Deutschland uber aisles

Whilst the four major supermarket chains Tesco, Sainsbury, Asda and Morrison face declining sales their main threat is coming from the German discounters Aldi and Lidl who are going from strength to strength.

Lidl expect sales this year to grow by 20% to more than £4 billion. Over the next 10 years Lidl plans to double in size with up to 1500 outlets. Meanwhile latest figures from Aldi show that UK sales increased 36% to £5.3 billion last year ldiscounters.eading to a 65% increase in profits.

These two companies have been the beneficiaries of a shift in consumer buying habits following the financial crisis of 2008 and the global recession. People are looking for value for money and these discounters are providing it. The big four UK supermarkets were slow to appreciate the threat and now find themselves very much on the back foot.

Morrison have now launched a loyalty card “Match and More” which takes into account not only its traditional rivals pricing structure but also the German discounters.

At the same time as facing this heightened competition the UK big four supermarkets find themselves under scrutiny in respect of how they are reporting their figures and the treatment of rebates or costs of promoting products which they levy on suppliers.

From a consumers perspective there is a general desire to get back to basics i.e. good quality at the best possible price. More and more people are turning away from the “bargain offerings” of buy one get one free the so called BOGOFF.

Lidl and Aldi have certainly stolen a march on the established grocery chains who will have to respond with some innovative and aggressive marketing as they attempt to recoup market share.

Whilst this will be good news for the consumers there will be pain to be felt and this will certainly be the case for those supplying the supermarket chains. These companies will undoubtedly be pressured to reduce their prices whilst having to accept a lengthening of payment terms.

 

 

 

Beware the siren song

More than ever, all businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

However as business conditions remain difficult we are witnessing a growing trend for companies to squeeze suppliers in various ways. This can take the form of a decision to arbitrarily extend payment terms, decide not to take up previously agreed deliveries or introduce respective price discounts.

From a suppliers perspective this erosion of operating margin means that in some instances the best business decision was to leave it to your competitors.

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

It is worthwhile to remember the old mantra - turnover vanity, profit sanity, cash-flow reality.

 

Getting the formula right

Companies trying to improve bottom line returns have recourse to two obvious strategies; cut operating costs whilst increasing revenue.

From a Financial Director’s perspective it is the Holy Grail.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

As such for most companies it is about getting back to the basics – ensuring orders are processed efficiently and in a timely fashion. Following up on customer satisfaction, in short providing what in old fashioned terms was called “service”.

This is where a difficult balancing act comes into play, in cutting costs the net result is very often a reduced / demoralised workforce.

If those involved in the support work aren’t performing then results inevitably suffer. It is a question of striking the correct balance.

Tesco still reeling

 

The fallout from the revelation that Tesco had been overstating their profits continues to be immense.

Warren Buffet has announced that he made a “huge mistake” by investing in Tesco shares with estimates that his losses on his Group’s holding in Tesco shares exceeds £500 million.

Other less notable losers will of course included Tesco employees who bought into the company’s share scheme and have seen the value of their investment drop by 50% in the past year.

Further illustration of the hubris of the previous Tesco senior management was the ordering of a £31 million jet for corporate travel. No doubt the new board will be under pressure to dispose of this in the not too distant future.

This self-aggrandisement is an all too familiar story, it was exactly the same type of behaviour we saw from Fred Goodwin when he was at the helm of the RBS Group albeit that the fall-out from his ineptitude came at a far higher cost to the group’s shareholders and the UK taxpayer.

The components of this story are the usual suspects, loose governance, directors preoccupied with their own bonus structure, Auditors not getting to grips with the fundamental issues of the business they are auditing.

Meantime the UK’s top financial regulator (FCA) has launched an investigation into whether Tesco broke rules on adequate financial disclosure and it will

The figures are wrong through incompetence or deliberate falsification it can only be one of these two issues.

In smaller companies it is not unusual for management under pressure to resort to “massaging the figures” whilst unacceptable business practice it does not have the implications that accompany the Tesco situation.

The damage to shareholder confidence and the brand itself is incalculable coming at a time when Tesco is facing rapidly declining sales.

It will be difficult to rebuild trust from either the market of its customers with the overhanging feeling that there may well be more skeletons lurking in the cupboard.

 

Leading by example

 

In order to achieve success all organisations must have effective leadership. It is the responsibility of management to lay down a set of ideas and objectives that are articulated, understood and supported by the workforce .Good people do not like working for organisations whose values are muddled.

Managers have to take difficult and unpleasant decisions. These often need to be made swiftly balanced against conflicting demands. It is not always possible to access cast-iron evidence to support the decision making process. This is one of the tests of strong management.

A clear and defined vision are essential requirements. Managing a large company, and dealing swiftly with a variety of challenges and issues is a complex task.

The desire to succeed which provides the drive and focus on excellence is one of the hallmarks of a good manager.

The workforce is the company’s most precious asset. Accordingly the ability to judge people and value their contribution is an essential prerequisite for any manager.

To build a talented team requires working with people who may be better at their job than you are at yours, and to guide and motivate them. People learn far more about the art of leadership from a good mentor than from any course or training exercise.

The ability to respond quickly will prove invaluable when things go wrong. Surviving a reverse and changing direction is the utmost test of resilience and flexibility.

 

Take heed of tell tale signs

Rarely do companies explode like a super-nova the warning signs are usually visible for some time ahead.

The following is a basic check list which should help to determine whether the problems are of a temporary nature or have more serious implications for the future of the company:

The most important element in any business is maintaining a healthy cash flow. It is imperative that a strict control is maintained on all outstanding invoiced amounts.

The value of an efficient credit control system cannot be over emphasised.

Do not focus on generating sales with little margin in the belief that over time things will improve. Being the “cheapest supplier” will not provide an automatic route to more satisfactory profits in the long term. It is often better to keep your powder dry.

If you are constantly in danger of breaching your credit arrangements with the banks or suppliers this is a clear indication that the company is not trading satisfactorily.

As conditions deteriorate more and more time is spent focussing on the problems and not enough on to how to position the business for the future.

Particularly for owners of SME’s it is not easy to take the necessary remedial actions and very often this is where an outsider can be of assistance in repositioning the business before it is too late.

 

Web crime a burgeoning industry

 

Cyber-crime is growing at an alarming rate. In the period January to June internet fraud linked to stolen passwords in the UK soared by 71% to £29.3 million.

Meantime it has been estimated that online fraud hits one in eight UK businesses each year and costs a staggering £20 billion.

Despite storing critical information on mobile devices and computers some 82% of SME’s are unprepared for an IT security breach.

Entrepreneurial owners of SME’s are a prime target for fraud as overseeing finances doesn’t always come naturally to them. If a founder is focusing mainly on the product or service being sold, and only minimally on administration, it leaves a business vulnerable to fraud.

In smaller organisations fraud can take many forms e.g. invoice scams, to suppliers providing kickbacks for inflated purchases, theft of stock, fictitious expenses etc.

For larger organisations the potential for various fraud activities exists but the numbers involved are far greater.

It is vital that all organisations have systems in place to monitor all of the company’s finances and commitments in a clear and concise format.

Simple but effective systems of checks and balances can go a long way to limiting if not removing the risks.