P&H impacting Tesco Express...
6 December 2017
The failure at P&H came as little surprise to this in the sector, indeed they had been flailing recently and had to get further investment in order to keep trading.
As ever with suppliers and retailers, it's the stock that kills you. Once insurers deem you too big a risk to bother with, the suppliers won't supply you which means the end customers are then impacted.
Whilst Tesco/Booker isn't a direct cause of the ultimate failure of P&H, it certainly didn't help the longer term outlook for the chain. Especially as P&H count Tesco Express and petrol stations as their end customers, any investor, having seen the wider implications of Booker being integrated in to Tesco would have felt the longer term picture seemed far weaker.
Not just the potential for losing a big client in Tesco, but also the strengthening of Booker/Tesco as a wider organisation, with the cost savings to be realised by the enlarged chain potentially involving transportation and various 'synergies'.
So with that in mind, P&H ran out of road somewhat and the rumoured bid from Sainsbury's came to nothing, as did various other potential deals which meant that the writing was then on the wall unfortunately.
Any failure like this will have been planned for, with P&H supplied lines likely looked at by the likes of Sainsbury's and Tesco, to mitigate disruption and ensure that there is a near seamless crossover if the business ceases to supply.
We know that happened last Friday so plans will have been enacted by the end customers, however there is only so much that can be done until new suppliers are found.
The focus is likely to be on Cigarettes initially given the value of that category to c-stores like Tesco Express, but P&H also delivered some Frozen lines in to Tesco Express - the impact of this was seen yesterday. Whichever way you look at it, = missed sales.
Resolving this isn't easy, other suppliers will be available but will be running at an above average level of capacity given we're near Christmas and stock is starting to flow in to stores.
Tesco themselves now have fewer depots than they did of course, and Express are not always simple to deliver to given delivery restrictions, awkward car parks / delivery areas and the smaller wagons too.
The impact on Frozen was near instant, it's not a huge range in Tesco Express, functional is one term but it serves a purpose.
Larger stores have some excess (though, not a lot anymore with working capital savings) but even that wouldn't tide them over particularly.
Within Express, it is difficult as even if Tesco had managed to send Frozen via their wagons with additional stock. Where would the stores keep it? Any backup area will be small which is why "JTI" (just in time) deliveries work.
Equally P&H covering the Frozen angle means that Tesco don't necessarily need wagons that run at -20, as they only deliver chill and ambient.
All cost savings that add up of course, once saved, banked then it becomes part of the operation. For Tesco to have to adjust their operation with a new supplier/partner becomes very difficult given the c-store model. This is before we consider capacity challenges as we had towards Christmas....
There was Ice Cream in stock at least though....
So whilst impacting the customer, it is worth considering the Tesco challenge here too. Never easy, but a number of variables mean that it's doubly difficult.
Not that any competitors will mind too much, there's a good chance for the Co-Operative and others to capitalise within these categories.
Now in some Express stores, or indeed some c-stores generally, I take the point that without the sign being there... It could like just another day at the office.....
However the sign notes 'supplier problems' and of course, the Bakery range in Express is Frozen bake off which also come via the Frozen delivery. An impact that was perhaps not thought about......
However one could argue that Cigarettes being out of stock is a problem, as is core Frozen but the Bakery, and the halo effect that can generate around Freshness and impulse selling is demonstrable.
No stock means no sales naturally, but on Bakery it could well represent a sizeable hole in the takings and certainly, see customers switching to other retailers given the absence of fresh Bread here.
An impact that Tesco and co will mitigate, but it was striking, with the shortened supply chains, just in time stocking principles and the lower cost to operate - all of which has strengthened margins and brought costs down...... Just how much a failure can impact the operation, even in areas that perhaps weren't considered - such as Bakery.
You can't defend against this either, no sense to hold a load of excess stock (even with space) just in case a supplier fails.
The customer is being impacted, so close to Christmas is never a good thing... No one wants to actively send customers looking elsewhere, after all, they may not return!
From the Grocery Insight newsletter archive, first sent to subscribers on 6 December 2017. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.