Kwik Save’s appointment last week of Philip Smith from Kraft Jacobs Suchard as group marketing director could signal a shift in the chain’s relationship with brand owners.
The chain, which is due to announce a plan to revive its fortunes in November, may choose to follow the path trodden by its rivals and slim down the number of its suppliers.
Buying more products from fewer suppliers leads to greater discounts. It would enable Kwik Save to return to its original strategy of being the place where you go for big name brands on the cheap. Taking on a marketer with Smith’s experience would help the chain return to a brand-led strategy.
Philip Smith has been at Kraft for ten years, and worked in a variety of roles including UK marketing director. In 1993, he went to Zurich, where he became vice-president for strategy and development. And he previously worked at Brooke Bond, JA Sharwood and Alberto Culver.
At the presentation of its dismal interim results in May, Kwik Save admitted that it needed a fundamental rethink of the way it marketed itself, and that it had called in consultant Arthur Andersen to suggest a few ways out of the impasse. Pre-tax profits had slumped by nearly a third to 44.2m and like-for-like sales slipped more than two per cent.
The chain has followed its rival supermarket multiples in poaching marketing talent from the world of fmcg. Safeway took Roger Partington from Nestlé-Rowntree, Sainsbury’s took on ex-Procter & Gamble man Kevin McCarten, and Kwik Save’s closest rival, Iceland, poached P&G man Andy Brent.
So far only Partington has had time to prove that fmcg brand values can be successfully applied to supermarket retailing. But the job to be done at Kwik Save seems more monumental than the others. Sainsbury’s has its own-label products and Iceland its frozen foods to differentiate it from rivals. But Kwik Save has just one weapon in its armoury, and that is its low prices.
Kwik Save’s problems are summed up by analyst Tony MacNeary of broker NatWest Markets. “Kwik Save no longer has a low cost base from which to operate,” he says. “Distribution is an obvious area where it is lacking. But it also needs to develop a proposition for the consumer – what should it do to pull in customers?”
The chain needs to lower its cost base. In recognition of this, it has brought back former buying chief Jonathan Smith who left the chain three years ago to work for Dairy Farm International in Hong Kong, which owns nearly one third of Kwik Save. Smith will be in charge of the supply chain, and has to find ways of making deliveries from warehouses to stores more efficient.
He knows Kwik Save well, though some analysts wonder how familiar he is with the technical world of logistics. Assuming Jonathan Smith can achieve greater efficiencies, there is still the question of how Kwik Save should be marketed to shoppers.
Its strategy of selling well-known brands at a discount worked well enough through the Eighties. While the superstore operators scarred the countryside with their ever-bigger stores and hiked up their prices in an orgy of greed (as David Sainsbury later admitted), there was always going to be a gap in the market for a chain which served the mass of low-income families.
But as the recession of the early Nineties hit hard, foreign discount supermarkets such as Aldi and Netto entered the market with their low prices and wafer-thin margins. The superstores hit back with new ranges of economy brands and the squeeze on Kwik Save began. Like Iceland, it has been caught between aggressive discounters and equally aggressive superstores.
There are two ways out of the impasse. The hiring of Philip Smith from the world of brand marketing, suggests the chain will return to its original brief of being the place where you go to buy brands cheaply. This would give Kwik Save a significant point of difference both from other discounters, which sell unknown brands on the cheap, and superstores with their vast arrays of own-label products.
Part of Kwik Save’s problem is that it has tried to take on the “hard” discounters with budget ranges and some obscure but cheap brands. But it has been caught out by its higher cost base, which means its discounts cannot cut so deep. Restating its position boldly as a brand store could help it battle against the discounters.
Another option is to take on the foreign discounters and introduce more own-label products and some obscure, but cheap, brands. There are rumours that the chain is looking at introducing a new range of own-label products to replace, or sit alongside, its “No Frills” range. But in a head-on fight with the discounters Kwik Save is unlikely to win.
One suggestion is for Kwik Save to reposition itself as a convenience store chain. Given that it has many stores in town centres, they could become the place where superstore shoppers “top up” their weekly shopping. Indeed, the chain has tried to introduce more convenience in some of its smaller stores. But for bigger Kwik Save stores, this is not an option.
Some analysts believe the chain could do well to offload some of its 1,000 stores, especially the older and tattier ones. There is some tension here between the City and management, which wants to keep a presence on as many high streets as possible. There is talk of Kwik Save disposing of some 200 stores.
If the supermarket returns to its policy of pushing brands, it will need to come up with some inventive ways of doing so. Its consumer promotions – at present, regarded as somewhat tacky – will become increasingly important to the strategy, as will advertising.
Analysts believe the two recent appointments are not the end of the management restructure sweeping through Kwik Save. Chief executive Graeme Bowler and finance director Derek Pretty will both have to prove their worth to the company. But as analyst Paul Smiddy of Crédit Lyonnaise Laing says: “Kwik Save has severe problems. It is not certain that the new arrivals will find the solutions any easier than their predecessors.”