There are two themes to which Andrew Bagot consistently returns: challenge and change.
“We are facing an unprecedented challenge and we know we need to change in response,” he said. “I find challenge and change exciting but, even if I didn’t, we’ve now got no choice.”
Andrew is Managing Director of Alliance, the Channel Islands’ fourth-largest food retailer. Almost all retailers are casualties of the worst pandemic for a century and the highest inflation since the early 1980s. But Alliance has faced additional, unique challenges at the same time: first, the unilateral and unexpected withdrawal of its largest supplier, Tesco, and in the middle of all this Andrew himself becoming seriously unwell and being taken out of the business for months.
He spoke to Matt Fallaize about these challenges and his plans for the future, originally for Connect and now reproduced in Express.
“Business goes in cycles, but I don’t think I’ve ever previously experienced what we’re facing at the moment because of the combination of challenges, some of them particular to our business and some of them external, whether local or international,” said Andrew. “In my 40 years in retail, I’ve seen nothing like it before. The challenges are massive. There probably isn’t any business left unaffected, but we are right in the middle of it.
“Today and the period ahead are totally different to where things were two or three years ago. And we need to change. We will change. We need to get an awful lot better to give our customers what they need today and tomorrow. In the past, at Alliance, we’ve been pretty nimble and adapted to change, but lately, for lots of reasons, we haven’t been so good at that, but we will be again.”
Pictured: High and rising inflation is putting pressure on many food retail customers and is the greatest concern on Andrew Bagot's mind.
This time last year, prices were rising annually at around 2.5%, but increases have since accelerated markedly and exceeded forecasts made locally just months earlier. Nationally, inflation is forecast to reach 11-12% before the end of 2022, and it is already much higher across a range of food products. The effect on household budgets is of particular concern to Andrew.
“Inflation and difficulties in global supply chains are the biggest challenges most businesses are having to deal with now. In reality, it’s probably 30% on goods that really matter to most people. Some of the cost pressures on food and fuel are remarkable.
“I fear we’re in the relatively early days of this. We’re going to see very hefty price increases driven by costs which start early in the supply chain. We’re already seeing huge stress locally. There is no doubt that a lot of people are struggling already and it’s only just starting. Money is tight and it’s going to get tighter. Inflation hasn’t really hit us yet in the way it will over the next few months.
“We absolutely know that pressure is there. It’s affecting more people than you might think and we know it’s going to get worse. One thing I’ve learned is not to put too much faith in those [inflation] forecasts. Last year, they were completely wrong. I can’t see it ending any time soon.
“We know our customers are price sensitive. There is a disparity between the haves and the have nots and I’m afraid the group of have nots is growing. As a retailer and as a local business, we have a responsibility to do something for people who are struggling and who may be struggling even more in the near future.
“I don’t think it’s acceptable to see prices going up like this and just sit there not doing anything about it. We’ve got to respond. We’ve got to do things to try to alleviate that for our customers as much as we can. We’re learning now that there are things we can do and we will do them. But it takes a bit of time to put those things in place and they will require us to act very differently in the future.”
Pictured: Alliance is entering a period of change, prompted by market changes caused by the covid-19 pandemic and rising inflation, among other issues.
It's clear that Alliance is about to enter a period of significant change. “Over the course of the next few months, you will see that visibly. We [Andrew’s team] spoke about this before this interview. Some people said wait until changes are really happening before talking about them. But I think it’s important to take people, especially our customers, on a journey with us. In the past, we probably haven’t communicated as well as we could have.
“In the next few months, we will probably align ourselves with a major brand. We definitely need to differentiate our business. We will probably do that with acquisition and we’re actively looking at that – at how we can get better and how we can improve our supply chain by working with people who do some things better than us. I can’t go into commercial details, but it’s close. There are probably opportunities for us around the discount model – getting products at more competitive prices than we have sold at traditionally.
“Is where we are now ultimately right for our customers and our business? I’ve got to be honest – I don’t think it is. We’ve done a lot of work over the last few months on restructuring, particularly around purchasing and how we are going to provide what consumers need.
“We’re looking at the UK and the continent to see what really good supply chains and really good prices look like. I spend more time in the UK now and we’ve got some people in the UK sourcing for us. We need to find a supply chain which works in the modern world and it isn’t what we have at the moment. We are committed to buying better and smarter, probably through multiple suppliers, and we think we can do that. We might also concentrate a bit more on wholesale than we were. We’ve got a £2million wholesale business and we might grow that. It’s less capital intensive; it requires fewer people; it’s a different way of selling.”
Pictured: Andrew is hoping to strike new wholesale deals to secure Alliance's future and help protect its customers from rising inflation as far as possible.
Though these significant and imminent changes may have largely been forced on Alliance, Andrew believes they could be a platform for business growth.
“We’ve got ourselves relatively established in the market at number four behind Waitrose, Sandpiper and the Co-op. We’re on about 6% of the market. Can I see us getting to 10% market share? Yes, I can. Do I think we’ll do it? Yes, I do. I’m confident in that respect. How are we going to do it? Well, over the next few months, you’ll see changes like those I’ve been talking about and others.”
Many of the changes have their origin in the decision of Tesco and its partners to withdraw from international distribution between the summer of 2021 and spring of 2022. “They supplied 60-65% of our goods. We’d been working with them for quite a few years. They made the decision as a company to pull out of their export business supplying maybe 50 countries.
“We had exclusive rights for Tesco in the Channel Islands. They just pulled out – e-mailed us to give us nine or 10 months’ notice. That was a huge shock for us. It was a unique selling point for us – a brand that didn’t exist elsewhere in the islands, big business, buys well, good pricing, choice of 40,000 products. We built our business on that. We certainly built the Jersey business on that. Most of our customers in Jersey actually called the business Tesco rather than Alliance. That’s how strong it was as a brand. How do you replace that?
Pictured: Alliance opened stores in Jersey eight years ago after decades as a Guernsey-only retailer.
“In Jersey, we had a broad agreement with Waitrose that they would supply food. They have five stores – two in Guernsey and three in Jersey. But they are looking at supporting others to deliver smaller stores while concentrating on their large stores.
“In Guernsey, we continue to use the Nisa buying group. Co-op bought Nisa a few years ago and their own label goods are now Co-op branded. That’s why you see Co-op goods in our stores.
“Is that durable? In most markets, I don’t think it matters much. But it does in this market. There are four principal players and we’re number four. The other three all have high market penetration. Where we are in terms of buying and supply is sub-optimal and not necessarily something we can build on for the long term. Now we’re looking at it again and asking what we’re going to do.”
Pictured: In Guernsey, Alliance uses the national Nisa buying group but is looking to add to its supply chains.
Ironically, Andrew started his career with Tesco. “I started with them when I was 17 or 18. I was with them for 10 years in the UK before I came to the Channel Islands. I ended up as Managing Director of Le Riche when they sold in 2007. We were preparing to leave and go back to the UK when I met Chris Fish [Andrew’s co-owner of Alliance]. I came into Alliance, walked around and thought what an opportunity, and that was that, 15 years ago. At that time, Alliance was operating only in Guernsey, predominantly as a cash and carry wholesaler.
“I changed it to more of a retail business with some wholesale characteristics. And we’ve done pretty well and been quite pleased with our year-on-year progress. We’ve improved our turnover six or seven times in that period.
“One of the things which securing supply from Tesco enabled us to do was to open in Jersey eight years ago, predominantly behind the Tesco brand.” Andrew moved from Guernsey to Jersey himself about five years ago as the businesses’ activity reached a 50/50 balance between the islands. “That was quite a big move you don’t see many businesses making, especially not in our sector. We did well in a market which is difficult to penetrate and has high barriers to entry. We attacked it with some confidence. In investment terms, it took everything we had and probably some things we didn’t. It was high risk, including freehold property purchases. We were entering a market in which we didn’t exist. There have been ups and downs, but overall we were pleased.
Pictured: Covid-19 changed the face of retail as many more customers ordered goods for home delivery.
“Then covid hit. A shock like no-one had seen before. That was the start of the significant challenges which we’re having to respond to. We went from relative stability to absolute carnage really. If you look at what it meant for us in trading terms, Guernsey did reasonably well – the store is a big box with a big car park and lots of space and with Tesco we had probably the strongest supply chain in the island at the time – so we were quite well set up. Jersey, with three town centre stores, was a completely different story. I walked in on day one of lockdown and thought we were done. 45,000 customers a week and we lost probably 55% of them overnight. At that point, we had a failing business basically.
“We have tremendous teams of staff in both island who have shown us great loyalty. We didn’t lose any staff thankfully, but every day was a challenge. I run the business across both islands, but I visited Guernsey only twice in two years. At 6am every morning, we had a call, the manager here in Guernsey and me. I was encouraging him and trying to keep the team going. They were working under high levels of stress. In both islands, great staff kept the business going for us. It would have been easier for them to stop. They didn’t. They kept going. People have put their heart and soul into this business at a difficult time. We say thank you and we reward them as well as we can. Have we done enough for them? Probably not. Our business is very, very thankful for what they’ve done.”
As if facing a pandemic, global supply chain problems and the loss of the company’s principal supplier was not enough, early last year Andrew was hit by health problems.
Pictured: Andrew has been in the food retail industry for decades but he is full of enthusiasm to lead a period of change as Alliance adapts to changing market conditions and consumer demands.
“I had a car accident about 25 years ago and had part of my leg rebuilt. In the middle of all this going on with the business, my leg started to fail. It was getting to the stage where I could barely walk into the office. I needed some metalwork taken out of my leg and a hip replacement. Unfortunately, the procedures didn’t go very well, I got a big infection, and I became quite ill. You just couldn’t make it up. I had to take about five months off work. I was meant to come back slowly, perhaps two to three days a week, but that quickly became seven days a week because of what the business was facing.
Andrew is back in fine form now and relishing the challenges and changes ahead. He wants customers to know that Alliance recognises the pressures on them today, knows they could soon get worse and is committed to responding.
“Customers are more transient. It’s much harder now to keep a customer to a single shop or brand. And that’s understandable. I say to our guys that whatever we sell we’ve got to be good at – so it’s either value-driven or quality-driven. Our customer service has got to be great. We serve the best part of 50,000 customers a week – that’s a lot of people and we want to serve more. I’m sat here saying we haven’t got everything right and we need to change. We will change to get better. And we know that when we get things wrong our customers will tell us and that’s invaluable.”
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