Archive for September, 2014

Why Profits Matter

tesco2Is a supermarket company entitled to make a profit? Of course it is. Does a supermarket company’s adoring public care about the profit the business makes? You bet. How do customers get to hear about a supermarket company’s profits? Well, if the supermarket company in question is listed on a Stock Exchange and is therefore obliged to follow forecasting and reporting rules stipulated by that exchange, then the answers to all sorts of questions, including the ones about profit, can be found in the paper and on the web.

The Tesco finance team appears to have temporarily misplaced its abacus.  Tesco has overstated  its half-year profits by £250million was. Analysts suggest this to be  ’principally due to the accelerated recognition of commercial income and delayed accrual of costs’.

Aha! Here are my 5 pence worth.

‘Commercial income’ is retail-speak for money generated through supplier deals, be that case allowances, shelf allocation fees, weekly promotional activity or catalogues. The term ‘accelerated recognition’ suggests that monies handed over by suppliers amounted to less than was contained in the forecast at the beginning of the financial year. And the only way that can occur is if the supplier agreements are incentive based; i.e., determined by the volume of stock the retailer manages to move through his promotional activities.

Why would a retailer not be able to move the amount of stock they had forecasted? How about – because he is loosing market share…

A retailer’s accounts are finely balanced between the money he pays for goods, the price he charges their customers, the fees he can demand from his suppliers for granting improved access to shelf space in numerous variations, the competitive position taken in the marketplace and market share percentage achieved. Wheels do not come off overnight. But when the first wheel is as loose as it appears to be at Tesco and if the operator is as significant as Tesco, then a fundamental shake-up of the market place is not an unrealistic expectation.

What is next – the Food Police?

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No, it is not April Fool’s Day. I wish!

It seems that when they were not busy debating the pros and cons of Scottish independence in recent months, the UK authorities have been contemplating the introduction of a Food Police. The Netherlands and Denmark have had Food Crime Units for some years now and there seems to be support for introducing this in the UK as well.

An independent report into food supply network integrity was published in the UK in July 2014 and Food Safety News obviously has a take on the matter too.

Last year’s horse meat scandal appears to have been the last straw.  The Dutch Food Crime Unit alone is reported to have 100+ investigators, so they know how to keep themselves busy by the looks of things.  What are the odds of MPI catching up with these latest European Developments and presenting us with our own  home grown New Zealand version?

The mind boggles.

Russia here we come

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Geopolitics and fresh produce can be strange bedfellows at time. The EU slapped a few selective sanctions on Russia’s Vladimir Putin and his merry band of oligarchs and what did Putin do in return?  He prohibited the import of a range of goods, including fresh produce, from countries which he no longer considered to be friendly towards Russia. Australia appears to have earned Mr Putin’s displeasure but little ol’ New Zealand is clearly not on his radius, so our fresh food exporters are scrambling to see how the Ukrainian crisis can be turned into a windfall for our agri-exports. Cheese got a mention in dispatches earlier and now New Zealand cherry growers seem to have fixed their eyes firmly on Mother Russia.

In this informative freshfruitportal.com article, the cherry industry’s two principal challenges are highlighted –  these being rain and air transport capacity. So it might be a little while yet before we are supplying Russia with cherries by the plane load. But the messaeg is very clear. Our Asian markets represent enormous growth potential already, temporary windows of opportunity can arise when regular supply partners have a falling out, but we do need to get on top of our quality and logistic issues in order to truly take advantage of any opportunity that may present itself.

Just as well Russia can pay with the folding stuff these days.  We wouldn’t really want to start exchanging food for Ladas again…