TesGo. Are you prepared?

What does the potential sale of Tesco in Thailand and Malaysia mean for you?

Tesco have recently announced they are considering a possible sale of their operations in Thailand and Malaysia. Tesco trades in 1,967 stores in Thailand, and 74 in Malaysia; the businesses together generated sales of up to $3.3 billion in the 6 months up to August 24th. If you’re a supplier currently trading with Tesco in these markets, then this news could represent a substantial financial risk to your business.

Although pricing comparison across customers is less common in Asia-Pacific than it is in Europe, we have worked with our clients recently on several different international scenarios in the region. One of these examples was investigating the potential pricing exposure across Dairy Farm International banners and assessing where the key risks were from a market, customer, and product perspective.

So, what can you do as a supplier to get prepared?

Without knowing who the buyer will necessarily be, its all about being confident in your pricing. Do you know what the pricing differences are across your customers and markets? Can you defend your pricing positions across your customers and markets?

Here are a few suggestions:

Get absolute clarity of your data.

Compare invoice pricing across customers for your entire portfolio. This will allow you to get sight of and quantify the risk present in your business. You may also want to look further down the pricing waterfall and assess risk down to net-net level. You may find that the risk is small, in which case you may need to do nothing, reassured that you understand the situation. Or, you may find that there are some significant differences in pricing across you customers, and potentially between Tesco and some of your other customers which may be likely candidates for the purchase of the Tesco business.

Understand the pricing differences

If this is the case, and you have established that the sale of a customer, in this case Tesco, could represent a significant risk to your business, you need to understand what is driving those differences between customers. You need to review and compare your trade terms structures across both customers and ask yourself the following questions:

• How does the way that we do business with these 2 channels/customers differ, and is this reflected in the structure of our trade terms?

• What elements of the trading agreements are consistent; which are different?

• What conditions are linked to performance?

• Are conditions being applied consistently in both cases?

Ultimately you are trying to establish whether you can defend the differences which exist.

If you can defend your position, then you can stop here. You have established that price differences do exist, but they exist for a reason.

Or you might find, through your analysis, that the price differences which exist are indefensible, and therefore you need to make changes now to your customer agreements to put yourself in a more defensible position if the sale goes ahead.

Build your defence

You have acted early, so you have time to make some changes to your agreements to put you on a strong footing with the customer. You have a number of options here. Here are a few to consider:

1. Hold your customer to the agreement. Suppliers may have the right counterparts in place, but they do not hold their customers to what was agreed. And more importantly, when customers do not stand by what was agreed, payment may still be made. Now is the time to start enforcing your agreements, and when customers do not stick to what was agreed, don’t pay.

2. Renegotiate legacy agreements. When we ask our clients why certain discounts are applied we often get the response “I don’t really know, we have always paid that”. Terms inherited from previous account managers have gone unchallenged. Don’t accept the status quo, look to renegotiate these terms. Identify conditions which will drive a return for your business and build these into your agreement.

3. Realign discounts across customers. By looking across customers, you may find that some terms, e.g. logistics, are not being consistently applied. Take the opportunity to remove any further risk in your terms structures and make them consistent between channels and customers.

So, hopefully you are now in a better position to defend your pricing and terms. Taking proactive steps should turn this into an opportunity to grow your business, rather than a risk to your P&L. Why not establish a process to review your pricing and terms on an ongoing basis across all of your channels and customers, so that next time a customer sale takes place, you know you have defensible structures in place and minimised risk in your business.

At Acumen, we have been helping our clients for over 10 years navigate their way through customer mergers to come out the other side more profitably. We quantify and evaluate the pricing and terms risk, and work with clients to develop their customer investment strategy, whether that’s around profit protection or unlocking future growth.

If you are particularly concerned about this latest Tesco news, or any other potential customer changes, then do get in touch and we can share with you our approach and how we might be able to help.