Chapter 31
Creating MARS: How Retail Data Changed the Balance of Power
Creating MARS: How Retail Data Changed the Balance of Power
Vertical integration creates value only when the different parts of a business genuinely work together and share the information that lets the group make better decisions than its competitors.
Peter Shanks' arrival as commercial director of Going Places turbocharged cooperation between the retail and tour-operating divisions. We established weekly calls and alternating monthly meetings between Airtours' Helmshore office and Going Places' head office in Woking, although I particularly enjoyed the Woking meetings because they gave me an excuse to visit family in Kent or disappear down to Brighton for the weekend.
Peter began by centralising sales information from the Going Places shops, giving head office a clearer picture of which tour operators were being sold across the chain. Looking at that data prompted one of those lightbulb moments that appears blindingly obvious afterwards: why was I analysing every Airtours booking by resort, hotel and departure date while ignoring the 60% of Going Places sales being made for other operators?
Those bookings were a live research database showing us exactly which competing products customers wanted. If Going Places was selling a hotel successfully for another operator, Airtours could contract it, package it with our own flights and switch the sales internally. I called the report MARS “Margin Analysis Retail Sales” because every good commercial weapon needed a suitably grand acronym.
Until Peter arrived, nobody had pulled the shop data together like this, and none of our major competitors appeared to be doing it either. Even so, the scale of the resulting opportunity surprised us.
1995
First Choice launched its first all-inclusive pilot in Spain in summer 1995, bundling food, drink, entertainment, and activities into one price, and MARS showed that these holidays were selling six times faster than our half-board options in comparable hotels.
I immediately mobilised Paul Evans, Airtours Purchasing Director, not only to contract the same hotels, but to build a major Airtours all-inclusive programme, which we just put on sale electronically rather than waiting for the next brochure cycle. It became the fastest-selling new product we had ever launched and accelerated a change in the UK package-holiday market. First Choice had spotted the opportunity first, but having an idea and owning the market it creates are two different things. The winner is usually the company that implements it fastest and at scale.
MARS drove Airtours' share of Going Places sales upwards until it eventually reached about 80%, because we had no intention of giving prominent shelf space to directly competing products. This was vertical integration with its sleeves rolled up: retail data shaping contracting, capacity, margins and the behaviour of thousands of salespeople.
1995
A brutal example that sticks in the mind involved Cosmos Holidays, owned by Monarch Airlines and the Swiss Mantegazza family. They had not invested heavily in retail distribution because they feared independent travel agents, still roughly half the market in 1995, would retaliate by removing their brochures. The logic was understandable, but it left Cosmos dangerously exposed to the large multiples.
MARS showed that 78% of the Cosmos hotels overlapped with Airtours. I regarded their 10% share of Going Places sales as business being stolen from within our own shops and wanted them de-racked, while Peter preferred their 17% commission income. We agreed that at 20% commission, the group would make roughly the same profit selling a Cosmos holiday as an Airtours one, but without the airline or contracting risk.
I later learned that Paul Riches, the Cosmos sales director, went into his meeting with Peter, on Fabio Mantegazza's instructions, to negotiate the commission down. Peter put the MARS evidence on the table and issued a simple ultimatum: pay up or clear out. Paul had to take a break, telephone Fabio, and explain that Cosmos had its balls in a vice, as Going Places accounted for around 20% of its sales and that volume could not be replaced elsewhere, leaving Cosmos little choice but to concede.
Years later, when Fabio and the Mantegazza family became partners in my Holidays by Phone operation, I made the same argument directly to him. If you own an airline that must be filled every week, you should control at least 50% of your distribution. Otherwise, however strong your airline or holiday programme appears, somebody else ultimately controls access to your customers and therefore controls you.
It’s a lesson many businesses I consult with today often need to be reminded of.