Paul Howard, head of group insurance & risk management, J Sainsbury plc, chaired the discussion
Val Butroyd, risk & underwriting manager, group risk and insurance department, the Co-operative Group
Andrew Bye, interim head of group risk & insurance, Home Retail Group plc
Richard Longster, claims team manager, ASDA Stores Ltd
Paul Williamson, UK marketing manager, Munters
John Windsor, head of insurance, Marks & Spencer plc
Paul Howard: From a retailer’s perspective, brand is probably at the forefront of most of the things that we are considering today – what is the impact on our brand from an interruption to our supply, or from selling a particular type of product. Perhaps we could start by looking at some of the issues surrounding brand, reputation and trust from a retailer’s perspective.
John Windsor: I am not sure what people such as ourselves, as insurance and risk managers, can do to protect the brand. It is the role of everyone within our companies to be thinking about the brand. Our brand is probably the most important thing in our business. If we lose our brand loyalty, we lose everything. Fortunately, my own organisation is in a position of having very strong brand loyalty, which probably saw us through the bad years that we underwent. We have now come through them, having maintained our brand and our loyalty.
I do not know, however, what we, as risk managers, can do to protect brand. All that we can do is to ensure that we do our jobs properly, as far as we can, to influence our risks and to make sure that we do not have large or repetitive claims. When we do have a claim, we should ensure that we deal with it promptly. From our perspective, customer and employee claims need to be dealt with quickly and fairly. As far as customer claims are concerned, we deal with them mainly in-house, quickly and sympathetically. It is obviously economic for retailers to deal with as many things as they can in-house.
Paul Howard: When you are looking at a service provider, such as an insurer or a claims handler, what would you expect them to adopt?
John Windsor: They have to be part of the family. We expose our brand in a few ways: we have franchises overseas and in the UK, such as BP garages and motorway service stations. We have to ensure that the franchise operator works in exactly the same way as our own company. In my area, we have recently changed our casualty insurers and we are now with a company where we have to use a third party to handle our claims, which makes an enormous difference.
We have always had our claims handled by only two companies until recently, so the most important thing there was not just a matter of best price, but of best reputation. Once we were in the ball park of feeling comfortable with the people we were talking to, the most important thing was their reputation. They are in charge of our brand, our name, our customers and our employees for a brief period of time, and they can do enormous harm. Luckily, they have not, and things have gone well. We are constantly involved in monitoring them and give them very strict guidelines as to how they can deal with things, including simple issues such as standard letters. A standard letter can be the first letter a customer or employee receives, so it has to be worded just right.
Paul Howard: What’s your view, Andrew, from a rebranded perspective?
Andrew Bye: Home Retail Group is a holding company name that is not about branding. The two trading company names – Argos and Homebase – are the names one would see in the high street or on the internet. Effectively, the Home Retail brand simply brings in some best practices that were not available under the previous ownership of the business and brings more specific deliverables into Argos and Homebase best practices, where they make sense. There is not a significant amount of change from when we were in the GUS family, other than the fact that we are now on our own, so there is greater accountability together with different drivers in the business, such as margins and ensuring that the brands that we have inherited remain strong among our targeted audience.
Something that I found interesting on joining the Home Retail Group and looking at the Argos/Homebase mix, is the fact that we have strong brand loyalty, but target audiences that have different claims profiles and brand issues from the Marks & Spencer/John Lewis-type target audiences. We have different issues to deal with in terms of brand than perhaps other businesses.
Paul Howard: The meshing together of two different brands within one umbrella company is possible, obviously, but what are the dynamics of that?
Andrew Bye: The rebranded group is about ensuring that we can provide everything for the home, but there are two different target audiences within the brands. People are looking for slightly different things within the Argos and Homebase core brands. In terms of Argos, people are very much looking for things instantly. They go to a store and they want it there and then to take away with them. The brand there is based on price and availability, rather than price and quality, which works.
The Homebase audience, however, goes to Homebase to walk around and get ideas. They are looking to be informed about what they want. At Argos, they know what they want and they pick it off the shelf straight away. Homebase is all about creating images and ideas in terms of what people would like to build or how they would like to design their homes. The branding is different between the two.
John Windsor: To a customer, the Argos and Homebase brands seem fairly similar in many ways. How are things dealt with within a group that has brands at both ends of the spectrum, ie a ‘bargain basement, stack-it-high’-type of operation and a high-quality, high-value operation? That must be very difficult to deal with.
Paul Howard: I can’t think of one.
Paul Williamson: It also depends on the motivation of the key objective. If Home Retail Group is to be as big a brand as Argos and Homebase, the way that you shift that is very different if you are happy to have these subgroups within the family. To try to migrate a bargain basement and a high-level retailer together is nigh on impossible, so you then have to think about what the holding company is there to achieve. Too many times, we try to over-brand it. If there are two strong brands there, why do you need another one to confuse the message?
Andrew Bye: Home Retail Group is not looking to be a high street brand – it is just the holding company. That is the brand for the shareholder, and Argos and Homebase are the consumer brands within it. They have their own identities, so rather than trying to create a brand-new brand, it is purely an investor brand.
Paul Williamson: The performance and objectives are going to be very different.
John Windsor: So many companies that undergo mergers or takeovers lose the traditional brand. There is so much historical value in the old name, but it is rebranded under another name and, all of a sudden, everyone is confused as to where that brand belongs.
Andrew Bye: We often have people thinking Homebase still belongs to Sainsbury’s, but that was a long time ago.
John Windsor: One of the most sensible things that Wal-Mart did was to retain the ASDA identity.
Richard Longster: The ASDA identity has been around for 40 years or more, particularly in its northern roots, from where it has spread out. Brand loyalty is particularly important: customer loyalty and brand loyalty go hand-in-hand. As long as you can retain the customer, the brand will survive.
Paul Howard: You have been very successful in stretching the brand into a number of distinct areas, such as your optician service and the George range. Does that have implications in terms of people using the brand as a one-stop shop, or do they come specifically for George or for food?
Richard Longster: Food remains at the core of what people come for. Beyond that, George was initially just a tag-on, but it has become such a significant brand its own right that it would be in the high street as George, stand-alone, if it was not for high street rents. We now have an offer called ASDA Living, with the home range and George clothing in one store, without the traditional food offering. That is going out into out-of-town shopping parks, where rents are lower and where we feel that we can make an impact.
Paul Howard: From a reputation perspective, your optician service carries a different sort of risk to those that you normally face. Has stretching the brand in that way brought any issues with it?
Richard Longster: Going into a more professional area, dealing with prescriptions etc, is stretching the brand. However, 10 years ago, ASDA diversified into homeware and Allied Carpets, and we did have problems at one point. We do not want to go that far again, but want to stick to the core brand and stretch it slowly, in a controlled manner, rather than going too quickly in various directions.
Paul Howard: Val, we began by looking at some of the issues surrounding branding and reputation from the perspective of a retailer and a holding company. Is the Co-operative Group a mutual?
Val Butroyd: We are regulated under the Friendly Societies Act. We follow best practice in corporate governance, including accounting standards. In our report and accounts, you will see that we meet plc requirements, since that is best practice, but we do have some advantages.
Paul Howard: Would many of your shoppers also be members?
Val Butroyd: Yes – that is what we are aiming for.
Paul Howard: Therefore, that will also have some sort of impact on the Co-op’s brand and reputation.
Val Butroyd: It has gone through many changes, but over the last few years, there has been a serious concentration on identifying what the core business is, so we have moved out of a range of activities that were not seen as core business, such as non-food retailing. We still have our agricultural interest, Farmcare, and the change there lies in the way that Farmcare works with the rest of the business. Farmcare is now the main supplier to the group for potatoes and raspberries and so on, but it also supplies to competitors, which is an interesting situation.
We have concentrated on pharmacy, Funeralcare, Travelcare and food retail and worked out a new brand for them. In the last 18 months to two years, we have started to deliver the new brand, which has been extremely successful. We had a really good year last year and, where we have piloted branded versus non-branded stores, it has been shown to have significant results, which we hope will continue. We think that our brand is becoming more cohesive and that we understand the brand better. We are trying to change the image of the Co-op to somewhere people go to find something that they cannot find anywhere else, which is something that people often say.
Paul Howard: A few words that have been mentioned so far include ‘availability’ and ‘quality’, which brings us to another issue on the agenda about risk management in terms of the supply chain. Another issue is globalisation and expanded product ranges. We are all competing to sell a wider range of goods, depending on where we are in the market, and to ensure a good continuity of supply. The area that I would like to explore now is the kinds of checks and balances that we have in our supply chain.
Andrew Bye: The Argos business certainly has an established supply chain business and, increasingly, it is looking to Asia to source part of its supplies. Effectively, it has its own branded goods manufactured for it and imported into the European Union, a process which is ultimately responsible for itself. We have more of that kind of exposure as a consequence, rather than relying on branded manufacturers to be responsible for quality assurance and so on.
There is a greater reliance on establishing our own quality assurance, and on sourcing the right products for the audience and understanding how they can be used, in terms of the instructions that need to be included with them. You would not necessarily do this unless you have been a major supplier of a particular product, so there is greater awareness of the kinds of product that you make yourself, what your responsibilities are, and what the target audience would do with that product. You might end up with a claim for it, which would have an effect on the entire product range.
The other point about Asia is where the product is manufactured and how exposed the manufacturing plant is, if it is manufacturing for you to order, or if anything happens to it such as flooding. You need to balance having a top-of-the-range factory with adequate controls in place versus having a cheap product made in a factory that burns down overnight, leading to the loss of an entire catalogue of items, with no backup.
Seeing the supply chain in China is an interesting experience. Argos sells 17,000 products through its catalogue, the suppliers of which might make 50,000 units. It is difficult to find factories of a scale that can meet this kind of order. The buying team need to clarify the specifications with suppliers and ensure that the cost base is right. Rather than an insurance issue, it becomes a business risk issue.
Richard Longster: Policing the supply chain is very important. We import product from the Far East, as well as from the UK, and we need to make sure that products are of high quality. We piggy-back on the back of our American parents and some of the product that they circulate worldwide.
Paul Williamson: How do you make the trade-off between price and quality? I have quite a lot of experience in pharmaceuticals, and pharmaceutical companies ensure that their entire supply chain adopts their quality management systems too, since the smallest piece of rubber in an aspirin might kill someone. It is about them understanding the balance there. Given that the motivation of going to the Far East is primarily price-based, how do you manage the quality issue?
Paul Howard: I do not think that it is entirely price-based; it might be that that is the only place where certain goods are made. Price is a factor, but a greater issue is the continuity and reliability of supply. If a product is dirt cheap, but supply is sporadic, availability is compromised. If you are going to do a one-off transaction, those kinds of things would come into play; however, if it is going to be a ongoing relationship, with our brand on the packaging, there would be greater emphasis on our doing exactly the same checks as we do with everyone else.
John Windsor: It is exactly the same for us. We check every one of our food producers and their factories. We visit every single factory before we buy a product from it. There has to be continuity of supply. Flexibility is also very important. Supply must be flexible and reliable, but control is hugely important.
Val Butroyd: That is true, particularly when you sell a lot of Fairtrade product, since you have to ensure that all the claims that you are making for it are valid.
Andrew Bye: Within the Home Retail brand, a lot of effort has been put into corporate responsibility and ensuring that we have similar standards to established businesses in terms of eradicating sweat shops, promoting decent working conditions and so on.