably unstoppable growth of online? Are there going to be enough vans to go on the roads to deliver this stuff? Where I live, constantly all you see is white vans delivering Amazon, DPD, food, you name it. That growth is phenomenal, and whether they can keep up with it, and manage to pick it, and make money doing it. Because as we've said before, the grocers have to some extent been lucky for the last 60 years. They've persuaded us to be our own pickers and deliverers, and we're now turning our backs on that.

Darren A. Smith:

They certainly have. So I think where that leads me to is the new battleground maybe moves away from pricing to data, to insight. Understanding our shoppers, but not just regurgitating the Nielsen, the Kantar, the IRI data. Actually turn it into something that says, "There's £7 million worth of opportunity in the category if we do these three things. One on promotion, one on decision hierarchy, and one on availability." Fantastic. That's got to be the new battleground.

Andrew Grant:

Yeah. Price is always going to be there, and as a supplier, these retailers are going to knock seven bells out of you on price. Of course they will, because they're still operating on tiny, tiny margins. But yeah, if you can use insight to drive profitable volume, even if you're making very, very small margins yourself doing it, then that's the way to grow and survive.

Darren A. Smith:

Okay. All right. Well, thank you, Andrew. We will see you next week for week 13, and let's what happens in the world of grocery.

Andrew Grant:

Lucky 13.

Darren A. Smith:

Lucky 13. You take care.

Andrew Grant:

Okay. Take care. Bye-bye.