Another Beautiful Idea

Sir Terry Leahy has told us that we are on the path to recovery. He should know, his Tesco Group sales are up by 8.3% to £30.4bn for the half yeat to the end of August.

I find it astonishing that he has grown so aggressively in a recession. Tesco pre-tax profit for the same period is up 8.6%. It would be easy to suggest that Tesco have grown as cost-conscious shoppers have been pulled to Tesco by the lure of lower prices. Would that be true, we would see corresponding drops in sales at the high end, like Waitrose, but I do not see the same correlation. Indeed, Leahy tells us that people have stopped trading down and the hardest hit sectors like 'finest' and 'organics' are recovering.

Meanwhile, out on the web there is a massive demand for 'shopping around'. Now many sites like Moneysupermarket.com, Gocompare.com, Confused.com and many. many more offer comparisons for like-for-like buying. This is not always effective with too many of them offering subsets of insurers' main products or low cost offerings only with premium sales only direct but they serve their purpose. If you just want to ensure your 3 year old Ford car, the chances are the comparison sites will serve you well. If you have a few points on your licence, no no claims bonus or some other unique, to be frank these sites are far less useful and brokers who still maintain direct relationships can get you bespoke help.

We can now compare car prices, electronics goods, flights, hotels - just so long as the source companies play ball. But one of the last main bastion of comparison remains in the world of advertising - supermarkets. Asda would tell us that they are bashing down the prices of staple things to the extent they tell us the number of lines they have decreased the prices on compared to others like Tesco. That, frankly, is misleading at best but it serves its purpose as people get the perception that Asda are better 'value'. However, would it not be great if we could have a virtual shopping trolley in which we put all the items we want and the brands we favour too and then, instantly, shop around to find out which stores can offer the best price on exactly the contents of that trolley.

No 'Bogoffs' or other deals, just straight forward 'bidding' if you like for that trolley's contents. The winning company may well then add in offers but basically it has to win the 'bid' in order to play.

In business to business sales, we have seen this go on for some time with electronic auctions for something as valuable as recruitment services for the next generation of employees - reverse auctions to see who will source talent for the lowest cost. It's madness but it has been effectively applied to many products and services across the board and is at the heart of long-winded, often ill-conceived tenders too.

Yet at the most basic commodity levels, companies like Tesco are actually making tremendous profits as they squeeze suppliers for the last penny and then make huge profits on the back of the consumers. Clever advertising gives the impression they are hacking down the cost of shopping when the reality is that their net profits are rising faster than their revenues - their net margins per sale are rising, not falling. The chances are, they are making more money than their suppliers and they are not passing through all the savings on the products they make.

Much like the principle of Google, who make far more on collecting news and presenting it to us than the people who write it, companies like Tesco are making fortunes on commodities that are cheap and basic, and just presenting them conveniently and well. Yet we, the consumers, have no way of driving a harder bargain - we have no way of saying, 'I will take my trolley elsewhere if you do not offer me a discount for my business' as any normal powreful buyer could. There are loyalty schemes - but if profits were being set aside for loyal customers then surely these companies would be making less. The fact remains, that we, the consumers, do not have a great deal of say in the matter.

There are some websites that offer rudimentary comparisons on specific foods. I have found www.mysupermarket.co.uk which compares the prices of some brand commodities from 4 major stores. It's pretty small beer to be frank and the number of lines it offers effectively just make it another marketing forum for those brands and the supermarket companies involved. It does not hand the 'power of negotiation' back to the buyer. And let's face it, Tesco is the brand leader whose market alone is over £60bn a year in products we buy.

Our spending power is enormous - perhaps it is time we got something back for this awesome power.

So here's a thought. Imagine my virtual shopping trolley and I fill it up with all my usual barnds of goods - foods, hardware, drinks and more. I then click a button and 'see' supermarkets and online shopping companies effectively 'bid' for my business. The basic thing they would need to do is to allow me to minimise the cost of my staple purchases - so the best offer would win. The offer may be swayed by the fact I live in a certain area so delivery or my travel has to be taken into consideration, maybe some extra loyalty points may be chucked in, but the essence of the idea is to drive down the cost of our staple weekly shopping trolley and make supermarkets work on our behalf rather than just their shareholders.

Once the trolly is bought, the winning 'bidder' would have ample opportunity to entice us to 'upgrade' or increment our spend on other items or offers - but their right to do so must revolve around their aggregate pricing on the staple goods in my trolley.

Could it happen? It would not happen if it were left in the hands of the supermarkets or marketeers. It would also never happen if big business got involved. This has to be entrepreneurial consumers who drive it, whose mandate is from all or many consumers. It has to be a collective thing where any profits are distributed back to those who subscribe through the savings they make. That would probably mean consumers signing up to a portal to have a 'trolley facility' and maybe paying a small fee each time they do like £1. Then they can use the facilities and get their savings. Meanwhile, supermarkets and online shopping companies would have to subscribe to the service in order to 'bid' for the trolleys, which would probably mean daily automated feeds of the latest pricing across all lines - something all computer distributors offer today on their own websites. Given moderm technology and computer software, this is not a show stopper.

Again, if anyone is interested in the idea, register at http://www.calxeurope.com/contact_us.html and make sure you put 'My Trolley' on your registration. At this stage it's a germ of an idea - tomorrow could be different.

The Internet Bubble Expands Again

I like to see what I am getting before I buy when it comes to groceries but I must admit you cannot beat the sheer convenience of online grocery purchases once in a while.

Like most people, my wife and I will sit down and do an online supermarket shop sporadically. We mainly use Tescos but once in a while we use Ocado because we like the Waitrose brand. Either way we always marvel at how little we have bought, how much of the same thing has arrived, how many items differ to the brand we asked for and the staggering price of so few goods. We often remark that we could have got a good trolley load for far less and ask ourselves where has the money actually gone when we online shop for groceries.

Such questions are more evident when we use Ocado. Focusing on the Waitrose brand, which itself is reassuringly damn expensive, the quality is a good deal higher than Tescos, we convince ourselves. Certainly, the meat and fish products are but often the cold meats and tidbits are nicer too. However, for the most part, the popular brands are the same across the board. But when the Ocado delivery arrives, a few bags seem to have cost an absolute fortune.

So I was surprised when I read yesterday that Al Gore's special 'green fund', Generation Investment Management, is part of a group of investors who have injected around £30m into Ocado, the rest has been stumped up by Fidelity Investments and the shareholders, of which the John Lewis Pension Fund is a large one. The fact is that over the years, Ocado has raised more than £350m and has around £100m in debt, much provided by Lloyds Banking Group. In response, Ocado's sales will be £450m this year and that is reckoned to be a whacking 20% of the online supermarket sector - which analysts expect to grow to £40bn over time. To date, Ocado has not made single penny in net profit and even this year its projections are for operating profit only. Similar outlooks abound for future years as it focuses on building market share before making profits.

Growth is beautiful, and focus on the topline.

Is it me, or is that the internet mantra all over again? You cannot beat grabbing market share in a growing market but reality sets in over time. Ocado may have 20% of the online grocery business today but that does not reflect its true market share in the grocery sector as a whole. Unless it changes its value proposition in terms of what it offers, as this market grows it will tend toward its natural market share, in my humble opinion. That, in time, might still make it some money. But Waitrose has a different bunch of investors or partners to answer to and this makes its narrow, high value shopping a brand itself and the partners like it. But in the cruel world of online retailing, cost may become the key as one of the greatest features of online shopping is the ability to compare prices over a range of shops - item for item. Today this is limited to insurance, travel or electronic goods largely but sites like moneymarkets.com and gocompare.com have a principle and model which is easily repeatable for a range of goods. So if you know what you like in terms of brands, in time, you should be able to easily compare which store is offering the best deals for your shopping trolley before you pay.

If all the clever advertising by Asda, Sainsbury and Tesco is anything to go by, then the online world of supermarkets will get very different in the future and competition will get vicious and cut throat. I believe Ocado is not particularly well positioned and I would focus on getting some money flowing in for the right reasons rather than for speculation. After all, we have seen this all before.

The internet boom is coming to the supermarket world. Pat your virtual bums and start shopping around.

Show Me The Money

All small businesses are exposed to the risk of slow or even no payments from clients. When you are a service business like mine, very often it is prudent to insist on upfront charges or faster payment. But sometimes, no matter what the contract says, if a large client pays late, there is little you can do but grin and bear it.

The inequity of the system is brutal as very often the very client who withholds money on you, is a company who has a cash business at the front end.

Large Companies Can Be The Biggest Sinners

I recently highlighted the problem showed in the Panorma Show where Boots plc had unilaterally, without warning, changed the payment terms for its suppliers.

I have experienced the same but without the courtesy of a letter - it just happened.

For most small businesses, while it would be great to actually slap a writ on a client, in practice it is not possible to get too heavy. A large client is, after all, providing a source of revenue and profit. However, this month things changed for me, when my largest current customer held payment on invoices dating back to before Christmas and has paid only the smallest invoices as a show of good faith which merely covered expenses not fees since. Having crossed the boundary of VAT due dates, I have now paid all the VAT on those invoices and without any cash in, so salary costs to my contractors and myself have been delayed.

However unacceptable I may think this is, and there have been plenty of urgent communications to get this sorted out, in reality I cannot get too angry and throw my toys out of the pram as they have shown in the past that they eventually pay, their credit rating is good and they are one of the lucky companies who are enjoying growth in recessionary times. It is the sort of client I can ill-afford to be without.

I suppose I should just thank the Lord my business is not dependent on the Public Sector who, despite the rhetoric of Mr. Brown, are the worst payers in business by a long chalk.

The Prompt Payment Code

The new Prompt Payment Code (PPC) was devised in and introduced in December last year. Any company can sign up to it and it is purely voluntary with no recourse in law - usual rules apply. Signatories sign up undertake to:

1. Pay Suppliers on time - within agreed terms at the outset of the contract, without attempting to change payment terms retrospectively and without changing practice or length of payment for smaller companies on unreasonable grounds.
2. Give clear guidance to Suppliers - by providing them with clear and easily accessible guidance on payment procedures and ensuring there is a system for dealing with complaints and disputes, which is communicated to Suppliers. Suppliers must be advised promptly if there is any reason why an invoice will not be paid within agreed terms.
3. Encourage good practice - by requesting that lead suppliers encourage adoption of the code throughout their own supply chains.

The PPC is being monitored by a festoon of organisations like the Institute of Credit Management, the Federation of Small Businesses and the Forum of Private Business. Sadly, none of these organisations have any real teeth and none have good membership from larger companies. The trouble often with such initiatives is that they look good on paper but because you do not have to buy in and cooperation of large businesses or Government Departments, then it is likely to fall by the wayside.

Our Worst Nightmare

I have been doing a lot of business in Italy of late and the one thing that strikes you is how businesses survive over there. Credit terms are generally understood to be 60 days at the very minimum but are often at least 90 days and more like 120 days and yet more with Government Departments regularly taking 6-9 months to pay bills. This, of course, has a massive ripple effect as it cascades through the supply chain. You might think that correspondingly prices are higher in Italy to compensate for this but the reality is the opposite - if anything, competition is more keen.

For companies entering the Italian market, if at all possible, do so via a partnership or Distribution and just make sure they are financially solid enough to manage your market on your behalf, even if that costs some extra discount as is likely.

Britain, in my opinion, is fast becoming the same way. Large firms are using suppliers as a source of credit as banks are not so easy with their money any more.

Spin And Guff

Professor Nick Wilson of Credit Management Research Centre at Leeds University believes the PPC is just PR spin both from the Government and the signatories and it has all been seen before. There have been similar attempts at codes in the past but Government did not get behind it and impose its rules - Government even withdrew funding for the Better Payment Practice Group which really said it all.

Wilson agrees with me - in his opinion, the situation has worsened considerably for smaller businesses over the last 10 years.

Your Rights

In 1998, the Late Payment of Commercial Debts (Interest) Act gave small businesses a statutory right to interest on money owed to them by large companies or the public sector and to claim debt recovery costs. However, it is a case of cutting off your nose to spite your face as few companies resort to the law for fear of losing their clients' business.

It is a real Catch 22 situation.

Naturally, when the rights were extended to big businesses, they had no problems enforcing it. For many smaller businesses, it means they are getting squeezed at both ends - larger suppliers giving them aggressive payment terms which they are penalised heavily for if they transgress while large companies refuse to hold to their payment terms who are their customers.

Also, a case in question is VAT payments. In the case when a large customer has not paid on time and you cross a VAT quarterly boundary, and if a large supplier has held off paying for 60 to 90 days, you can end up paying all the VAT without money coming in. The Government sees only you and not your customer, who they are happy in the same quarter to reimburse the exact same VAT you have charged them.

The system is a complete mess and penalises the company that has not been paid.

In reality, there is little that can be done about the situation. SMEs are right in the middle and we make up over 90% of the volume of companies in this country and account for 13m employees yet we have a minor say in how the process should run and no voice when it comes to large company customers and Government not paying.

Companies Signing The PPC

Notable companies like Asda, British Gas and John Lewis have signed the PPC code had little to say when contacted on the subject and this bears out Wilson's PR spin accusation. It's all for show. Asda, for one, has actually implemented some good schemes to help. They have won awards for their supplier schemes and 'Where's My Invoice?' is one which allows suppliers to go online and track their invoice through the Asda payment system to be able to tackle issues which may delay payment as and when they occur not when the money is overdue.

Real Experiences

The large customer I refer to has not signed the PPC and is not interested in doing so. Just this morning in answer to my latest protestations, an accounts clerk has asked me to send a Statement of Account, then having denied receiving it despite a read-alert warning telling me they had not only received it but read it, they then claimed they had not received any of the invoices despite me having read-receipts for them all.

Of course, calling them liars does not help the situation and may well jeopardise future business, but I don't think this is at all unusual for small businesses. We are at the mercy of the system and until Government actually puts their money where their mouth is on this issue like cleaning up the VAT payment scams, then we will always be at the bottom of the food chain.

I hope Lord Mandelson gets to read my blog - his ears should be burning at least!