David Rees: Editor's comment

All posts from: April 2013

Minimum requirement

Posted by: David Rees Mon, 29 Apr 2013

With sales growth so difficult to come by, retailers have switched their attention to the cost side of the equation in recent months. There are a lot of things within your control; energy costs, contractor costs and wastage can all be reduced by giving them greater attention, while wage costs can be at least controlled through management discipline.

But not everyone is helping. Despite numerous warnings, from retailers, trade associations and even ministers, the government has rubber stamped an increase in the National Minimum Wage. I’m not against hard-working shop staff getting more, and I’m sure that retailers would agree, but the timing of the rise is bewilderingly bad.

Any increase in the basic rate is barely affordable by the industry and puts pressure on retailers to increase rates across all the pay grades. After all, nobody wants to be known as an minimum wage employer.

And the macroeconomic argument is flimsy, too, as an increase in NMW doesn’t necessarily mean an increase in net disposable income for the country as a whole if working hours are cut to compensate.

Furthermore, just as the increase in NMW is announced, business rates are due, and grocery trade luminaries such as Booker’s Charles Wilson and ex-Tesco chief Sir Terry Leahy are both calling for business rates to be scrapped or at least reformed. It’s a double whammy against the double whammy.

So here’s the challenge for government. If you really think small businesses are the driving force for economic growth then you need to scrap business rates, or freeze the minimum wage, or both. You can’t keep pushing them up and expect the business community to deliver a miracle.

A One Stop solution

Posted by: David Rees Wed, 10 Apr 2013

An already momentous year for convenience retail just got bigger with the news that Tesco-owned One Stop is to trial a franchise scheme for independent retailers.

Franchising is not a new idea by any means, and there are some successful partnerships of this type in operation in the UK. But this one is different, and retailers will look at it differently, because although the One Stop operation is a clear and distinct brand and business unit, it still has Tesco behind it.

Whether a One Stop franchise turns out to be a good option for independents in the long run will obviously depend entirely on the business model. Here, the history of franchising in the UK convenience sector is mixed, to say the least. Most franchise schemes to date have been modelled on taking a slice off the top of the store turnover, which has proved to be a very unprofitable formula for stores where tobacco sales are high: the more tobacco you sell, the more money you lose.

I’m reminded of a conversation I had a couple of years ago with a 7-Eleven franchise retailer in a prime spot in the centre of Chicago. I found it stimulating, and not just because of the 24 varieties of freshly-made coffee available. His business model was based on profit share rather than turnover, meaning the brand owner had an incentive to make him commercially successful, rather than just grabbing as much turnover as possible, regardless of the margins (hence all the high-margin coffee).

Perhaps it’s time for all of us to wake up and smell the opportunities.

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