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Marketing Society - Retail Forum 2007 -Nothing to whine about at Majestic
Archived article dated Thursday September 27th 2007
The unique business model of Majestic Wine will lead to it this year reporting its 15th unbroken year of unbroken growth, according to its chief executive Tim How, who was speaking at the Marketing Society Retail Forum in London this week.
By Glynn Davis
How explained how its edge-of-town stores (with rentals of only £15 per sq ft), its policy of only selling a minimum of 12 bottles, along with its extremely knowledgeable staff had helped it to grow its market share despite the intensive competition from the supermarkets.This combination of factors has enabled it to compete both on price and with its competition-beating range. “If you can't compete on price then you can't win. Others
This has enabled the company to grab a three per cent share of the UK wine market, which although credible says to How that there is plenty of opportunity for growing the business further in the UK. But to get there How recognises that the company has to “talk to a broader audience” than those people it has been communicating with to date who have broadly been knowledgeable about wine. “This will be good for those people used to shopping at supermarkets,” he says.
If it can tap into the typical supermarket customer then this will represent a massive opportunity as the multiple grocers account for a hefty 75 per cent of UK wine sales with Tesco alone bagging up to 40 per cent - depending on whether it is running any major offers.
To grab some of this business How says the company will be “extracting more value from its database”. Within this it holds details of everybody who has bought in its stores and its online site along with a record of their purchase histories.
To date Majestic has simply mailed these people with a price list and brochure four times per year but this will change from next week when the company distributes its first targeted promotional mail-out - with a 40 per cent discount offered on rose Champagne to those customers that have bought such a product in the past.
Majestic has also increased the size of its database of email addresses (to 150,000 - up 50 per cent on last year) from people who have ordered through its website - this makes up seven per cent of total sales and is growing rapidly.
Online orders are distributed to the store nearest the customer and the goods are delivered directly from that outlet. Each unit therefore effectively acts as a distribution depot that uses its own dedicated vans, which is vitally important according to How: “We own the last mile as we deliver via our own vans so we don't rely on white-van-man to deliver for us.”
This arrangement is made possible because each store holds up to 12 weeks worth of stock. This in turn negates the need for the company to run a large central distribution warehouse. It only operates a single warehouse of a mere 25,000 sq ft.
Sales to pubs and restaurants - which account for 25 per cent of group sales - are also distributed from each store and as with online sales they are added to the store's total sales numbers thereby contributing to the store's performance targets. “All online and business orders are fed through to the stores and are related to the bonus structures. Everybody needs to share in our success,” says How.
Tesco Direct still learning the catalogue game
Tesco has just launched its second non-food catalogue and is rapidly rolling out ordering desks to 200 of its larger stores ahead of Christmas as it expects its 'Direct' business to deliver strong incremental non-food sales during the fourth quarter.
Despite such expectations Steve Robinson, chief executive of Tesco Direct, suggested at the Marketing Society Retail Forum 2007 in London this week that the company had “not yet got its head around what being a catalogue operator is about”. He adds: “It has not been quite sure, but is now on the cusp of it starting to get into the DNA of Tesco, especially within non-food”.
This might be partly down to the fact that the launch of the first catalogue in March was “quite difficult”, according to Robinson, with the entire Tesco website going down briefly when the Direct element was 'switched on'.
But with the second catalogue (with double the run-rate of the first expected) Robinson says the large stores are now very keen to have Tesco Direct desks installed as they only require 1.5 people per day to run while delivering serious levels of incremental sales.
Crucially they do not cannibalise store sales because while a large 'Extra' format store will stock 2,000 non-food items the catalogue contains 12,000 lines. And as Robinson points out, there are only 100 of these hypermarket-style stores around the UK.
He says the catalogue has given Tesco the “perfect retail” model. For instance, for a £700 camera there might have previously been one displayed on the shop floor and another one held in stock in each store. This would, however, have been problematic as the supply chain is more suited to distributing baked beans so there would have been a high chance that damage could have occurred. In addition, the camera in-store would have been the target for theft or likely have been damaged through customer use.
In contrast, with the catalogues Robinson says as few as three cameras can be held centrally and then only delivered out to the store when an order has been placed.
Tesco Direct has also sought to improve delivery over its rivals in the industry by providing two-hour time slots (for as many as 8,000 products in the catalogue) and reduce lead times for bulky items: “Having to wait 10-to-12 weeks is utter nonsense. Why wait for manufacturers? Instead we take stock into the warehouse so we can deliver in five-to-10 days.”
The ability to provide such a service has only been possible, according to Robinson, through Tesco's decision to handle as much of its Direct operation in-house as possible. “To be successful on the internet in non-food you have to have total control with as much ownership as possible,” he says. This involved leveraging the existing skill base within Tesco and importing experience in those areas that were new to the company such as photography for the catalogues, catalogue production, single-item picking and courier management. It only outsourced a small number of tasks such as courier delivery, large item delivery and fraud detection.
To date Robinson says this strategy has resulted in some “very good” feedback from customers and a rapid climb up the rankings column of the most visited websites. This success has prompted the likes of Argos to copy Tesco's next-day-delivery-as-standard policy and hardware retailer Wilkinson to copy its catalogue design. But it will no longer be able to call upon the services of Robinson who last week handed in his notice at Tesco.
Tagged as: marketing society | glynn davis
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