The US Grocery Channel. Bob Paulinski, MW February 8, 2012

Transcription

1 Bob Paulinski, MW February 8,

2 Introduction Presentation Talking Points Industry Overview Past Exam Questions Financial Impact and Responsibilities Category Management Merchandising and Promotions Store Operations/Logistics/Insights US Anomalies 2

3 Industry Overview Grocery Store Formats Traditional Grocery Traditional Supermarket Offering a full line of groceries with at least $2M in sales and Up to 15% of sales in GM/HBC, Typically 15,000 to 60,000 skus, Average 50,000 sq ft, Fresh Format Store Emphasis on perishables and center stores assortments that differ from the traditional supermarkets, Especially areas of ethnic, natural, organic, average 15,000 sq ft, Limited Assortment Store Limited assortment of center store and perishables Average under 10,000 sq ft, Channel blurring, non-traditional grocery, mass, drug, convenience, warehouse club (Fresh Market, Whole Foods, Costco, Super Targets) Non-Traditional Grocery Wholesale Club Memberships outlet, Limited variety, Oversize/bulk packaging, Warehouse environment, Predominately GM/HBC, Limited grocery line, Average 120,000 sq ft, Supercenters Hybrid of a traditional grocery store and a mass merchandiser, Wide variety of food and non-food merchandise, Average +120,000 sq ft, Dollar Small format, Traditionally sold staple items, Currently increased focus on consumables, Average under 10,000 sq ft, Drug Prescription and general merchandise outlet Currently increased focus on consumables, Under 10,000 sq ft Mass Merchandiser Primarily focused on hardlines Clothing, electronics, but also grocery, Average 120,000 sq ft, 3

4 Industry Overview Traditional Grocery Supermarket The Traditional Grocery Supermarket More than 30,000 outlets throughout the US, total sales of +$600B Net profit after taxes, 1 to 2.5% Changing face of traditional grocery due to evolving market, Impact of The economy Unemployment Inflation Evolving marketplace, approximately 500,000 outlets in the US that currently sell wine Traditional Grocery outlets have been forced to redefine themselves Success stories Kroger 32 straight quarters of positive ID growth, Whole Foods +10% ID sales, Merger Winn-Dixie and Bi-Lo Challenged Food Lion exiting markets SuperValu +$6.6B in debt Traditional US Grocery is largely burdened with overall reduced unit movement, along with a stagnant basket ring and store traffic 4

5 Industry Overview Top US Brand by Sales (including % Change v YAGO) Millions $300 $ Vol $ Pct Chg vs Yago Total US$ Market Vol By Brand $ Pct Chg vs Yago 140.0% $ % 100.0% $ % $ % $ % 20.0% $50 0.0% $- (20.0%) Source: Nielsen Current 52 Weeks Ending Week Ending 01/07/12 Brands 5

6 Industry Overview Top US Producers by Sales (including % Change v YAGO) $ Vol $ Pct Chg vs Yago Millions $1,400 Total US$ Market Vol By Producer $ Pct Chg vs Yago 50.0% $1, % $1, % $ % $ % $ % $200 (10.0%) $- (20.0%) Source: Nielsen Current 52 Weeks Ending Week Ending 01/07/12 6

7 Industry Overview General Market Conditions 2011 High unemployment Weak consumer confidence Reduced discretionary income High fuel costs Inflation +11% beef, +8% dairy (high shrink categories) +6.1% cereal/bread +1.4% wine Declining center store traffic, Declining units, Stagnant average basket ring 2012 prediction Continued high unemployment and fuel costs Poor consumer confidence Period of disinflation Wine will continue to garner heightened focus, plus sales, units and basket ring Poorly positioned Grocery at tremendous financial risk 7

8 Past Exam Questions Past Exam Questions Volume or Profit? Examine the options facing multi-national wine companies. (2011) Does the short term get in the way of the long term? Answer from the point of view of a wine brand owner. (2010) As the export manager of a newly established winery, outline the steps that you would take to plan your export campaign. (2009) Who influences the choice of wines that consumers drink? (2008) What are the most important skills and qualifications you would look for when hiring a brand manager in the wine business and why? (2007) The wine industry does little to encourage the consumer to trade up. How true is this? (2006) What are the key points you would consider before launching a new French wine in exports markets? (2005) Who has the power in today s wine market producer, distributor, retailer or consumer? (2004) The economic health of the wine industry is being harmed by the dominance of major brands. Discuss (2003) Control of distribution is critical to success around the world. Discuss in relation to both small and large producers. (2002) 8

9 Financial Impacts and Responsibilities Financial Impacts and Responsibilities Wine Sales Accounts for 3% to 4% (avg) of total grocery store sales (US) Inventory Typically the highest inventory investment per category (just ahead of pharmacy), about $250 per linear foot Payment Terms Limited payment terms (often legally mandated) Turns Average of six turns per year Basket Ring Customer spends $62.65 v $38.80 on average in a total transaction where wine is purchased Public vs Privately held company AOP/P&L accountability Category Director, Category Manager, Buyer Performance Review based on Sales Profit dollars (wine drives greater GP% versus beer or spirits) Inventory Accounting Methodology Retail Accounting vs Cost Accounting Most US Traditional Grocery is on cost accounting, understand the nuance 9

10 Financial Impacts and Responsibilities Financial P&L 120% Waterfall Chart Illustrating Profit & Loss Internally generated P&L 100% 80% 60% 75.0% 100% 40% 20% 7.4% 0.2% 0.6% 25% 17% 0% Sales Cost of Sales Gross Profit Markdowns Coupons Shrink Net Profit 10

11 Financial Impacts and Responsibilities Category Analysis Tools - SWOT Market Share 30.0% All Varietals SWOT 25.0% Value Glass Moscato/Muscat 20.0% Wht Zinfandel All Other Red Malbec 15.0% Riesling Syrah/Shiraz Merlot Chardonnay Pinot Grigio/Gris White All Other Sparkling Wine Cabernet Pinot Noir Zinfandel 10.0% Champagne 5.0% 0.0% (15.0%) (10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Growth v market Value Glass Chardonnay Cabernet Pinot Grigio/Gris Merlot Champagne Moscato/Muscat Pinot Noir Wht Zinfandel Malbec White All Other Syrah/Shiraz 11

12 Category Management Category Positioning Category Positioning Convenience v Destination Convenience Stock Wine KVI s (Key Value Items) Have those wine items that might cause a customer to leave the store if not available Destination Broad Wine Range Diverse range to differentiate your store from competition, encourage customers to visit store due to innovative offering/promotion Competitive factors; Index Trends Historical data Demographics Ethnic Pricing Regional variation High/low Pricing EDLP (Every Day Low Price) 12

13 Category Management Product Assortment Product Assortment Highly asset intensive business Markdowns and Shrink Impacts the Bottom line of your P&L Clustering/Segmentation Eliminate cannibalization of the set Varietal Price Point Place of Origin Style SKU allocation by sub-category SKU rationalization/sku optimization Bi-annual or annual SKU assortment analysis by cluster Wine is increasingly positioned to be an early part of the shopping experience, more synergistic with perishables 13

14 Category Management Product Assortment Product Assortment High Index Stores Destination category Mix of hard and soft brands Greater diversity Greater vertical stretch price points One time offers Store within a store Low Index Stores Convenience category Hard brand positioned Limited assortment (approx 500 SKUs) 14

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16 Category Management Category Management Overview (i) Category Management Defined: Systematic, disciplined approach of operating a product category as a strategic business unit Objective: Add value to the retailer s business vs. just the supplier s own Stakeholders: Retailer Category Director/Manager Supplier Category Captain Other Suppliers Competitors to Captain Benefits To All: Mutual benefit of the retailer/supplier Instead of an often adversarial relationship, it results in collaboration with sharing of information, data and perhaps, labor expense Benefits To Retailer: Only a finite amount of profit can be realized through price negotiation Benefits To Supplier: Internal data access, increased influential voice 16

17 Category Management Category Management Overview (ii) Category Management Captaincy Process: Outsourced to a vendor partner: (SWS, Young s, Trinchero, Constellation, etc) Annual scorecard performance review Analysis Methodology: Data mining/analysis Space to sales Promo lift analysis Incrementality Merchandise layout POGs Item performance review Trends New items Resource supplier expertise on overall market Planogram One output of category management process is the planogram Shows the correct placing of items on the shelf within store for optimal performance 17

18 Category Management Planogram One output of category management is the planogram Shows the correct placing of items on the shelf within store for optimal peformance #1 Ranked Brand USA 18

19 Category Management Own Label Currently about 10% of total US Traditional Supermarket grocery sales and growing Economic downturn has placed greater focus on Own Brand for consumers and retailers alike Traditionally Own Brands were entry point level (low quality and price) Wine however has ample supply/wine glut Quality is not entry level What is Own Label : Private label Private label is process built from concept to completion Control brands A label only sold in geographic footprint by one retailer Exclusive brands Existing brand where all stock is purchased by retailer Why introduce Own Label: Margin driver, Differentiate Drive Frequency Leverage point with suppliers Based on sub category opportunity Grow in sub categories in which there is no market leader 19

20 Merchandising and Promotions Affinity Products What are the top 10 items you are likely to find in a basket when wine has been purchased? Beer Deli Specialty Cheeses Mushrooms Vegetables Western Onions Tomatoes Packaged Salads Creams/Creamers Deli Dips And Spreads Cheese 20

21 Merchandising and Promotions Merchandising Responsibilities Merchandising responsibilities covers the 4P s of Marketing; Product Wine Price What the customer is willing to pay Promotion Getting the message to the customer (Advertising/BOGO) Place Convenient for the customer to access Product Ensure that the correct items are available for the customer to buy, involves the category management process and accurate segmentation and clustering of stores Price Having responsibility for the P&L, Merchandising must monitor pricing in the market and balance the pricing strategy, units sold and inventory held to ensure a competitive offering to customer whilst generating profit Promotion Merchandising has a number of strategies to employ to gain cut through in a competitive and cluttered market place. Strategies can include advertising (shelf talkers, store leaflets, billboards, etc) to sales promotions (BOGO, TPR, case discounts, sampling, etc) Place Ensuring the customer has access to the product is key for Merchandising. The product needs to be on the shelf and easy to find for the customer to purchase it. This is not as easy as it sounds, hence the importance of the planogram and its implementation 21

22 Merchandising and Promotions Merchandising & Other Stakeholders Stakeholders Merchandising Operations Suppliers Producers Product Price Stakeholders Merchandising Operations Suppliers Pricing Finance IT Customer Promotion Place Stakeholders Merchandising Operations Suppliers Marketing IT Stakeholders Merchandising Operations Suppliers Category Management Distributors IT 22

23 Store Operations, Logistics and Insights Purchasing & Freight Flow Delivery Scenarios Direct Store Delivery (DSD) In many cases, the only legal option for store delivery Warehouse (DC) Bulk buying (LQD) brought into the Grocery warehouse Distributed through the Grocery retailer s own network Legal restrictions Winery Direct Legal option in only a limited basis Payments terms are legally limited Often payment on delivery or electronic fund transfer Core items on computer assisted ordering Increasingly corporate mandated Centralized decision making Some retailers run through Store autonomy Reduces bargaining power i.e. terms Inventory can be problematic 23

24 Store Operations, Logistics and Insights Purchasing & Freight Flow Producer Distributor Winery Direct DSD (Direct Store Delivery) Store 1 Distributor Delivers to DC Store 2 Store 3 Retailer Warehouse DC Warehouse Delivers To Stores 24

25 Store Operations, Logistics and Insights Vendor Relations Vendor Relations Understand who the gatekeepers are Merchandising creates the programming Operations executes the plan Multiple business functions must work in unison Long Term Planning 25

26 US Anomalies Think of the US as 50 separate countries Laws often tied back to the 21 st Amendment Repeal of Prohibition States allowed to govern the trade Examples: Florida Largest allowed pack size is 3L Georgia Below cost sales are prohibited Sunday sales recently approved Distributor franchise law Louisiana IRC are prohibited, MIR is allowed Minnesota Wine sales allowed, but must be a separate/confined area Mississippi Only one license allowed within the state for each corporation New Jersey Retail Incentive Program New York Sales prohibited in Grocery stores Ohio Minimum mark up, 33% minimum mandated at retail 26

27 Summary Summary: Industry is evolving and highly competitive in a tough economic climate Poor performers will shake out of the industry Grocery is a low margin industry, dependent on high volume Wine will likely remain a growth opportunity in Grocery Financial responsibility is critical for effective business management and decision making own your P&L! Analyze performance to monitor trends and identify opportunities in the market place Category Management to get the best performing items for the customer Own Brand is growing and is becoming a sophisticated market going beyond traditional price focus Work with Suppliers and Internal Departments to deliver results, Merchandising cannot work in isolation 27