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4
Jul-18
Wednesday

Plastic bag ban a profit grab?

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The Herald Sun reports that supermarkets are cashing in big time on the newly enforced plastic bag ban. The 15 cent charge for multi-use heavy duty bags has generated $71 million in profit. Additionally, grocers are saving $170 million annually on the cost of giving away free plastic bags. All this gain for supermarkets' bottom line, while experience from other countries clearly shows that switching to multi-use bags does not help the environment. Makes you wonder...

Supermarket mafia?

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The Herald Sun reports that a review of Food and Grocery Code of Conduct has found that while relations between Woolworths, Coles and Aldi and their suppliers have significantly improved, instances of troubling behaviour persist. For example, the report notes that suppliers have been threatened with cuts to their product ranges or shelf space unless they lower prices, but savings have not been passed on to shoppers. According to the review, supermarkets have also refused to accept price increases driven by rising costs such as electricity, only to then jack up the shelf prices and pocket the extra cash. The report calls for more effective legislation to be put in place to curb the distortion, however with supermarkets also looking to increase their private label offering over the next several years, suppliers are being punished from all angles - without any benefit delivered to the consumer.

E-commerce fuelled property boom?

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The AFR commented that if Australia follows the same e-commerce trends as the US, the demand for new industrial property here will surge. According to Colliers International, "Australia's e-commerce sector is at an eight-year lag to the US.  Applying the same annual growth rate in the share of US online retail sales between 2009 and 2017 to Australia, Australia's retail online share should increase to 9.9% by 2025." The total floor space in property lease deals that occurred in 2017 related to the e-commerce was around 150,000 sq. metres, compared with around 50,000 sq. metres in 2013.  Remembering that everything is one of a kind, we think that comparisons between regions can be misleading. Australian e-commerce faces a range of unique logistical challenges.  It is unlikely that the trend down under will be the same as in the US.

Pharmacy and supermarkets: little guys feel the pinch

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The AFR reported that shares in Sigma Healthcare fell a further 3% yesterday following a 40% crash on Monday, after the announcement that Chemist Warehouse is switching its sourcing to EBOS. According to the AFR, Sigma will now work more closely with a group of single store pharmacy outlets known as Pharmacy Alliance, who is set to become Sigma's largest customer by mid-2019. The situation has many parallels to the independent supermarket space, with the independents (supplied by Metcash) under pressure from larger, more operationally efficient competition.
3
Jul-18
Tuesday

SAP lost in the Cloud?

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According to the AFR, the German software company SAP lost $140 million last year on turnover of about $1 billion in the APAC region.  The CEO made a comment that this was the result of switching to a cloud-based subscription model, which is exposed to intense competition.  He sees the shift as a positive, as the number of customers using SAP has been growing. We just can’t see how a loss-making venture can make it up in volume?

More upheaval in the wholesale space

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The AFR reported that Sigma Healthcare’s shares dropped 40% yesterday after the announcement that Chemist Warehouse has decided to switch its sourcing to EBOS. This will cut 42% of Sigma’s revenue and it confirms the natural trend: when a chain of stores gets to a certain size, unless they are vertically integrated already, they will gain massive power over their wholesaler. And, they will use it.  We have seen a similar situation recently when Drakes decided to walk away from Metcash. A question needs to be asked though: while EBOS will gain the revenue, will they make any profit? Such ‘super’ deals usually come at a heavy price.

Carrefour and Tesco

19
An interesting ‘alliance’ has been announced between French Carrefour and UK Tesco – according to the AFR, the two giant companies will collaborate in the sourcing and buying area. We see this as somewhat unprecedented, but interesting, as the companies don’t have overlapping markets at present. Tesco and Carrefour are similar in size (around $80-$90 billion in turnover). Is this the prelude to a merger at some stage?
30
Jun-18
Saturday

Bitcoin out of luck (again)

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Reuters reported that Bitcoin slid to its lowest level since the last year ($5,774).  It is now down 70% from its December 2017 peak.  Reuters attributed this to "waning investor interest and recent negative headlines from global regulators".  We think that a word such as 'speculators' or 'gamblers' would have been more appropriate than 'investors'.  We are not the only ones who have issued repetitive warnings about the dangers related to betting money on such schemes.
29
Jun-18
Friday

Pillow Talk success

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Inside Retail commented about Pillow Talk’s strong focus on omni-channel business model, aimed at delivering superior customer experiences and building brand loyalty. The business started 40 years ago and has grown substantially over the last few years, to nearly 60 large format stores across Australia. Pillow Talk is one of the largest home linens specialists in the country.  Retail Directions in proud of being associated with Pillow Talk’s success story – we have been providing core systems for the business for a number of years.  It is worth noting Retail Directions strong presence in this market segment, with other important brands such as Bed Bath N’ Table and Sheridan also using our platform.

Grocery news from the UK

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Retail Gazette in the UK reported on the sales results in the UK grocery sector.  The typical growth year-on-year was around 2% for most grocers, with the exception of Lidl (5.5%) and Aldi (7.4%).  These discount operators continue to grow their market share (from 13.2% last year to 14.3% this year).  Their continuing success reinforces our view that in the grocery segment the long term winners will be chains that mastered operational excellence, not those with bloated head offices, costly IT systems, and buying departments trying to squeeze ever more out of the already struggling suppliers.

Toys R Us soldiering on

30
Toys R Us continues to operate in Canada, now under a new owner - Fairfax Financial Holdings, which bought the 80+ store retailer for $300 million in early June. According to Canadian Financial Post, the stores have annual turnover in excess of $1 billion.  The business still has to cope with the negative news about Toys R Us coming from the US, but its management is optimistic about the future.

Customer backlash

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The Herald Sun reported that Woolworths is experiencing strong customer backlash after it decided not to provide plastic bags. “Irate customers have complained about having to pay for bags at the checkout while some shoppers have not had enough of their own bags to fit all their own groceries.”  Chaos at the checkout was to be expected. Hopefully, Woolworths (and Coles) will learn that doing something to align with the sentiments of 70% of their customers, with the certainty that the remaining 30% will get angry is not good business.  As noted in a previous post, plastic bags are only a tiny part of the problem when contrasted against the total waste generated by supermarkets anyway.