Month: August 2016

Amazon Robotics

One of the businesses everyone at Move Fresh respect (and invest in!) is Amazon.  The focus on growth and the vision of the founder Jeff Bezos is truly outstanding.

The entire company constantly thinks about the future and have convinced public market investors that long term growth is the best use of Amazon’s impressive cash flow.

The BBC just covered the robotics division that are rolling out in the UK.

Kiva the company that built this technology was acquired by Amazon in 2012.

There are approximately 30,000 robots in operation in Amazon warehouses!

The slide continues…

Asda has reported the worst quarterly drop in sales a massive 7.5% in the last 3 months.

Let’s just sit back for a moment or two and think about this. All the major “multiple” retailers are in decline apart from Waitrose. That is a seismic shift in consumer behaviour, multiple retailers are being attacked by discounters, convenience and online in one of the biggest shift in consumer behaviour since supermarkets first appeared and impacted local high street stores.

Change in market share

Change in market share

So if you are an FMCG brand trying to find growth the worse place to be is within multiple retailers. Your choice is the unpredictability of discounters (smaller range)  or stick with volume in multiples and expect exceeding price and margin pressure.

Deal & Dealmakers Finalist

We are delighted to announce that Move Fresh has been nominated for MBO/MBI of the Year at the Deal & Dealmakers Awards for our acquisition of Diet Chef.

Supporting Django

We divide our technology requirements in two:

  1. Backend systems such as finance or warehouse management which are commoditised. We buy these systems off the shelf.
  2. Customer facing systems such as mobile apps and our website which are key differentiators. These systems we develop ourselves.

Our own platform runs on Django which is one of the more modern frameworks (incidentally it is also what Ocado use). We are delighted to announce that we are supporting Django by sponsoring the Django: Under the Hood conference in Amsterdam, 3-4 November 2016. We do think it is important that commercial users of open source software put something back into the community.

Our E-Commerce Business Model

At Diet Chef we achieved a total return on equity of 8,999,900% over a three year period. If we had the same growth over the next three years we would be ten times larger than HSBC, the biggest company in the FTSE100.

Sadly, this is an outcome that will not happen. It’s just not possible to deploy the larger capital that we have today as efficiently as we did in the old days.

However it is worth looking at the business model we used as this is still very relevant.

First off, most of the funding for Diet Chef was not provided in the form of equity. Most of the funding actually came from suppliers who initially sold to us on 30 days while we received cash from customers within one day. This negative working capital requirement then scaled up as the business grew.

For our first TV campaign we requested that suppliers increase their terms to 60 days to fund it. They agreed to this and the result was that both our business and the suppliers benefited hugely.

This is quite a well worn path in retail, however in e-commerce there is less capital expenditure required to support growth (shops, etc) so the equity requirement is substantially reduced.

It is also a poor man’s version of Warren Buffett’s strategy of investing his insurance float, where the insurance premiums are invested over the years between receipt of the premiums and payment of the claims. Thus he makes a double profit: once on the insurance business and once on the investment of the premiums.

Back to Diet Chef, the other key was that we recruited customers so that they were profitable within 60 days. Generally, in direct businesses it will take a longer period for customers to become profitable which can result in a form of overtrading. This allowed us to grow the business to market capacity pretty quickly.

It’s not realistic in all e-commerce businesses to recruit profitably, particularly those in more mature markets. However these businesses should all have databases which will provide a profitable retention business which should then fund the loss making recruitment business.

There were of course a lot of non-financial reasons for the success of the business which I will cover later. But getting the business model right did allow us to scale the business up dramatically with no external equity funding.

Kevin and I have both spent a lot of time in Silicon Valley and one of the interesting things there is the focus on business models. But it’s something that is seldom discussed in Britain.

Professionalism in Marketing

The founder of modern consumer research was George Gallup who set up the eponymous Gallup in 1935. One of his early studies for advertisers showed that when a consumer is reading a magazine, headlines in BLOCK CAPITALS are read less often than headlines in Title Case. With identical adverts, simply changing the font of the headline would increase readership of the whole advert.

David Ogilvy, one of the founders of modern advertising, makes this point in Ogilvy on Advertising which was published in 1983.

In 1963 Margaret Calvert along with Jock Kinneir were given the task of redesigning British roadsigns to make them easier to read for road safety. Of course part of her work was moving from block capital to title case, in the process becoming the first person to earn an OBE for services to typography.

The Americans finally caught up and in 2010, New York began the $27.5 million process of changing their signs from capitals to lower case for safety.

In short, there was been nearly a century of research that has constantly shown that Title Case is more effective than BLOCK CAPITALS for headlines and this research has been widely covered in the media and in the literature (if you Google you will find many more articles I could have mentioned). Why then do most adverts still use block capitals?

It’s a very good question to which I’m not sure I have a complete answer. I do think a big part of it is that marketing is simply not perceived as being a serious profession. Recently I came across a company where the Chairman’s son had been given a vital marketing role despite having no experience in the subject. It would be hard to imagine this happening in accountancy or law. We really do need similar standards being demanded for marketing as for the other professions.

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