COURAGEOUS G.R.O.W.T.H. LET'S GET ON WITH IT! US 2017

Transcription

1 COURAGEOUS G.R.O.W.T.H. LET'S GET ON WITH IT! US 2017 Executive Summary Established in 1997

2 A Courageous Company has the courage to be wrong on something they have never done before versus being wrong on something they know no longer works. 2

3 "Never before has so much change produced so little value for the industry." "Organizations that have embraced the change are beginning to see returns." "Leadership is for the taking. If we are going to grow, we must get the courage to lead." 3

4 In This Issue Introduction... 6 Executive Summary Results (Available in Full Report) Manufacturer Rankings...23 Retailer Rankings

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6 Introduction The survey originated from our industry benchmarking studies on category management and trade promotion management, which for the past 21 years have provided insight into industry best practices in these areas. The objective of the PoweRanking study is to research and benchmark how retailers and manufacturers view each other in the most important areas of the manufacturer-retailer relationship. The PoweRanking study identifies those retailers and manufacturers who set the standard of performance as ranked by their trading partners. This provides benchmarks for retailers and manufacturers across trade channels. The specific goals of the research are to: Identify the best manufacturers and retailers, as evaluated by their trading partners Provide insight into what makes them the best Define the importance of key metrics between trading partners Highlight areas for improvement 6

7 Customized questionnaires were developed for retailer and wholesaler respondents in food, drug, mass merchandise, dollar, convenience, and club channels, as well as for manufacturers in food, household products, general merchandise, and health & beauty care categories. These questionnaires are distributed every spring from 1997 to 2017 to personnel at all levels of management, with the assurance of total confidentiality of respondents. Over 550 manufacturer and retailer respondents participated in this year s study. The results of the 2017 survey were compared with the results of 2015 and 2016 to determine the causes behind shifts in the rankings. Retailers were asked to rank manufacturers on criteria that fall into two broad areas: STRATEGIC METRICS Clearest Company Strategy Most Important Consumer Brands to Retailers Best Combination of Growth & Profitability BUSINESS FUNDAMENTALS Best Sales Force / Customer Teams Most Innovative Marketing Approach Best Consumer & Shopper Insights / Category Leadership Best Supply Chain Management Best Shopper Marketing Programs Best Use of Digital Platforms Manufacturers were asked to rank retailers on similar criteria: STRATEGIC METRICS Clearest Company Strategy Best Store Branding to Shoppers Projected Power Retailers in 15 Years BUSINESS FUNDAMENTALS Best Retailer to do Business With Best Category Management / Buying Teams Most Innovative Merchandising Approach Best Supply Chain Management Best Practice Category Leadership Best Use of Digitial Platforms 7

8 Results were tabulated on a two-year rolling basis, reflecting the percentage of respondents ranking each company among the top three. Additionally, follow-up qualitative interviews were conducted among a diverse group of manufacturers and retailers to provide further insight into the data. The PoweRanking methodology reflects mergers and acquisitions that have occurred in the past. We have consciously rolled up operations into the parent company where appropriate for this year and versus a year ago. At the same time, where retailers and manufacturers are operating largely as independent companies, they are treated as such in the data. As a dynamic monitor, PoweRanking will continue to consolidate or separate companies as retailers perceive them. PoweRanking COMPOSITES The 2017 PoweRanking results include the Overall PoweRanking Composite, created by weighting the three strategic rankings equally with the six business fundamental rankings (see previous page) thus placing greater importance on the strategic rankings. This reflects the importance of sound strategy as an overall driving force in business performance. STRATEGIC COMPOSITE The Strategic Composite combines the three strategic measures into an overall composite to provide better insight into which manufacturers and retailers are most strategically important to their trading partners. BUSINESS FUNDAMENTALS COMPOSITE The Business Fundamentals Composite combines the six fundamental areas of business into a composite, which reflects the retailers and manufacturers opinions of those trading partners that have the strongest organizations and personnel and provide the best tools for solid business development. DIGITAL PLATFORMS Beginning in 2011, Kantar Retail added a measure for Digital Platforms. Given its increasing influence on retailers, manufacturers and consumers, digital is now a measure to be monitored and as of 2017, is included in the Business Fundamentals Composite. 8

9 2017 Participating Manufacturers 3M Abbott Laboratories Alcon Bayer Beam Suntory Bimbo Bakeries USA Blue Diamond Growers Botanical Food Co Bush Brothers & Company Campbell Soup Company Carl Buddig & Company Chobani Church & Dwight Company The Clorox Company Coca-Cola Colgate-Palmolive ConAgra Brands Coty, Inc. DanoneWave Del Monte Foods Inc. Diageo Dial Corporation Dr Pepper Snapple Group E & J Gallo Winery Edgewell Personal Care Energizer Holdings, Inc. Florida's Natural Flowers Foods General Mills, Inc. Georgia-Pacific GlaxoSmithKline Good Karma Foods Gorton's of Gloucester Hallmark Cards Hamilton Beach Brands Hasbro, Inc. Heineken USA Helen of Troy Henkel Corporation The Hershey Company Hormel Foods Corporation Inventure Foods The J.M. Smucker Company Johnson & Johnson Johnsonville Sausage Jones Dairy Farm KAO Brands Company Kellogg Company Keurig Green Mountain, Inc. Kimberly-Clark Corporation The Kraft Heinz Company L'Oréal Mars, Incorporated Masterfoods, USA McKee Foods Corporation Mead Johnson Nutrition Menasha Corporation Mighty Leaf Tea Mission Foods Mondelēz International, Inc. Morton Salt Nestlé USA Newell Brands Novartis Pactiv Pepperidge Farm PepsiCo Pfizer Inc. Philips Consumer Lifestyle Pinnacle Foods Post Foods Procter & Gamble Red Bull GmbH Rich Products Corporation S.C. Johnson & Son Samsung Sargento Foods Inc. The Schwan Food Company Scotts Miracle-Gro Company Seneca Foods Corporation Société Bic StarKist Co. Sun-Maid Growers of California The T. Marzetti Company Tom's of Maine Treasury Wine Estates Tree Top, Inc. Tyson Foods, Inc. Unilever United Sugars Corporation Water Pik, Inc. WD-40 Company 9

10 2017 Participating Retailers 7-Eleven 99 only Ace Hardware Corporation Ahold Delhaize Albertsons Companies Aldi Associated Food Stores Best Buy Big Lots, Inc. BJ's Wholesale Club Boyer's Food Market, Inc. Bravo Supermarkets Brookshire Grocery Company C & B Supermarket Inc C&S Wholesale Grocers Circle K Costco Wholesale County Market Crossmark CST Brands CVS Health CV's Family Foods Dash's Markets Dollar General Corporation Dollar King Dollar Tree, Inc. Eco Travel Plaza Five Below Food Lion The Fresh Market Gamestop Corp. Giant Eagle Harris Teeter H-E-B Grocery Company Hobby Lobby The Home Depot Hy-Vee Ingles Markets, Inc. Jet.com The Kroger Company Lowes Foods Meijer, Inc. Peapod Petco Publix Super Markets, Inc. RaceTrac Petroleum Ralphs Rite Aid Royal Dutch Shell Safeway, Inc. Sam's Club Save Mart Supermarkets Shopko Express Smith's Food and Drug Centers, Inc. Southeastern Grocers Speedway Strack & Van Til SuperValu, Inc. Target Corporation Terra Market Tops Friendly Markets Trader Joe's Unified Grocers Wakefern Food Corporation Walgreen Company Walmart Stores, Inc. Wegmans Food Markets, Inc. Whole Foods Market Winn Dixie Stores, Inc. 10

11 COURAGEOUS G.R.O.W.T.H. Executive Summary "A Courageous Company has the courage to be wrong on something they have never done before versus being wrong on something they know no longer works." This year PepsiCo and Walmart emerged as the top trading partners in PoweRanking. These companies earned top accolades thanks to their ability to anticipate the future, but more importantly thanks to their courage to act on the understood, but perhaps unknown. If one works in the consumer products and retail industries there are a blizzard of external factors disrupting this ecosystem. Internal pressures from activist investors and proxy fights battle for headlines with the competitive pressures brought on by the acceleration of ecommerce and challenger brick and mortar formats like hard discounters. At the same time, the shopping and consumption preferences of younger generations who favor natural products and who often trust niche or private brands over national brands are spreading to the population at large. And, while we live in a world of big data, the actual data needed to run a business is becoming scarcer and new data sources are becoming prohibitively expensive. Given this state of continuous chaos, many have shifted their attention to delivering financial goals by turning away from growth and focusing on driving the bottom line. Though this approach to margin management has satisfied short-term shareholders, this is not a sustainable strategy for delivering long-term stakeholder value. The future must focus on topline growth. 11

12 Every year, we listen for the one quote that captures the spirt of the year s was, Never before has so much change produced so little value for the industry. For 2016, it was, Organizations that have embraced the change are beginning to see returns. And in 2017, it is: In this environment, leadership is for the taking. If we are going to grow, we must get the courage to lead now. Courageous Companies have the courage to lead. Too often managers allocate resources to strategies from a playbook they have executed in the past. They do this because these are plans with which they are familiar, ones that have worked in prior years that their teams know how to execute. Specifically, ones their structures can deliver in a world of diminished resources and constrained organizational capacity. Often the comfortable plays are tied to lapping a key event and could not risk missing year-overyear comps, or where that year-over-year growth got baked into a volume forecast. This style of running the business is often driven by fear of failure and the inability to plan in a forward-looking way. In the world beyond 2017, however, there is a far greater risk of failure from executing the same playbook versus developing and executing a courageous-growth plan. Growth is out there and some are finding it, but all must have the courage to commit to act on it. COURAGEOUS G.R.O.W.T.H. might be achieved through Granularity, Reinventing Innovation, Ownability, Ways of Working, Truth Telling, and Human Understanding. In order to achieve COURAGEOUS G.R.O.W.T.H, one first needs the courage to have the tough conversations and make the necessary commitments that will ultimately unlock it. 12

13 Courageous Conversations 13

14 Courageous Commitments and Actions of Growth Leaders Granularity Are we specific in getting to the right insights and actions? In the last few years the trade has put a greater focus on shopper research and analytics which has resulted in a lot of information. However, improvement is needed in getting more specific and then translating the math to marketing in a clear and actionable way. At the same time, in a world of more fragmented growth opportunities for retailers and suppliers, the only pathway between granular opportunity and scalable initiatives is math. In this era of big data, it is getting more difficult to navigate complex data lakes and translate big data into big insights. Machine-based learning holds great potential for this type of analytic fuel for growth, but it will require investment of money, talent, and time. Best-in-Class Example: General Mills, for launching Oui by Yoplait As the Greek segment matured, General Mills identified an underserved segment who didn t like the unique taste of Greek yogurt. General Mills recognized the shift in consumer preference to more whole ingredients and indulgent taste. The Yoplait team s Courageous Action was looking beyond the US borders to identify the latest in consumer health and taste trends and despite the Greek yogurt trend, the Yoplait team went back to their French heritage to launch a new product and package system in the US market. The business results have been very positive and are on track to be one of the biggest new product launches in the history of the Yogurt category. My role is to figure out (as best as possible) what is going on with our business (why is it trending the way that it is) and provide insight in a way that senior leadership can course correct. In recent years there has been an explosion of information from so many resources we cannot get our hands around all of it. The skill set to answer is far and few between and as an industry we are actually getting worse at it. Most organizations are going so deep with their analysis, management can t understand it and want to be spoken to in English. I don t want decks and decks. I need them to transition to "here s what we need to do to grow these categories." We need them to get scientific and surgical. 14

15 Courageous Commitments and Actions of Growth Leaders Reinventing Innovation Are we selling the products and experiences shoppers want? Innovation and renovation are at the core of staying relevant to consumers and shoppers. The stage gate process to new product development has been widely adopted in the industry, and while this approach does yield some transformational innovation, it often results in incremental progress and SKU proliferation with no meaningful outcome for the retailer s shelf. According to Mintel, in 2016 the US CPG industry brought more packaging changes to market than genuinely new products! This fact neglects to mention the number of new items that do not even succeed in the long term. The result is low ROI for both the manufacturer and retailer, and increasing retailer distrust of large manufacturers and their category vision. To keep up with the changing landscape and to have bigger and faster impact, growth leaders are ramping up their M&A activities. In this new era, growth leaders are spending more time understanding the consumer and shopper landscapes and seeking out companies that fill a gap that these leaders cannot in a timely way. Furthermore, they are letting these acquisitions run as standalone companies as opposed to integrating them into the core business. Best-in-Class Example: Unilever goes on buying and selling spree Unilever is working to deliver growth by staying current with consumers desire for healthier and more natural products as well as delivering against a more digitally-focused shopper experience. In 2016, Unilever made two significant acquisitions with Dollar Shave Club and Seventh Generation. They have continued their investment in growth business with additional acquisitions in Living Proof (a premium hair care business), Hourglass (a luxury color cosmetics brand), and Pukka Herbs (an organic herbal tea). Though these are example of acquisitions, they demonstrate a commitment to Unilever s corporate strategy. The Courageous Action is their commitment to developing an M&A strategy and executing against it. We invest an incredible amount of resources (people and financial) in bringing new products to life. A "Transformational" new item may take us 3 or more years to bring to market with significant investments in insights, development, capital and opportunity cost. Even a basic line extension can take a year to complete. Often in both cases they are yielding very little category growth. In a landscape that is changing this fast we have had to shift resources from R&D to M&A just so we can keep up. We are learning that it is just more efficient and less risky to let someone else go through the development process and then acquire them at the right time. 15

16 Courageous Commitments and Actions of Growth Leaders Ownability Are we executing a playbook that is unique to our business, and one we can own? Many companies today are running a growth playbook that is somewhere between dated and obsolete. This spans every aspect of demand creation and conversion branding, portfolio, innovation, category, trade, and sales. Manufacturers need to understand if their brands are relevant and resonant to today s consumers, and if not, determine if they have intellectual and operational agility to get that relevance back. For retailers, the challenge is in some ways more visceral, in that many of their core assets (stores) are becoming less productive the playbook there has to change quickly to understand the role of the store in a more omnichannel world. Best-in-Class Example: PepsiCo, for creating a highly strategic LRP with continued execution against it Not only has PepsiCo earned the top spot for a second year in a row in the manufacturing ranking, they are the undisputed leader. They are now ahead of their nearest competitor by 14.1 points. Furthermore, they earned the #1 position across all 9 metrics. PepsiCo s emergence as the #1 manufacturer has been a steady and consistent journey. This progress was grounded in the consumers desire to have better for you products, which set a long-term strategy of optimizing its product portfolio with an unwavering commitment to execution. The Courageous Action is PepsiCo s commitment to developing a truly new playbook for success, and resourcing and executing accordingly. Best-in-Class Example: Kroger, for their long-term commitment to a reinvented playbook. Though Kroger finished second in the retail PoweRanking in 2017, its leadership position, like PepsiCo s, is rooted in a deep commitment to changing its economic, analytic, merchandising and marketing models over a very long time. As befits a business profiled in the Jim Collins book Good to Great many years ago, Kroger has excelled as an executor against a playbook radically different than one it had used for its first 120 years of operation. This playbook reinvention is a big part of why Kroger finished #1 in the Business Fundamentals section of the retail PoweRanking. The Courageous Action is their commitment to the long term. The landscape has changed significantly over the past 5 years and big CPG companies are really struggling to keep up. Often, this void is being filled by smaller, more entrepreneurial companies. I think they are finding success not just because they are smaller and nimbler, but because they are often operating without a playbook. Many of the big CPG s are still operating off a script in a world where they could make their numbers by executing well with large scale retailers. In this world of "retailer rationalization" they are going to have to rethink how they are going to work with us or they will simply be left behind. 16

17 Courageous Commitments and Actions of Growth Leaders Ways of Working Do we have the structure, and are we developing winning teams, based on the work of tomorrow? The critical step to becoming a courageous company is creating a culture where employees are comfortable taking calculated risks without fear of retribution. As the bottom-line focus has driven headcount reductions, it has also created, for many companies, a cultural aversion to risk. Those who remain are sometimes have a pervasive worry that taking on something unplanned will drain scarce resources and lead to overwork or lack of focus. There also appears to be confusion about the best types of talent to retain or hire and the best ways to connect, both internally and externally. Best-in-Class Example: Walmart, for undertaking a massive cultural change Walmart achieved the #1 position in the retailer rankings for the 21st year in a row. Last year Walmart was in a virtual tie with Kroger and, albeit with a narrow margin in 2017, Walmart regained the lead over Kroger. Walmart continues to prepare itself for the future by staying true to its low price strategy for Walmart stores, while looking for new sources of growth through acquisition of online and B&M retailers. In 2016, Walmart acquired Jet.com and in 2017 continued growth through acquisition of five other retail brands including: Bonobos, Modcloth. com, Shobuy.com, Hayneedle.com, and Moosejaw. The Courageous Action is staying true to parts of the core culture, but through both acquisition and internal change getting over two million employees to think about Walmart as an omnichannel, rather than a store-based retailer. The talent profile needs to be addressed. If a person has been with the company 30 years, are they willing to put in the necessary effort? Does a new person have enough knowledge of the market and the retailer needs? As an industry, we need to figure out how to attract, educate, inspire, motivate, and retain both tenured and new talent. Many of us have reorganized over the past couple of years to reduce operating cost, but we have not addressed the cultural impact this has had on our business. In many cases we are "loading people up" with responsibility and not giving them the tools and training to be successful. We essentially are just trying to have them "do more with less" which is leading to burnout. 17

18 Courageous Commitments and Actions of Growth Leaders Truth Telling Are we being honest with ourselves and our trading partners? It s well known that sales have been soft in many categories over the past few years. Given these continued trends the most commonly asked question is why. While there are many hypothesis, the honest answer is that many simply don t know why. For this reason, many companies are not courageous which leads them to executing programs they know won t work, but do it anyway. Best-in-Class Example: Coca-Cola for understanding the why and making big changes and one of the key variables cited was its commitment to bringing strategy to their retail partners. Leveraging its deep consumer insights and clear view of the future, its retail partners continue to rank Coca-Cola as a leader in turning strategy into execution at the shelf. Additionally, it took Coke Zero and modified the taste, package design and updated the brand to Coke Zero Sugar. The company realized that many consumers didn t fully understand the meaning of zero (i.e. sugar and calories) so they enhanced the branding to make the benefit clear. The Courageous Action is their commitment to keeping its brands relevant by changing flagship brands typically considered taboo. Some of the trading partners we work with are either flying by the seat of their pants and we don t believe them OR they are answering with so much analytical horsepower we can t get an intelligent or practical answer. We need someone who has the right tools and we need people who can assess data and then speak with senior level people. It is not a lack of information, it is more about our inability to put our finger on the right expectation and we are afraid of making the wrong decision. As volume shifts from measured to non-measured channels coverage isn t as good as it once was. Right now, Truth Tellers are in high demand! We need real, richer relationships. It means transparency about new programs and what they need us to get behind, as opposed to taking three hours to convince us that it s the next biggest thing. Just be honest up front about what you need from us and what success looks like for you, so we are fully aligned when we move forward. 18

19 Courageous Commitments and Actions of Growth Leaders Human Understanding Are we deepening our understanding of consumers and shoppers? Last year was a tipping point for ecommerce, which means the industry is officially no longer bricks and mortar, but without question, omnichannel. Brands and marketing along with retailers, sales, and shoppers are closer now than they have ever been. In the old B&M model, the industry used to think about consumer and shopper demographics (age, number of kids, income, etc.). Then there was a move to psychographics (attitudes, aspirations, activities, etc.). But in the digitized era, best-in-class companies are now moving beyond consumers and shoppers and can harness big data to truly understand humans in a more holistic and deeper way. Furthermore, they are understanding their own internal self and are breaking down marketing and sales silos resulting in true customization and connectivity to shoppers and retailers. Best-in-Class Example: Amazon, through its acquisition of Whole Foods. Amazon continues its rise up the PoweRanking ranks to the #4 ranked retailer in 2017, and no company made a more courageous bet on a different future in 2017 than Amazon s expanding into brick and mortar grocery retail. Jeff Bezos often talks about courageous growth mostly in terms of his company s ability to take risks and tolerate failure vs. his competitors that are more culturally and financially constrained. Amazon will continue to make very courageous bets on growth in the future, challenging the rest of the industry to respond. The Courageous Action is showing the trade how B&M and ecommerce can work synergistically. The digital life that we all live in has given us the ability to track, understand, and learn about consumers and shoppers. The "you might also like" suggestions we see in online purchases are just the beginning. We were at a point where everything was moving from B&M to online and everyone thought that B&M were going to be gone forever. While some B&M retailers have been significantly impacted by this, the future trend will be greater digitization of stores. The more we can understand the online retailer, the more we can utilize this information to change the future of B&M. It won t be long and we will be driving in-store baskets through digital versions of shoppers like you bought this and other yet-to-be-discovered executions. 19

20 The 2018 G.R.O.W.T.H. Chart 20

21 Closing Statement In the end, it is about sustainable growth and profitability. Those who consistently deliver are generally regarded as best-in-class. Over the past several years, the industry has been living in a zero-growth environment which has put tremendous pressure on management to deliver bottom-line centric, short-term investor results. Many have driven profits by restructuring to drive out cost while others have bought back shares of stocks to drive EPS collectively for most of the last 2.5 years the S&P 500 has returned more cash to shareholders than it has earned. Clearly, the better long-term strategy is to put the consumer and shopper first delivering products and services that they genuinely want and value. While easy to say, it can be quite challenging and expensive to implement and often requires courageous conversations regarding investments and allocation of resources. Although this can be difficult, it is the fiduciary responsibility of management to have these discussions upfront rather than having to explain to the board and investors why the company did not achieve desired results. It is reasonable to expect that these challenging times will continue for the foreseeable future. It is important to remember that in this environment leadership is for the taking, if you are going to grow, you must get the courage to lead. COURAGEOUS G.R.O.W.T.H. Let s get on with it! 21

22 BE COURAGEOUS Reach out to Kantar Retail to obtain a full report of the 2017 manufacturer and retailer Rankings. Learn how YOU can get deeper insights into how to return to growth in 2018 and beyond. For a copy of the full PoweRanking report, contact Dan.Raynak@kantarretail.com Study Price: US $2,500 22