There are many, many reasons for acquiring companies. Roll-up’s to save costs, taking out a competitor, financial engineering and vertical integration to name four common strategies.
At Move Fresh we have only one reason for acquiring a business: to grow it.
More specifically to at least double the size of the business within a few years.
Frankly the idea of buying a business to try to save a little bit of money is pretty ridiculous. However one of the things we are very good at is growing direct to consumer FMCG businesses very rapidly and indeed Diet Chef was in the Fast Track 100 as the 3rd fastest growing company in the UK.
The trick? Spending very large amounts of money on marketing. Well, there is a bit more to it than that, we are investors in a leading marketing analytics business and spend a lot of time with numbers. But we find it hard to see how a business can grow rapidly without spending millions on advertising in an effective way.
So our acquisition strategy is really very straightforward: to find businesses with a great product that just needs a big marketing boost. We’re delighted if the shareholders are willing to join us on the journey.
Sales at Tesco and Sainsbury’s fell by 0.2%, according to the latest Kantar Worldpanel figures for the 12 weeks to mid-July, while Asda sales fell by 5.6%.
The discounters (Lidl & Aldi), however, soared by 12.5% and 11% respectively, while on the other end of the spectrum, Waitrose grew by 1.6%.
The nation’s average shopping basket is 1.4% cheaper than a year ago, but it remains to be seen if the Brexit vote will bring about any price rises this year.
It’s not a great place to be stuck in the middle as a retailer!
Sainsbury’s has become one of the first UK multiple grocers to move to compete with Amazon – as reported on Friday by Reuters
There are some fundamental issues around this strategy. One company I would not have a price war with is Amazon!
Amazon traditionally operate on around a 15% margin from suppliers. Not all categories work within this margin structure but in comparison with UK retailer margins of between 30-40% a price war at this level would only suggest one winner.
Some interesting stats within this report though also point to a doubling of the online grocery market by 2020
Britain’s online food market is expected to nearly double to 17.2 billion pounds in the five years to 2020, according to industry research group
Asda has started a new price war to become more competitive as it loses over 5% market share historically.
As Amazon Grocery enters this market there is some big structural issues to deal with. Amazon operate on a 15% margin model in most areas while typically major retailers in the UK run on 40%.
This structural shift isn’t going to end well for the UK’s largest retailers.
Retailer shares fall as Asda signals supermarket price wars
Everyone is blaming BREXIT but really shopping habits have been changing quite dramatically for a long time. In my own household we have moved from weekly shops in multiple retailers (typically Sainsbury’s or Tesco) to discounter (Aldi or Lidl). In addition our convenience purchases have increased. We have moved some of our spend into local convenience retailers and some to speciality retailers such as Waitrose.
We never got into online retail from Tesco or Sainsbury’s – we wanted to choose meat, fish and veg by sight not just by price. I am sure we are not alone.
Our online purchases have skyrocketed not just in grocery but in most areas. There is a disconnect in consumer recognition that doesn’t make me count these purchases as grocery purchases. Traditional measurement platforms linked to checkout data and club card information (Kantar) won’t pick up this move either.
Over half of all retail spend in the UK is in the grocery category and only 5% of it is online. Doesn’t this strike you as something that will change?
We’ve changed our name from Melville Street Investments Ltd to Move Fresh Ltd. We think Move Fresh makes it clear that we are a food e-commerce business.
Also Melville Street Investments is quite a mouthful and our new shorter name saves a lot of typing!