In the UK, Tesco has got its hands on a chain of small independent retailers. The small shop is being reincarnated due to more spread-out consumer behaviour.
The convenience store market has attracted greater attention since the announcement of the acquisition by Tesco of the Booker chain in the United Kingdom for EUR 4.4 billion. This transaction should enable Tesco, which is beset by strong competition from other supermarkets, to diversify and become a big player in distribution to both private individuals and businesses.
Announced at the end of January, this acquisition should take effect in late 2017 or early 2018. The reasons that lead Tesco to Booker are clear: the group already represents 30% of the British grocery market and this share could increase by 2 or 3% once the acquisition has been validated by the shareholders.
This represents a shock wave in the UK. 80% of the 41,000 convenience stores in the UK were previously fully independent, or part of purchasing groups such as Costcutter and Nisa. These groups continue to play a big role on the local market, holding a substantial share of the food market: EUR 44 billion out of total sales of EUR 210 billion.
The Saturday food shop is a thing of the past
According to IGD, the market share of the small grocery should see growth of 11.7% in the next five years. This growth may be surprising, but it can be explained by a change in British habits. People are moving away from doing the weekly shopping in big supermarkets and instead go shopping more often when they need to, behaviour known as 'top-up shopping.'
"Our revenues have always been satisfactory, but there is now a lot more competition on our market and our margins have really reduced over the last few years," explains Vijay Patel to the Guardian, an independent retailer since the 80s.
He confirms the trend for the small shop:
"I used to know 98% of my customers by name. Now I would say I know about 50%. I see new faces all the time, but customers are also less loyal."
Joining with Tesco should give Booker breathing room. Around a decade after Aldi and Lidl set up shop on the English market, competition has grown fierce for small retailers.
Export plans? Make sure you talk to our experts first
To prepare your international adventure properly, ask yourself the right questions and talk to people who have done it all before: partners, customers, fellow exporters and experts.
BNP Paribas Fortis listens to the questions asked by international entrepreneurs and offers reliable advice. "A lot of exporting companies ask for our help when it's too late", Frank Haak, Head of Sales Global Trade Solutions, says.
Entrepreneurs with little export experience are often unaware of the bigger financial picture. So what do they need to take into account when they set up a budget for their export plans?
Frank Haak: "Budgeting and pricing are affected by a lot of crucial factors: working capital, currency exchange risks and currency interest, prefinancing, profit margins, insurance, import duties and other local taxes, competitor pricing and so on. We always advise customers or prospects to start from a worst-case scenario. Quite a few companies are insufficiently prepared for their first international adventure: they see an opportunity and they grab it, but quite often disappointment and a financial hangover are not far away.
Our experts have years of export experience and the BNP Paribas Group has teams around the world. This means that we can give both general and country-specific tips. Let's say a machine builder wants to design and manufacture a custom-made machine. We recommend including the machine's reuse value in the budget: can this machine still be sold if the foreign customer suddenly no longer wishes to purchase it or if export to that country becomes impossible due to a trade embargo or emergency situation?"
What type of companies can contact BNP Paribas Fortis for advice?
Frank Haak: "All types! Entrepreneurs are often hesitant to ask for advice. Sometimes they are afraid that it will cost them money. However, the right advice can save them a lot of money in the long run. For example, we recommend a letter of credit or documentary credit to anyone exporting goods to a foreign buyer for the first time. This product is combined with a confirmation by BNP Paribas Fortis to offer the exporter the certainty that it will receive payment when it presents the right documents and to assure the buyer that its goods or services will be delivered correctly."
The consequences of not seeking advice: what can an exporter do in case of non-payment without documentary credit?
Frank Haak: "If you are not receiving payment for your invoices, the counterparty's bank can be contacted in the hope that it advances the payment on the customer's behalf. However, we shouldn't be too optimistic in that respect: the chances of resolving the issue without financial losses are very slim. Once you have left your goods with customs, you usually lose all control over them. Hence the importance of good preparation: listen to and follow the advice of your bank and organisations such as Flanders Investment and Trade (FIT). It will protect you against a whole host of export risks."
BNP Paribas Fortis
- is the number one bank for imports (approx. 40% market share) and exports (approx. 25% market share) in Belgium (according to the statistics of the National Bank of Belgium): it offers advice/financing and can help you to discover new export markets through trade development;
- is proud that Belgium is one of the world's 15 largest export regions and is pleased to give exporters a leg up, for example by sponsoring the Flemish initiative ‘Leeuw van de Export’.
Source: Wereldwijs Magazine
E-commerce: the 3 steps to success
Which stages should a company that is venturing into e-commerce go through? And how do you avoid customers and employees getting stressed and frustrated in the process?
Phase 1: managing the channel conflict
When a manufacturer, distributor or importer starts selling the products they previously only sold to shops online themselves, the shops may experience that as a channel conflict. Their supplier has now become a direct competitor benefiting from low start-up costs as well as more customer convenience. But does the supplier have a choice? If the supplier does not sell online, some customers will go to a seller who does. The solution? Benny Sintobin, Manager of e-commerce specialist Frucon²:
"The channel conflict is a perception debate that is more emotional than rational. E-commerce is unavoidable, so you had better adjust. The roughest edges of the channel conflict can be smoothed out by being a ‘friendly’ online store. With that I mean that you have to approach it correctly, with empathy for the party that may be at a disadvantage. You have to be bold enough to tell the customers of your distribution channel in advance what you are planning and which rules you are going to follow. If you start up everything on the quiet, you will cause frustration and negative emotions."
And these are totally unnecessary, because the new situation can be favourable to the distributor or shop as well. The distributor's online sales channel can also refer to his customer's website or shop, for example. Benny Sintobin:
"Take a bicycle manufacturer offering bicycles to customers online, for example. The website could allow consumers to combine certain materials and colours online in order to create a personalised model. The bicycle can be sent by courier, but can also be delivered to a retailer near the customer for the customer's collection. In that case the retailer will have to be satisfied with a smaller margin and the fact that he has gained a new customer, who will come back later to buy a helmet or a bicycle bag or to have his bicycle serviced. The other members of his family will follow his example for their bicycles and accessories. That way everyone wins."
Downward price spiral
When you say channel conflict, people almost automatically think about a price war between shops competing with online sales channels offering the same products at a lower price. According to Benny Sintobin it is therefore important to put a fair, correct price on the products:
"When manufacturers engage in e-commerce themselves, they set the product's retail price. The price is there online in black and white. In that case shops can rarely afford to charge a higher price. That is why the pricing must be correct, so that shops can still earn a living.
In practice a channel conflict often causes the reverse phenomenon: it is usually not the manufacturer, but the shops starting the downward price spiral. That is in fact the biggest threat to e-commerce: the shop trying to hurt the supplier. Major players striving towards market dominance can afford to destroy their profit margins. However, smaller manufacturers and brands cannot compete in such a price war. This proves once again the importance of making good e-commerce arrangements."
Phase 2: geographical expansion
Once the channel conflict has been well and truly digested, it is time for the next phase: tapping into new markets. For larger SMEs e-commerce is often a perfect way to gain more of a market share. For example, take a Belgian brand that achieved a nice market share in Belgium by selling in retail points as well as through its own online sales channel. Perhaps the brand has developed some brand awareness abroad through a couple of shops in the capital, for example. Benny Sintobin:
"In that case it is entirely possible that some consumers abroad know the brand already, but are unable to get to the shop because of the distance. It would be very unfortunate not to take control of that potential channel yourself and to leave it to Amazon, would it not? Online your products are available to all customers. Conclusion: expansion abroad with an e-commerce channel could be the first low-hanging fruit that is therefore easy to pick."
Phase 3: reinventing your business model
The third phase in e-commerce is a leap in the dark. Company thinking is traditionally product-, market- and wholesale-oriented. Take a company manufacturing or importing pots and pans, for example. That product is part of the world of cooking and dining, but still the sales strategy traditionally focuses completely on the product. However, the online activities offer opportunities to change tack and create an entire world around the particular product. You can work with other companies in that respect: a publisher to create content about dining, a candle manufacturer, a herbs specialist, a table linens manufacturer, a supermarket offering home delivery, etc. Benny Sintobin:
"Around Valentine's day or other key moments of the year you can create content and an entire world where those pots and pans belong. In that case what you sell online becomes more of an experience than a product. The effect is further strengthened if each of the partner companies present that experience on their sites as well. That way you enter each other's customer base and target groups. And you also immediately make sure that your social media really start to work for you. Consumers will tend to like a Valentine's experience more than just a set of pots and pans. In other words, you become a "love brand" rather than just an everyday product."
3 damaging e-commerce blunders
- You fail to inform the customers of your distribution channel of your e-commerce plans and you do not agree on clear rules. Clear arrangements make good business partners.
- You fail to gain sufficient support from all your company's employees. Non-believers and sceptics are best convinced with figures and orders. And you should make sure that dreamers keep both feet on the ground: Rome was not built in a day.
- You focus on bonus systems rewarding targets in a single sales channel. Commercial employees getting a little extra for the sales figures in actual shops are not happy with rising online sales figures, even though they benefit the entire company.
Do not miss the e-commerce boat!
Belgium is rarely ever first in embracing new technologies and their commercial possibilities. The country is not exactly a pioneer in e-commerce either. Unfortunate? It is!
First of all, it is a missed commercial opportunity. What is more, Belgian businesses are at risk of falling so far behind that it will become difficult to catch up. Compared to foreign web stores, the Belgian players are small: the large online stores are usually in foreign hands. The web store names may end in ".be", but behind the scenes you will find companies based in Belgium's neighbouring countries, the UK or the US.
According to the retail federation Comeos, this is partly because Belgian e-commerce is battling foreign dominance with unequal arms. Labour costs and VAT rates are higher here, for example.
Shopping without borders
Until now it has mainly been the European and US web shops doing well. If the Chinese web shops become equally popular, Comeos fears the trend will become unstoppable. The market will be flooded with extremely cheap gadgets and electronics at bargain prices. Fakes? Perhaps. With a guarantee? Who knows. The fact is that Belgian and European web shops are already becoming nervous.
"This is not without reason," according to Benny Sintobin, who has been running his own web shop for twelve years. His company Frucon² also designs and manages online sales channels for other companies. “E-commerce is global and super local at the same time. Global, because the competition is becoming worldwide. A young man from a small village in Belgium can see a longboard by a graffiti artist in California and buy it online. Logistics models will further adjust to this globalised trade. The price war is also constantly intensifying. As a brand, you had better be ready to join this worldwide game.
Super local means that you can order a loaf, some milk and some cheese at midnight and have those products ready for you at your front door at half past six in the morning. Just like in the good old days when the milkman made home deliveries, only the note on the door for the milkman has now been replaced with an electronic order. Something like that can only be organised super locally."
Waiting is no longer an option
At the moment people are afraid of worldwide competition, but fear is a poor advisor of course. The market is gradually evolving towards more e-commerce. Nobody can stop this trend. In some sectors almost half the products are now sold online. Tourism is a classic example of a sector that has taken to the internet like a duck to water. Other sectors, like household appliances, have a more modest e-commerce share for now, but this can change quickly. Even products you may not expect to do well on the internet are being sold online more and more. Take the fashion sector, for example. Clothes involve pure emotions, and colour and fit are hugely important, and yet e-shops for clothes are doing extremely well.
Internet giant Google has even predicted that in time, 40% of B2C transactions will be online. An important part of this will involve reservations, where an order is prepared in store for collection by the consumer. Another part will be actual home delivery.
Companies have to keep up with this trend, and by that we do not just mean the multinationals. A sense of size and scale is necessary, though. According to Benny Sintobin, the calculation is a simple one:
"Imagine a company achieves a turnover of 10 million euros in a sector where 5% of sales are achieved in web shops. Let us say that the e-commerce potential of the entire sector is 10%. Then the company primarily has an e-commerce potential of 1 million euros. You also need to take into account that there will be a channel shift during the start-up phase, whether you like it or not: customers who are used to buying in an actual shop will now make some of their purchases online. It is swings and roundabouts... except if you can increase the online margin."
4 reasons why customers buy online
- 40% (!) because of the price
- 20% because of the convenience: choosing, ordering and delivery at home
- 20% because of its uniqueness: much wider choice, opportunity to personalise, etc.
- 20% because of the availability: all models, colours and sizes are (almost) always in stock
Brexit – how should you prepare for it?
The last word has not yet been spoken on Brexit. As things stand now, the UK will leave the European Union on 31 October 2019. But how will separation work in practice? Belgian companies are preparing for Brexit as best they can, but no one knows what will happen after that date...
What is the current state of play?
On 31 October 2019, at midnight, Europe and the United Kingdom (England, Scotland, Wales and Northern Ireland) are set to go their own way. This is the projected outcome and deadline, unless the situation changes unexpectedly. The impending separation has already been discussed in detail by the EU and UK negotiators so that the process proceeds as smoothly as possible... The negotiations of November 2018 produced a draft withdrawal agreement that provides for a transition period until 30 December 2020 in which EU legislation will continue to apply in the UK so that there is some type of status quo for the business world.
And what if the agreement is not ratified?
This is the cliff-edge scenario, a hard Brexit. In that case, EU legislation will no longer apply in the UK on the morning of 31 October 2019 and only the WTO (World Trade Organisation) rules will still apply. Of course, there is nothing to stop both parties to make trade agreements (with or without a free trade zone and cooperation between customs services), but that will be after October 2019. What we can conclude from this in any case is that a new period of trade will commence, on 31 October 2019 at the earliest and 1 January 2021 at the latest. This will have direct and indirect consequences for many economic players. UK Prime Minister Boris Johnson has stressed that he wishes to leave the EU with an agreement, but has already rejected the conditions of the previous agreement. The EU is no longer prepared to renegotiate. If, after the summer recess, there is a motion of no confidence by opposition leader Jeremy Corbyn, new elections and a referendum cannot be ruled out. These will undoubtedly extend beyond the date of 31 October 2019.
Understanding the full extent of Brexit
Do you export or import products to and from the United Kingdom? Brexit will affect the transport and supply of goods (logistics chains) the most, particularly because of additional customs formalities, other tariff systems, the introduction of quotas and border controls. Do you employ people who work or provide services in the UK or are you planning to set up a business there? Do not underestimate the impact on the circulation of capital, access to public procurement or investment, the protection of intellectual property and all matters relating to competition. Overall, therefore, we can say that Brexit will have onerous, sometimes unexpected and above all... inevitable consequences. In other words, preparing yourself for the best – but also the worst – possible separation scenario is essential.
Proactiveness and the right questions
What should you do first? Obtain information and analyse the risks (and opportunities) for your company. What part do your UK trade relationships play in your business? What are the potential financial consequences (customs, VAT, exchange rate risks, and so on) of Brexit? Which UK rules will apply to your activities or products? What contingency measures can you take to respond to unforeseen circumstances (diversification of the markets, revising agreements, and so on).
Finding the right channels
A number of agencies are getting ready to support companies in the run-up to these decisive deadlines.
- The Federal Public Service Economy (FOD Economie), for example, has developed a Brexit Impact Scan to clearly determine whether your company will be affected by Brexit or not.
- If you have any questions about customs, excise duties or VAT, we recommend you first read carefully the letter the tax authorities sent to all companies that will be affected by Brexit. The Federal Public Service Finance is always ready to help you, especially if you export goods to the UK, because you need an EORI number, among other things.
- You can also contact the regional authorities responsible for foreign trade: AWEX in Wallonia, Hub in Brussels and FIT in Flanders.
- At EU level, the Commission has published 77 industry fact sheets to help economic players prepare for Brexit.