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The Price of Marmite

There seems to be an entertaining public spat going on between two large global corporations about the price of Marmite. Unilever own the brand, and are trying to pass on the price increase to their customers. Tesco, who (reading between the lines) probably leaked the story, has refused. Or, at least, temporarily stopped selling Marmite on its website. The catalyst was the fall in the pound caused by BREXIT, but the roots of the conflict go deeper I think.
The different share price history of the two companies is revealing. Over the last 5 years, Tesco roughly halved in value from 400p to below 200p. This was caused by accounting irregularities, profit warnings, but the deeper cause seems to be competition from both German discounters (Aldi & Lidl) and the internet.

Even Buffett got Tesco wrong

Tesco should be able to defend itself from the competition. Normally you would expect a business like Tesco, with a high market share to have the lowest costs. That’s tough to compete against. This was probably why Buffett bought the shares. But even Buffett got this wrong. He overestimated Tesco’s “competitive moat.”  To his credit admitted his mistake and sold.
The conventional wisdom is that Tesco over expanded. The supermarket became too unfocused, trying to take on the banks, run a garden centre (Dobbies), a restaurant chain (Giraffe), not to mention the international businesses such as Turkey, South Korea and Thailand. This left them complacent and vulnerable to competitors who found a more effective way to serve customers.

A better explanation?

While that is true, I can’t help wondering if there is a better explanation. For a long time Tesco has been associated with loyalty cards program and “big data”. They bought the company, Dunnhumby, which is supposed to be an expert in customer loyalty. The DH slogan is the altogether cheesy “helping businesses love their customers.” The retailer claims that “Machine learning is ubiquitous, helping our lives become more enabled, more streamlined, more friction-free.” 
But it doesn’t feel like that to me. All this analysis of customer behaviour just makes our lives more complicated. Loyalty card points, vouchers that expire. Customers need a scientific calculator and a phD in gradient weighted moving finite elements to know if a UK supermarket promotion is worth it. Tesco are not the only company that do this; banks love to confuse their customers. Airline customer loyalty programs are a horrible disappointment. Easyjet invited me to join their customer loyalty program, but when I tried to contact them, they kept me on hold for 23 minutes before I gave up. It is like dealing with Soviet bureaucracy.  I hate them.
And you might wonder, if this big data stuff is all so clever, why is Tesco historic profit margin less than 2%? The company aspires to a profit margin of just 3.5%-4.0% by 2019/20? That is barely keeping their head above water.


On the other hand the German’s have a different approach. The German language has a word “günstig”, which translates as something like “good value/ favourable/ convenient.” Perhaps we should import that word into English. Günstig seems to be the German supermarkets expansion strategy. I haven’t spent much time in the German competition, but I’m told they have a narrower range and tend to push their instore brands. Customers associate these instore brands with good value/favourable/convenient. I also don’t see many people using loyalty cards in Germany.
While Tesco has languished, Unilever’s share price is up from around £20 to £36 over the same time period. And the company reports core operating margin of 15% at their most recent set of results, 7x higher than the supermarket and something that Tesco can only dream of. Dave Lewis, the Chief Executive of Tesco, just happens to be an ex Unilever guy. I’m guessing, but it looks like Tesco, know just how profitable branded goods can be, and want some of that margin for themselves.
I have no idea if it will work or not. But it seems to me that something much smarter is going on with Unilever’s brands.

Brands appeal to our gut instincts.

Brands appeal to our gut instincts.   We feel loyalty towards some brands. Brands work on the subconscious level.  Robert Cialdi, the social psychologist, quotes several academic papers showing how easy this is.*  Merely superimposing a Belgian beer 5 times with pictures of pleasant activities (sailing, waterskiing and cuddling) increased viewers positive associations towards the beer brand. Similarly superimposing mouthwash with beautiful scenes of nature 6 times led observers to feel more positive to the brand, both immediately and 3 weeks later.  In none of the studies were subjects conscious that they had been influenced by the associations.  If you want to see an ironic version of this, just click on this spoof of a generic branding video.  We might laugh (or cringe) but this stuff works!  No complicated machine learning algorithm here, but I repeat, this stuff works.

Customers identify with brands “marmite: you love it or hate it.”  Not everyone has to love your brand, but if even a minority do, there is good money to be made.

By contrast customers look at the “customer loyalty” programs created by Tesco, British Airways or Easyjet and asked themselves:

  • why make it so complicated?
  • why are they were doing this?
  • who it was all for?

Certainly not for the customer.  

Drowning in data

So perhaps these large corporations, that are collecting and analysing this data are missing something.  The Soviet Union had the best intelligence system, which could steal nuclear secrets, infiltrate rival agencies like MI6, and collect vast amounts of data on its own citizens.  Former East Germany’s stasi files are now available online.  But despite all this the top still didn’t know what was going on.  

In 1958 Nikita Krushchev visited a San Francisco supermarket and refused to believe the shelves were normally full, and had not been specially stocked for his benefit.  The fact that ordinary housewives could shop in abundance in the West, while Russian supermarkets has only queues, shortages and surly staff was a shock.  His intelligence reports probably played down the abundance of choice in the US. Gorbachev had to send in the KGB to Chernobyl, because the reports he was getting from the scientists at the scene of the nuclear accident consistently understated the seriousness.  The scientist were being entirely rational. In a society where anyone who contradicted the official dogma was sent to Siberia, of course bad news does not travel upwards.  

However much big data, intelligence and analysis you have, if you have a culture that is intolerant to diverse views, then your analysis is probably worse than useless.  I hope that the large amounts of data companies analyse can give them insight. Sadly my experience of mixing with bank management in the past, leaves me less hopeful about the value of customer analytics.
Interestingly, when Tesco tried to sell their big data company, no one was interested in buying Dunnhumby. So I’m sceptical that “big data/machine learning” really is going to serve customers. So far, if the airlines and supermarkets share prices are anything to go by, customer loyalty/ data analytics hasn’t even served investors.  As an investor and a customer, I’m sticking with the brands I trust.


*Academic papers quoted by Robert Cialdi in Presuasion :

  • Sweldens, van Osselear and Janiszewski (Belgian Beer)
  • Till and Priluck (Mouthwash) and
  • Winkielman, Berridge and Wilbarger (soft drinks)



3 clergymen plan a murder in the Alps

Below is a speech I gave to The Alpine Ski Club at the Annual Dinner, 20th Nov 2015.  I enjoyed doing the research into Arthur Conan Doyle’s associations with skiing.  But I found it more surprising the attitudes towards different sources of wealth a hundred years ago.  With a clear separation of aristocratic, land owning, hereditary wealth (we might call this “rent seeking wealth” today) and entrepreneurial, creative, service orientated wealth creation – such as the travel business started by Henry Lunn.  Today we celebrate the entrepreneurs, Steve Jobs and Jeff Bezos.  A hundred years ago these type of people were rather looked down upon by the aristocratic members of society. 

Thank you ladies and gentlemen.  When we talk about the Alpine Ski Club, and what makes it unique – very often it all comes back to the members. The present day members and of course the history.
Last year I talked about Peter Lunn, and his adventurers tunnelling beneath Vienna and Berlin in order to listen into the telephone conversations on the other side of the Iron Curtain. Peter Lunn, of course, was a member and the son of Arnold Lunn, one of our founder members. This year I thought I would tell you a short story about Reverend Henry Lunn, Peter Lunn’s grandfather, who hosted the founding dinner of the Alpine Ski Club. And so I will tell you a brief anecdote, about how Henry Lunn he was an accomplice in a murder. This was no ordinary murder though, because in 1893 Reverend Henry was accomplice to the murder of a world famous detective.

It was also not really a murder, in part because the world famous detective was a fictional character.
Secondly, the world famous detective didn’t die. So Henry Lunn could not be held responsible for his murder. Instead when asked how he survived falling down the chasm of the Reichenbach Falls, the detective replied

“Well, then, about that chasm. I had no serious difficulty in getting out of it, for the very simple reason that I never was in it.”

So Henry Lunn was accomplice to the non murder of Sherlock Holmes.
The story goes like this. In 1893, the Revered William Dawson, Henry Lunn, Benjamin Waugh and Silas Hocking were in Davos, when they met up with Arthur Conan Doyle. Conan Doyle the famous author. In case you have never heard of the other people, they were all Nonconformist clergymen. Benjaming Waugh founded the National Society for the Prevention of Cruelty to Children, and Silas Hocking had written a now forgotten book about street children in Liverpool called Her Benny, which had sold over a million copies.

They were staying in the Hotel de l’Europa and met up with Arthur Conan Doyle, who was of course, the author of the Sherlock Holmes stories. But over a long walk Henry Lunn recalled the author saying to him

“I have made up my mind to kill Sherlock Holmes; he is becoming such a burden to me that my life is unbearable.”

Of course, if you want to think of grisly ways to murder a world famous detective who better than a bunch of Nonconformist ministers. The label Nonconformist is applied to any non Anglicans – many of them were Quakers, Methodists, Wesleyians, famous for their pacificism.  Ironically, in A Study in Scarlett, Sherlock Holmes disguises himself as a Nonconformist Minister in order to meet “that woman”, Irene Adler.  Little did Holmes (or even Conan Doyle) suspect that years later Nonconformists would plot his demise.

It was Nonconformists that set up Cadbury’s chocolate and also the Rowntree’s, now owned by Nestle was originally set up by the Noncomformists, Bryant and May the match company, Friends Provident and Barclays Bank. Henry Lunn, of course set up his travel business taking people to the Alps, later to become Lunn Poly. The idea was that the Nonconformists were not the landowning, aristocrats class. They weren’t allowed to hold official positions, or join the professions.  Instead they channeled all their energies into running companies. They were the capitalist middle class, rather than the aristocratic landowning class. In 1867 the repeal of the Test Acts and the passing of the second reform Act in 1867 gave Nonconformists a lot more rights. But I do wonder if some of the attitudes towards the Nonconformists were still around a few decades later. And that might be why Henry Lunn held the founding dinner for the Alpine Ski Club, when Arnold Lunn was not allowed to join the Alpine Club.

Lunn himself did not come up with the idea of how to kill Holmes. Instead he let Reverend Dawson take the credit. Saying

“It was Reverend Dawson who suggested the spot, the Reichenbach Falls, near Meiringen, where Conan Doyle finished the great detective.”

However, these fine Christian fellows were just a little bit competitive. When it came to claiming credit for the murder of Sherlock Holmes, Hocking claimed later that on a walk near the Findelen Glacier with both Arthur Conan Doyle and Fred Benson, the son of the Archbishop of Canterbury that he said

“If you are determined on making an end to Holmes, why not bring him out to Switzerland and drop him down a crevasse? It will save on funeral expenses.”

Peter Lunn did later claim that his grandfather should take the credit for killing Holmes. The only person who seems to have wanted to keep Holmes alive was Conan Doyle’s mother. She pleaded with the author not to kill off the detective. But Conan Doyle went ahead with his plan, and published the dramatic scene in “The Final Problem”.
Holmes and Watson’s journey takes them to Switzerland where they stay at Meiringen. From there they fatefully decide to take a walk which will include a visit to Reichenbach Falls, a local natural wonder. Once there, a boy appears and hands Watson a note, saying that there is a sick Englishwoman back at the hotel who wants an English doctor. Watson goes to see about the patient, leaving Holmes by himself.
Upon returning to the Englischer Hof, Watson finds that the innkeeper has no knowledge of any sick Englishwoman. Realizing at last that he has been deceived, he rushes back to Reichenbach Falls but finds no one there, although he does see two sets of footprints going out onto the muddy dead end path with none returning. Watson sees that towards the end of the path there are signs that a violent struggle has taken place and there are no returning footprints. It is all too clear Holmes and Moriarty have both fallen to their deaths down the gorge while locked in mortal combat. 
According to legend, when the story appeared in Strand Magazine, City of London workers donned black arm bands in mourning. For more permanent memorials, you can go to the funicular station near the falls, there is a memorial plate to “the most famous detective in the world”.
Of course, Holmes didn’t really die. Almost a decade later Arthur Conan Doyle wrote many more stories, in part because the genre of detective stories had become so popular, and he was annoyed by his inferior, now forgotten, rivals.
Although Conan Doyle knew the Lunn’s, I don’t think there is any evidence that he was a member of the club. However, he did engage in ski touring, in March 1894 ACD did the Mayerfelder Furka Pass from Davos to Arosa. They actually climbed using snow shoes, and then made the descent on skis. He was accompanied by Tobias and Johannes Branger, who owned sports shop in Davos, and had ordered several pairs of Norwegian skis. At one point ACD took a fall but just ended up going down the mountain on his backside. He later commented that his tailor had assured him that Harris tweed suits were indestructible – but he had proved his tailor wrong. Conan Doyle claimed to be the first British man to traverse an Alpine Pass in Winter. He certainly helped popularise the sport.

Sources: Conan Doyle, The Man Who Created Sherlock Holmes Andrew Lycett

Living in an Alibi Society – Nicholas Stacey

English Culture and the Decline of the Industrial Spirit – Martin J Weiner