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FMCG and e-commerce

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© Aprescindere | Dreamstime.comSupermarket Photo

The supermarket landscape in the UK isn’t looking great just now. All well known retailers such as Tesco, Asda and Morrisons are really struggling with a pincer movement from heavy discounters (Aldi, Lidl, Poundshops etc) and e-commerce (If you have a retail week subscription check out the winners and losers over the 2014 Christmas period)

So as a FMCG brand it continues to get harder and harder to even get listed in a large volume retailer. The fight for the consumer is driving margins down and every square foot of a retail outlet has to deliver.

I have kept on banging on about this for a few years as we have seen a move to online retail in most categories – it just seems to make sense we are going to see that in Grocery.

There is a strong manufacturing base in the UK and US, but they struggle with distribution – having depended on supermarkets for 20 years, why invest in anything else.

So I really do believe that the time has come to drive FMCG brands online, but the skill set to do this does not really exist in food manufacturers.

That is why we have formed Move Fresh. A group structure that will hold a number of brands and investments in the eFMCG space.

The group has a long term strategy and will utilise the shared IT, logistics and brand management infrastructure to grow over the long term.

Grocery e-commerce

It seems more and more evident to me that one of the last areas of traditional e-commerce to go mainstream is Grocery.

Most FMCG (Fast Moving Consumer Goods) brands are hugely dependent on the retailer (Multiple or otherwise) to drive volume in terms of sales. Anyone launching a consumer product first thinks about selling it to Tesco, then once this doesn’t work thinks about selling to independents (usually with an excuse about not wanting to work with Tesco!).

Apart from Diet Chef there are some great examples of brands that have grown online and are potentially looking to drive into retail as a secondary activity. Selling online has it’s advantages but also makes things hard. Delivery and distribution costs are pretty fixed no matter if you are sending 1KG or 30KG, costs of warehousing, staffing and IT are the same.

Many existing FMCG brands play at selling online. They think it will be the solution to the problems they encounter with retailers, it isn’t. On many occasions it causes massive conflict. A retailer is in control of the price that they sell the product to consumers at, you cannot specify exact retail prices – just suggest them. If you start to sell online at a lower price than the retailer they complain, if you sell at a higher price – the consumer heads for the retailer.

The advantage of selling online is not about improving margin but having a direct dialogue with the consumer lets you understand problems with your products on a daily basis. This feedback is invaluable to any FMCG brand and most spend thousands of pounds a year to get this level of insight.

There are a number of companies popping up using the Internet to sell directly to consumer but I have some simple rules and guidance that I follow to make it work.

I will cover some of the pitfalls of FMCG brands selling online in the next few blog posts.

Good to Great

I’ve finally got round to reading Good to Great, many years after everybody else!

One of the entertaining things about reading a business book that’s nearly a decade old is seeing how it has aged. The comments about Fanny Mae revolutionising their business through the creation of mortgage backed securities was not a high point!

The bulk of the book is all pretty obvious and solid stuff: you need to get the right people in place first, once you’ve got the right people the strategy will emerge, you should focus on one thing as much as possible, you need to have a rigorous culture, etc.

I think my favourite comment was about the importance of “To Not Do” lists which in the author’s view is more important than the traditional To Do list.

I guess the other thing that came clear from reading the case studies is that no company goes from good to great very quickly. One of the CEO’s talks about a twenty year overnight success story.

Even step one – getting the people right – generally took a couple of years to do. The businesses tended to have high staff turnover for that initial period then very low turnover from then on.

As I spend more time working with our businesses I am personally finding it much more satisfying to try to help create a great business than simply to flip the business for cash.

Experience Counts

Here’s a couple of classic Kwik-Fit ads:

I love both these adverts and the other 20 or so.

First of all they have great standout and even inspired a spoof.

It’s also immediately obvious from the start through to the end exactly what the advert is actually for. Surprisingly most adverts avoid making it clear who client is.

Every advert is also very focused on a USP (boring I know!). The first ad focuses on why you should trust them and the second ad shows the range of people who trust Kwik-Fit (a classic “that’s me ad”).

Jim Downie was at Hall’s Advertising when we came up with “You can’t get better than a Kwik-Fit fitter” and he visibly squirmed as I told him how much I admired these adverts but I actually think they are complete genius and earned Tom Farmer many millions of pounds. I can’t wait to see what Jim does for me.

It also reminds me of some of the arguments I have had with marketing consultants. Their view was that hiring very experienced creative directors who were older was a huge mistake and that instead we should be focusing on the new talent. I think this is completely wrong.

Scalability by Wally

Wally is of course the real star of the Dilbert cartoons.

I was thinking today in talking to a new entrepreneur that there is a lot to learn from Wally in creating a scalable business.

Everyone in business is presented with enormous numbers of things to do. It’s very easy to become a “busy fool”. But being slightly lazy is a much better approach by following my 5 stage guide to avoiding unnecessary work:

1. Don’t do the task

The first thing when presented with a task is to consider whether it’s worth doing. A surprisingly large number of tasks can simply be dumped completely. When deciding whether to dodge something a key criteria is how much time the task will take to complete. Many meetings or phone calls fall into this category.

2. Procrastinate

There’s a lot of tasks that really need to be done at some stage but not right now. If it doesn’t cut costs, increase sales or improve customer satisfaction then it probably can be pushed back a few months without much issue.

3. Automate the task

A huge number of tasks in an e-commerce business simply should never arise in the first place. Some real world examples from my experience of massive time wasters are:

  • Reporting and KPI’s which should be an automatic reports;
  • Standard emails to customers which should be templates;
  • Customer contacts which should be self service;
  • Google bidding is almost always done better by Google Conversion Optimizer;
  • Form filling which should be eliminated (such as TSCA by ETD);
  • Checking customer orders from Zen Desk (should be thru API);
  • And lots more.

4. Outsource the task

I am a reasonable accountant and I quite enjoy it. Give me a complex journal entry to complete and I imagine myself in Dickensian London with a quill pen sitting on high stool in front of an ink stained desk and thinking through my double entry.

However this really isn’t a great use of my time. In the last month I have doubled sales at FCC through concentrating on the US project. There’s no way I could add anything like that value through my accountancy skills and much as it pains me people like Paul Kelly at Blue Crest are much better at it than me.

5. Delegate the task

Arranging for our bins to be collected from FCC has been a truly Herculean task. It took many hours of effort. I’m very pleased that Clare rose to the challenge and battled with Biffa to get the bins collected and the sums taken out of our account refunded.

However it really would not have been a very sensible use of my time to do this.

Amazon

I’ve just read an excellent book Amazon: The everything store. For anyone in e-commerce Amazon is the company you have to admire.

Amazon has three founding principles:

  1. Customer focused
  2. Long term
  3. Inventive

Jeff Bezos says that there are very, very few companies who are all of these three things.

“There are two types of retailers: those that try to work out how to charge more and those that try to work out how to charge less.” – Jeff Bezos

I do absolutely love that quote. Actually both business models work pretty well but what doesn’t work is trying to be both.

It’s very obvious which Amazon is trying to be. I learnt from the book that Bezos was very influenced by Walmart.

“Our marketing strategy is our pricing strategy,” says Lee Scott the Walmart CEO. He sees advertising and pricing as two ends of a spectrum; if you get pricing right then you spend less on advertising. Walmart spends 0.4% on marketing and even that is just advertising about specific low priced products.

The other big influence was Costco. Stock at Costco is all sold with a 14% margin which is breakeven. The profit comes almost exclusively from the annual membership fee. I suspect this was one of the things that made Bezos go for the Amazon Prime idea when it was presented to him.

I think it is interesting that one of the areas where Amazon failed badly was jewellery. This clearly was one of the areas where just being the cheapest and most convenient wasn’t what consumers were wanting. It is also interesting that Amazon hasn’t quite cracked clothing for a similar reason I expect. However I would expect them to do incredibly well in grocery.

Hiring was quite interesting. Amazon do not offer great renumeration but they have a pretty rigorous recruitment process. They also try to hire doers rather than managers.

Amazon was generally pretty bad at acquisitions with the vast majority of them failing utterly. On the other hand they have been very good at launching new business lines themselves.

Big picture wise, I think it is interesting how much of a platform Amazon is becoming. They have an API of course but also AWS, the ability for authors to self publish, the Kindle, Amazon Payments, FBA and no doubt Amazon Logistics in due course.

I found the book quite inspiring. What we are doing is different and I think it is very important that we don’t try to be Amazon but there’s a lot to learn from.

S&P 500 v. Hedge Funds

Warren Buffett has a $1 million charity bet with Protégé Partners. It started on 1st Jan 2008 and lasts for 10 years; the bet is on the performance of a fund of hedge funds from Protégé verses an S&P 500 tracker from Vanguard.

At the Berkshire Hathaway annual general meeting a delighted Buffett gave the six year update on the bet: Hedge funds at 12.5% and the S&P 500 at 43.8%.

Only people without much grasp of the basics of investing would put money in a hedge fund however it is worth considering some of the issues around tracker funds.

Key points to consider are:

  • Fees Over a typical saving period you could have virtually double the performance using a tracker fund with the lowest fees compared to a tracker fund covering the same index with high fees.
  • Stock lending Many tracker funds loan shares to short sellers. This obviously increases risk but is acceptable providing the fees go to the investor. It’s worth checking if this is done and if so the policy on splitting the spoils.
  • Physical verses Synthetic There are two basic replication methods. Physical means that the underlying stocks are purchased which is pretty much as safe as possible. Synthetic means that a swap agreement is entered into with an investment bank and as a result the solvency of the investment bank is a risk factor. The funds invested will still be held in some sort of collateral but this may well be unable to recover any losses.
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