Tag Archives: retailers

Lean (Super) Marketing – Price & Promotion

Quiz question : Can (beer) you (nappies) think of (coffee) products (biscuits) that are (cereals) always (cordial squash) on price promotion in one (pet food) supermarket (toothpaste) chain or (deodorant) another?

Today it’s being touted in the Telegraph today that Tesco will start a price war by reducing prices.

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8780284/Tesco-to-start-supermarket-price-war.html

The article also takes the view “Unlike most “price war” announcements, analysts expect this to materially alter the profits that Tesco makes in Britain”.

How could it be?  how will it affect profits?

Well the article talks about fewer buy-one-get-one free promotions and more low, round prices.

 Imagine you’re a supplier and a supermarket offers you the chance to take part in a “bogof” promotion.  Let’s look at the simple mechanics of these promotions;

You are selling at a rate of “packs of product per day”, [SKU’s to use the jargon] suddenly this rate can start to rise to 4, 6, 8 times that amount. (remember you are on bogof, so doubling of sales rate is a minimum!)

So where do you get all the spare stock from? you make it in advance of course on overtime.

You store the finished goods in additional warehouses ready to go out but remember you need bigger warehouses. You’re going to sell 4,6 times what you normally sell.

Oh and you’ll need to store the increased amount of raw materials as well.

You’ll have to try to forecast  the demand across your different flavours and pack ranges e.g. if you only offer the 500 gram pack on bogof what happens to the 1kg pack sales? 

As the promotion runs, you may well need to run production for longer hours and incur overtime costs.

And the supermarket, well they need more space to put your products out there, they need more transport to get the products out, so you see this “free” promotion seems to be increasing the costs to every one but us, right?

The consumer in the meantime is building a nice little stock of “free” goods at their end of your product, which leads to two behaviours. 

  1. they don’t buy your (or your competitors) product for a while, they’ve got a stock at home.
  2. they end up throwing it out and they didn’t need that extra pack but hey it was free.

So what happens to your business at the end of the promotion?

Demand drops back and probably to less than before, the customers have got spare stock in their cupboards right?

Another competitor starts a promotion in the supermarket, be it another brand or the supermarket own label.

So now you have production lines with not enough to do, so what do you do? you go to another supermarket and offer a price promotion, yeah!

Here’s the quiz question again : Can (beer) you (nappies) think of (coffee) products (biscuits) that are (cereals) always (cordial squash) on price promotion in one (pet food) supermarket (toothpaste) chain or (deodorant) another?

I’m sure you can think of the brands.

So what might your accounting team say about this?

Well you’ve given products away for “free” and incurred additional overtime and storage costs, never mind the raw material you started with. So will they drive up the normal cost of the product to cover these costs and to make the “free products” less of an effect on your business? You can decide that.

The benefit of going to Every Day Low Prices is two-fold, in our opinion, based on Lean Management;

  1. The consumer only buys what they need and not any thing extra because it’s “free” – this is better for our food waste figures and our waist figures.
  2. The suppliers stop having to manage major swings in purchasing patterns, when in fact consumption is relatively stable. Do you really buy use toothpaste twice as fast because it was on BOGOF? So they get on with managing the costs in their business and can focus on reducing these.

So moving away from free products can have a major impact on the whole supply chain. It can reduce the costs and complexity of managing the chain and affects all of our waste [waists]. The reduction in costs can be passed onto the consumers but if you don’t pass all of it on, then your revenues may drop but your profit & margins can increase.

Starbucks Lean #2

From our search engine stats I can see that there is considerable interest in the lean programme at Starbucks. We wrote about it back here in our Starbucks Lean Improvement post and this one on Lean:Crossing the Atlantic with your Coffee and we could spend a lot more time writing and trying to understand the application and implementation of lean in Starbucks US, from over here in the UK.

However there are people closer to it, who “see” the reality on their visits to the stores, so if you are looking for insight on the latest lean thinking at Starbucks then can we recommend that you visit this page http://www.leanblog.org/2010/09/controversy-over-new-standardized-work-at-some-starbucks-stores/

Over at the Lean Blog, Mark Graban takes comments on the lean implementation from the Starbucks Gossip website and puts them into perspective, which can be afforded by an experienced lean practitioner.

So if you are looking for a good source of lean stories and the progress at Starbucks, you would be well advised to visit the Lean Blog and have a search around.

Does anyone know if Lean at Starbucks has landed on these shores yet? or when it is due?

Sir Terry Leahy’s Lean Commandments?

I came across these Ten Commandments for Good Management from a presentation given by Sir Terry Leahy, CEO of Tesco PLC, Fresh & Easy in the States, only one of them is called Lean Thinking but I think that I can easily make a case for six of them relating to a true lean journey. You might even be able to make a case for another two of his Ten Commandments to be part of the same journey.

For info Tesco started on a lean journey in about 1994, when a clear second in the UK Supermarket league, fifteen years later and they are almost twice the size of their nearest UK competitors and are making a go of it internationally.

Here are, a shortened version of the Commandments: (link to full article below)

Commandment Number 1: Find the truth – LEAN; Gemba

Commandment Number 2: Set audacious goals.

Commandment Number 3: Vision, values and culture are critical.

Commandment Number 4: Follow the customer – LEAN; only customers can truly value your products or services.

Commandment Number 5: Create a steering wheel – LEAN; Visual Management Systems

Commandment Number 6: People, process and systems – LEAN; Value Stream Mapping, waste reduction, & create flow 

Commandment Number 7: Lean thinking.  LEAN; I’ve left the full quote in here, ” Most think that lean thinking comes out of Just-In-Time manufacturing in Japan, but it can apply to anything from retail through banking. We apply lean thinking to the complete supply chain, and that is why we are more productive than most.”

Commandment Number 8: Competition is good (LEAN??; read Taichii Ohno’s book the Toyota Production System and you’ll find that they set out to learn and beat the US producers.)

Commandment Number 9: Simple beats complex – LEAN; Value Stream Mapping, Removing the 7 hidden wastes.

Commandment Number 10: Leadership (LEAN??; as he is quoted “So big organisations in order to be effective needs thousands of leaders, not just one”) 

If you want to read the full article, with all the details of the commandments then it can be found on the following website  Sir Terry Leahy’s Ten Commandments.

What do you think are 6 or 8 of the commandments based on Lean, can a case be made for all 10? or is that just trying to fit the data to support the model?

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Lean: Crossing the Atlantic with your Coffee?

Read the stories in the UK today about the latest Starbucks results and you’d be forgiven for having no idea that they are running a Lean Thinking improvement programme.

Starbucks managed to TRIPLE their profits, whilst increasing dramatically their Customer Satisfaction, so not a bad result by any measure, I’m sure you’ll agree.

The BBC claimed ” The firm has cut thousands of jobs and shut hundreds of under-performing stores over the past two years to trim costs”,  whilst The Guardian reported “When he [Howard Schultz] retook control, he checked the company’s breakneck expansion, took out almost $600m in costs, closed nearly 1,000 stores, mainly in the US, and shut up shop for a day to retrain its legions of workers.”.

I would say blink and you’d miss any reference to Lean, only there aren’t any, not in anything I’ve read, heard or seen today.

Type “Starbucks Lean” into Google news and you get exactly 1 Hit (22.30 GMT 21/01/10), maybe this blog will make it two?

We looked for references to lean as we wrote this post Barista to Fashionista  back in May, when we learnt of Starbucks foray in to Lean Thinking, and we were intrigued to find out what effect it had on their results.

Go to the Starbucks Earning Call and the fuller story comes out.

Troy Alstead, CFO, claimed that “US store operating expenses were 36.6% of total revenues, a 350 basis point improvement over last year primarily driven by the continued application of lean principles in our store operating model plus the effect of company operated store closures.” So admittedly not Lean on its own but the improvement is hardly just due to cost cutting and store closures. Note it was the CFO talking about it too, how refreshing is that?

Howard Schultz, Chairman of the Board, President & Chief Executive Officer and Founder, commenting on what Starbucks will do in their international markets ” Now that the US business has come back the way it is and we feel it is healthy and on solid ground we’re doing two things, one is we’re doing a comprehensive audit of all the things that we did in the US business that worked, that got our customers back, that put lean in our store and things that not only were consumer facing but also behind the customer as well…..a store, is a store, is a store and we believe that we can provide many of the opportunities throughout international that we brought to the US business.” So Starbucks are convinced that lean is part of their future in the US and Internationally.

Howard Schultz also commented on the vast improvement in Customer Satisfaction “I will point out here that we improved labor management and labor costs in our stores over the past year at the same time we have seen a dramatic improvement in customer satisfaction scores.” Now I can’t be certain but I’m not sure that closing stores improves Customer Satisfaction scores or that traditional cost cutting programmes often lead to improved Customer Satisfaction and as Lean is the improvement project Starbucks refer to then I’d chance a guess that it was Lean that drove up the Customer Satisfaction. Our experience at ResQ tells us that this often happens, along with all the other benefits. (faster customer service, order delivery, higher levels of output, improved quality, increasing employee engagement etc)

So if you’re a Starbucks employee or customer outside the US then it looks like Lean is coming to a store near you and you’ve nothing to be afraid of and if you’re a competitor, how could you TRIPLE your profits and improve customer satisfaction…………?

If you have any comments or questions on the blog above then please fill in the box or drop me a line

mark.greenhouse@resqmr.co.uk or check our website www.resqmr.co.uk

regards,

Mark

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BOGOF – it’s just not lean marketing

According to this story in The Times Tesco the UK grocery retailer is to drop Buy One Get One Free offers on food. Following Asda, who dropped these offers a while back and Sainsburys who have also announced they will reduce the number of offers.

Food waste in the UK costs the average household £420 and the average Britain throws away 3* their body weight each year in food.

So what does this have to do with Lean Marketing?

well the insights are in the pdf booklet on the 7 Hidden Wastes of Marketing, to find it, go to this page on Lean Marketing.   You’ll need to register on the site to get access to the papers, that’s just so we can see how popular it is, if you have any problems then please e-mail us and we’ll send you a copy of the paper. (info@resqmr.co.uk)

As a taster though (no pun intended) as to why BOGOF isn’t lean.

When you run BOGOF, you anticipate extra demand, sometimes 16* as much as your normal volume.

So how do you cope with this? you convert more of your cash to raw materials, to build the extra demand, next you might run production lines for longer or bring in casual staff, incurring overtime or additional labour costs, then you might build up a buffer of inventory stock for the start of the promotion, incurring extra storage costs becasue you can’t be sure where demand will go up first and by how much.

and for the pleasure of all this you have received half the normal revenue per unit sold, you didn’t assume that the supermarkets pay, did you?

All in all your costs have gone up and revenue per unit down, never mind you can console yourself that the consumer got Value (they paid less) only if the figures above for waste are to be believed did the consumer derive value or just guilt from throwing good products away?

and what happens when the promotion ends? yep you’ve guessed it your demand drops normally well below your normal volume, so now you have staff with nothing to do – except you have accountants who want the machines run, the people kept busy and the overheads absorbed, so you make to stock………..

and to clear the stock your sales and marketing team might decide to run a BOGOF with another outlet………..

and then your brand looks as though it is permanently discounted and the marketing team may decide they need to spend money on campaigns to address this in the marketplace and to re-establish the brand…….

How many brands do you recognise as always being on promotion somewhere??

Thanks for reading

Mark    http://www.resqmr.co.uk

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How to disappoint potential customers and increase waste – an everyday occurance!

Imagine you “buy” something for £200-300 for delivery on a specific date and you start to arrange other parts of your life around it, only to be told later “you can’t have it on that day, you’ll have to choose another” – how wasteful is that and how would you feel as the customer? 

Last week I booked my car in for its’ annual service. I booked it in with a national company and used their on-line booking service, I could have used the freephone number to contact the call centre, called the service workshop directly or even called at the garage in as I often pass by once a week.

Nonetheless I used the on-line service and I was curious when it didn’t give me a time for the service but asked me to bring the car at 8.30am and that I’d be told what time to pick it up then.

I feared I would be part of some large batch of customers all signing their cars in at 8.30 and early on this morning I wasn’t disappointed! I wasn’t surprised either when they couldn’t tell me when the car would be ready.

However when I booked on the Internet I specified what needed doing, the mileage, the registration etc and this was all on a nice neat form in the office. 

The guy booking in my car then had to transfer the details from the Internet booking systems on to a single sheet they use when carrying out the service, so I enquired why? he didn’t need anymore details than I had provided. 

Apparently the Internet system wouldn’t print out the sheets they needed, it never had done and so time was wasted transferring details to the sheets they actually use during the service.

I commented on how wasteful that must be every morning, at which point you may recognise the story; particularly if you’re a Lean practitioner, you start to get all the other problems. I was lucky! the Internet service and the call centre can’t see the diary for the garage so they have a set number of slots to book each day and give each one an 8.30am booking.

The branch staff however are busy servicing cars during the day, as well as booking in the direct phone-ins and the walk-in customers, only when they get a chance to go back to the office do they book in the Internet and the call centre customers for their slots in future days. Many times they find that the Internet and call centre have accepted customers for which there are no slots left and so the garage staff have to waste time ringing up customers who need to spend £200-300 gb pounds with them to move them to another date. You can imagine how that is met by some customers!

So to test this I was told in the garage their next available MOT (compulsory annual vehicle check in the UK) is next Thursday the 20th August. So I go online at midday today (12th August) and the internet will let me “book” an MOT on Monday the 17th August – why? there are no spaces left, the garage staff told me and how many potential customers will go on-line to make a booking for Monday to Wednesday next week and have to receive a phone call telling them they can’t have the date the internet part of the business said was free.

  • Why do companies let this happen?
  • Why do they let the waste of repeated form filling occur?
  • Why do they let the customers waste time booking appointments that they can’t keep?
  • Why do they let the first conversation between the service staff  and the customers, start off  “I’m sorry but……”

Maybe in this case, the car servicing companies feel that in this current recession, with car sales still depressed, many of us are electing to run cars for longer and therefore the need (not desire) for car servicing will grow.

They and their competitors will increase the volume of work and the revenues (the longer I keep my car the more expensive the servicing gets,  I find) they collect, they will prosper and they can just pass the costs of the hidden wastes on to the consumers. 

  • Was my original internet booking date changed? no but it could have been
  • Was I annoyed by the delay at 8.30? no  I expected a batching queue
  • Was I disappointed to find that they didn’t know what time my car would be ready? no I expected it

I’d planned my day around dropping the car off and being in my office sometime after 9 and that I should get my car back sometime after 5, I just lowered my expectations of the level of customer service.

Can I go anywhere and get better service? sadly experience means I’m not sure

Barista to Fashionista

It’s been a busy few weeks but these two stories came to me that demonstrate how the improvement techniques that Lean Thinking includes may be holding up in these difficult times.

They both relate to the application of Lean and business & customer led improvement in the retail trade – Lean Retail if you like.

  1. Starbucks To Test “Lean” Operations……   – apparently Starbucks are testing lean in some of their stores in the US. So next time you’re in the queue remember someone is trying to work out how they can improve the speed of service, the quality of the product and utilise green practices. What appear to be Starbucks staff seem to have a lot to say about this on the original blog posting, some them even sharing the ideas that have been tested so far; so I’ve posted an excerpt and a link to the comments at the bottom of this post. 
  2. As the lastest retail sales figures for February are released in the UK, a somewhat depressing picture is beginning to emerge – not really surprising when you consider that a lot of the major layoffs/shorter working time (Woolworth’s, Honda, Toyota, M&S, Wedgewood, the banks etc) didn’t start to kick in till January. 

The one ray of hope again appears to be Zara, especially when compared with similar companies in its’ sector, clothing. Two competitors, Next and H&M both posted reduced profits whilst Zara’s remained constant.

The excerpt from the BBC website stated;

“On Thursday, home improvements retailer Kingfisher said retail profit in the UK declined by £24m to £129m as it closed its subsidiary Trade Depot

Next said revenue and profits declined and that it expected sales to be negative for 2009 [revenue fell by 1.7% and profit by 13.9%]

Swedish retailer H&M, which has stores on many UK High Streets, reported a 12.6% fall in quarterly profit, blaming currency swings and lower sales

On Wednesday, the owner of the Zara fashion chain said its profits barely changed during 2008.   [Zara did actually record a 10% rise in sales as well, so they are attracting customers to spend more! – Lean Marketing ]”

You can read the latest performance press release as to why Zara is also upbeat about the rest of 2009.

So how come Zara are so holding up well? does it have anything to do with Zara being the Lean Fashion Leader?

As for the use of lean in Starbucks, well the quote below is from the comments on the blog, by a contributor named “JAVA JANE”  and gives and idea at to the journey they are starting on;

I work at a very large store in the NW – we started implementing Lean procedures last spring. The way it has worked for us:

We ran several “time tests” on daily processes, counting and timing each and EVERY step (making a frappuccino, ringing up and pouring drip coffee, making & storing prep, getting ice, whether the 4th register was necessary, sampling…) in order to weed out unnecessary steps. Also, we tried to rearrange certain stations to make them easier to use, for example, our cold beverage station was home to a couple of items that made more sense to keep at the bean counter or espresso bar as they were used there more often. Another example – we realized every time someone ordered hot tea, we were reaching around the brewing shuttles for the tea after grabbing the cup and then returning to the cup station to fill withhotwater…we just made room for the tea where the cups are. Basically – we stopped saying “It’s always been done that way” and started asking “Can that be done a better way? How?” We timed different methods of deployment, computed averages, came up with “lean” standards, and it’s been a great success! We definitely had some experiments that didn’t work, which is fine! You just have to be willing to change and go through a period of weirdness until it gets figured out. “

There are some additional posts from other contributors including a great one from ORSM, which details the first practices that have been trialled.

So whilst we can’t claim that Lean is the answer to all corporate ills, we do know that one Global retailer; who uses Lean and who is many years into the implementation has been able to maintain profits through this difficult period and another Global retailer has seen enough to give it a go! 

Could it help you?

www.resqmr.co.uk

 

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