Everyone knows that the retail sector is incredibly competitive and supermarkets are constantly trying to squeeze out the competition or be squeezed themselves. Sometimes it seems that pretty much anything that differentiates one supermarket from another is welcome and, of course, price is key. Supermarkets are renowned for their insights into and knowledge of consumers. Their sophisticated systems track all kinds of behaviours and thanks to the data collected, they know more about consumers’ habits than the consumers themselves.
It’s surprising, then, that what supermarkets aren’t very good at is looking at their competitors in the light of the corporate brand, in order to tell the best corporate story they credibly can.
Each year the Financial Reporting Council (FRC) looks at certain industry sectors when reviewing annual reports and accounts for their Corporate Reporting Review and Audit Quality Review. This year the food and drink retail sector is one of four they have focused on.
At Gather we have analysed the sector to determine how food retail companies are approaching corporate reporting. We have analysed in detail eight reports from the UK market: Booker, Greggs, John Lewis, Ocado, Marks and Spencer, Morrisons, Sainsbury’s and Tesco.
What we have observed, unsurprisingly, is that there is a significant amount of variation between their annual reports in terms of content and presentation. They are brand experts, after all. However, there is a need to have a stronger and more coherent story at the heart of each report to successfully link the report together, and improvements need to be made in many of the areas highlighted by the FRC; greater transparency on non-GAAP measures and risk management and mitigation.
Here are five ways we believe supermarkets should improve their reporting:
Only report on what is material to the business. With the average report sitting at 134 pages (94 pages in 2010), the increase in regulatory disclosures is certainly affecting the length.
Illustrate the business model with a diagram. Companies will benefit from presenting the business model in this way. Morrisons offers a particularly strong model which outlines their value chain and explains their point of differentiation, their competitive advantage if you like.
All markets present risks, but only manage and mitigate those that pose a threat to the business. The average number of risks in the sector is 11. The most common are; IT security, competition, economic/financial, legal and regulatory.
Provide evidence to support corporate social responsibility claims. CSR is at the heart of many supermarkets, with 38% of the companies surveyed producing a separate CSR report. But if CSR is integral to the business, shouldn’t that be reflected in the business model and evidenced in the strategy, KPIs and the management of risk?
Ensure that the KPIs represent how the business is measured. The food retail sector reports, on average, 6 financial and 5 non-financial KPIs. The common performance indicators in this sector are; revenue, sales, growth, staff turnover and active customer base, but many are excluded from the company highlights which questions how ‘key’ they actually are.
In sum, supermarkets should take the opportunity to produce a report that is better than the others on the shelf. Assess their market, establish their competitive advantage, point of differentiation and ensure that consistent communication year-on-year is at the core of their reporting strategy.