Promotions in the Age of EDLP Lessons for Bulgarian Retailers & FMCG Suppliers

Transcription

1 Promotions in the Age of EDLP Lessons for Bulgarian Retailers & FMCG Suppliers Presented By: Himanshu Pal, Director of Retail Insights May 2015

2 Trade Investments Have Increased by ~5 Times Over the Last 35 Years % of Sales Turnover 25% of Sales Turnover Source: Gartner

3 Trade Promotions Effectiveness Roughly 67% of Promotions Don t Make Money 3 Italy 41% 59% Canada Germany 42% 43% 58% 57% Trade Promotions that DON'T Break Even Spain 51% 49% UK France 58% 58% 42% 42% Trade Promotions that Make Money USA 71% 29% 0% 20% 40% 60% 80% 100% Source: Nielsen Trade Promotion Landscape analysis

4 Retailing Environment Globally is Evolving Rapidly 4 Source: Kantar Retail

5 Current Retailing Environment Resembles a Perfect Storm 5 C Country C Consumer C Channel C Customer Source: Kantar Retail analysis

6 Riding Through the Perfect Storm Needs a New Approach 6 Insanity is doing the same thing over and over again and expecting different results. Albert Einstein

7 Current Retailing Environment Resembles a Perfect Storm 7 C Country C Consumer C Channel C Customer Source: Kantar Retail analysis

8 Shift in Balance of Power in Search of the Next Incremental (Sales and Profitability) 8 Modern Trade Sales CAGR e <3% 3-5% 5-9% >9% Source: Kantar Retail LFL driven growth SQFT driven growth

9 Increased Promotional Reliance to Drive LFL Sales and Market Share Improvement 9 % spend on deals Jan 2014 Jan 2015 Tesco 43% 46% ASDA 41% 47% Sainsbury s 43% 46% Morrisons 46% 44% Waitrose 38% 44% Source: Kantar Worldpanel, and Kantar Retail research 1. Alcoholic drinks 69% 2. Confectionery 67% 3. Non-alcoholic drinks 66% 4. Personal care 64% 5. Household goods 58% 6. Chilled and fresh food 50% 7. Frozen foods 50% 8. Ambient foods 50% 9. Pet care 40% 10. Pet food 40%

10 Increased Promotional Spending Across Europe But is it Helping??? 10 In Europe, level of Trade Promotions increased by 0.8% but Volume Sales decreased 0.7% 10% 8% 6% 4% France Netherlands Italy Spain UK Germany 8,2% 3,6% Change in Sales Volume (Food) on Promotion 2% 0% -2% -4% 0,2% 0,8% -2,9% -1,8% 0,7% -0,5% -0,6% -1,6% 1,2% -0,5% Change in Volume Sales (Food) Source: IRI

11 Capabilities Needed - Trade Promotion Management and Optimisation What & How Promotions Work? 11 High Low Retailer Benefit Retailer Growth 17% Subsidization 32% Mutual Growth 24% Manufacturer Growth 27% Low Manufacturer Benefit High Source: Gartner and Kantar Retail research

12 Capabilities Needed - When Planning Promotional Activity do Evaluate all Possible Impacts 12 Promotions Drive Traffic Build Basket LFL - Traffic Growth % LFL - Basket Growth % 17.0% 7,0% 8,0% 13.0% - Total LFL Growth % The retailer managed to fix the issue with declining traffic but its actions proved counterproductive as the basket value dropped. 10,0% 5,0% 5.0% 6,0% 3,0% -1,0% -0.5% -3,5% Source: X5 Retail, and Kantar Retail analysis

13 Current Retailing Environment Resembles a Perfect Storm 13 C Country C Consumer C Channel C Customer Source: Kantar Retail analysis

14 Rapidly Changing Consumer Profile 14 In 1998, 21% of Europeans were aged 65 or older By 2025, this proportion will have grown to 33% By 2050, it will be 47% Ginni Coefficient in Bulgaria has increased from 25 (2009) to 35.4 (2013) Bulgaria Romania Europe Avg. Internet Penetration 56% 50% 68% Mobile Subscription Penetration 154% 104% 139% Source: Kantar Retail research

15 Changing Consumer Profile Influencing Shopper Expectations, Behaviour and Definition of VALUE 15 SHOPPER DECISION TREE Source: Kantar Retail research and analysis

16 Shoppers in Quest for Value are Increasingly Open to Store/Brand Switching 16 Promotion Sensitivity (%) I change stores based on which one I think has the best promotions that trip I regularly buy different brands because of promotions 70% High Sensitivity Medium Sensitivity Low Sensitivity 60% 50% 18% 40% 30% 20% 10% 0% 22% 22% 21% 20% 16% 19% 25% 23% 20% 20% 19% 14% 18% 15% 42% 18% 25% 18% 8% 17% 35% 16% 16% 16% 30% 16% 14% 13% 19% 20% 20% 12% 12% 10% 29% 24% 27% 10% 17% Source: Nielsen Shopper Trends

17 However, Shopper Definition of VALUE No Longer Limited to Price 17 Real Value = Price + Time + Quality + Experience Source: Kantar Retail analysis

18 Time has Become One of the Most Prized Investment for Shoppers 18 Reasons for Store Selection Proximity Value for money Prices & offers Variety Private label Service Parking Habit Quality fresh Lay-out Offers Source: Kantar Retail research

19 Time Starved Shoppers Looking for Clear and Consistent Price Offer and Messaging 19 Grocery shopping is fun Grocery shopping takes too long 46% % Agree % Agree 61% 60% 44% 54% 61% 41% 40% Source: Etude TNS Distrivision GMS 2013

20 Capabilities Needed Category & Brand Plans Need to be Based on Shopper-First Principle 20 Different strokes for different folks EDLP vs Hi-Low pricing for different shopping missions and categories Pricing as an enabler for time saving Clear, simple, consistent, clutterfree pricing and promotional mechanics Get ready for the new digital age - connect, engage, trigger purchase, and stay connected with digitally enabled shoppers Source: Kantar Retail

21 Current Retailing Environment Resembles a Perfect Storm 21 C Country C Consumer C Channel C Customer Source: Kantar Retail analysis

22 Channels Evolving to Cater to the Changing Shopper Needs 22 Growth of DiCE (Discount, Convenience & Online) Hypermarket Re-invention Source: Kantar Retail

23 DiCE Gaining Momentum in the Balkans 23 Growth of Discounters ecommerce = Everywhere Commerce Market Sales CAGR ( e) Discounters Overall Grocery Discounter Market Share e Romania 12.4% 7.5% 16.4% 21.4% Greece 5.6% 2.5% 11.7% 14.0% Croatia 9.8% 4.0% 6.2% 8.6% Bulgaria 16.0% 9.1% 8.5% 12.3% Source: Kantar Retail research In Romania, Delhaize partnered with online consumer electronics retailer emag to use the latter s platform to sell groceries online. Almost overnight the retailer went from having no ecommerce operations to selling online

24 Channel Blurring Challenging the Traditional Operational & Commercial Models 24 Source: Kantar Retail

25 Convergence of Pricing & Promotional Mechanics 25 EDLP EDLP+ Medium-Low Hi-Low Premium Source: Kantar Retail

26 Discounters are Using Weekly Promos to Tie Shopping Trips to Particular Days of the Week 26 Day shoppers tend to conduct particular missions (excl. shoppers that state they had no regular day) Monday Tuesday Wednesday Thursday Friday Saturday Sunday 10% 9% 10% 9% 18% 12% shopping on Saturday (often the day 18% 23% 18% retailers such as 20% Lidl have Super Saturday 24% 50% Off on selected groceries 19% 13% 13% 15% 19% 8% 17% 17% 17% 17% 19% 31% 17% 19% 19% 31% shoppers do their 13% non-food shopping 13% on the 6% 10% 11% 10% 8% 9% same day as 9% Non-Food 4% 13% 12% 13% 11% 12% 16% Buy Certain Products You prefer in discounters Top up on fruit and vegetables Top up on staple items 24% shoppers do their main Discounter Weekly Specials begins Buy certain products You can ONLY get in discounters Buy Non food items Do your main shopping trip

27 Penny (CZ) has Used Newer and More Promotional Mechanics to Supplements its Core EDLP Offer 27 Promotions linked to loyalty card Rounded Price Point Promotions Promotions Price reductions Source: Kantar Retail Promotions linked to competitions

28 Increased Promo has Helped Penny (CZ) Stem the Decline in Basket Size 28 Source: GfK

29 But has Adversely Impacted Penny s Price Perception 29 % of shoppers who think the brand doesn't cost more than they are willing to pay Plus acquired by Penny Ranked in order of best price perception Lidl has done a better job of highlighting its quality credentials against price meaning more shoppers do not think the brand costs more than they are willing to pay Source: BrandZ

30 Capabilities Needed Innovative Thinking and Assets Needed to Connect & Engage 30??? Source: Tesco.com and Kantar Retail analysis

31 Current Retailing Environment Resembles a Perfect Storm 31 C Country C Consumer C Channel C Customer Source: Kantar Retail analysis

32 Key Account Management Growth will come from Uncomfortable Areas 32 Choice 1a: Win with the Winners Rock Problem is, the winners are all deeply challenging customers that are hard for large suppliers to sustainably keep focus on: Too tiny Too mean Too dilutive Too complicated Choice 1b: Uncomfortable Clusters Hard Place With larger more comfortable customers the wins are going to come from targets and clusters within those customer bases that have historically been underserved Therefore shoppers should become the center of your growth planning

33 Key Customers Who To Choose/Partner? 33 Partnering with the ones we know, top sales volumes today COMPANY % CAGR GROWTH (billions) 5.3% % % % % % % +5.6 CHALLENGE: No matter which turtle you pick, not moving quickly 4.5% % % +8.2

34 Key Customers Who To Choose/Partner? 34 Make bets on customers growing faster than the market COMPANY % GROWTH GROWTH (billions) 16.9% % % % % % % +5.1 CHALLENGE: For the most part, we don t know and/or like these customers and they might not like or need us 3.9% % % +2.5

35 and the interpretation of EDLP is fairly subjective! 35 Asda Moves from 42% to 47% on Deal Compared to Change in % Sales on Promotion Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Mar 15

36 Despite Increased Pricing/Promotional Activity Retailer Margins Haven t Really Seen Erosion Gross Profit 24,7% Gross Margin 25% Gross Margin in Recent Years Grew by: 20 24% Group 0.2% Gross Profit (EUR billion) ,4% 19,3 19,9 22,1% 22,0% 22,5% 22,8% 23% 22% Gross Margin Czech Rep. 4.7% Poland 1.6% Germany 1.9% 16 16,8 16,7 16,8 17,0 21% UK 2.0% % Source: Company reports and Kantar Retail

37 Suppliers Often Perceived and Treated as Cash Cows 37 (EUR Million) Carrefour Nestle Coca-Cola Company Sales 74,706 76,153 34,650 Sales Growth (%) (0.2)% 1.3% (1.8)% Cost of Sales (59,207) (39,529) (13,476) Gross Profit 15,436 36,624 21,175 Gross Margin (%) 20.7% 48.1% 61.1% Operating Expenses (9,777) (25,181) (13,861) Operating Profits 2,387 11,443 7,313 Operating Margin (%) 3.2% 15.0% 21.1% Inventory 5,975 7,296 2,402 Trade Payables 7,724 13,109 2,089 Working Capital 1,749 5,813 (313) Inventory Turnover Capital Expenses 2,411 3,914 2,406 Free Cash Flow ,751 4,376 With an operating margin of 3.2% (versus your double digit margins) expect Carrefour to fight extremely hard, especially as their 3% margin comes under further pressure Carrefour under growing pressure from shareholders for shortterm ROI will look to generate higher Free Cash Flow by increased focus on Margin and Working Capital management Source: Company Reports and Kantar Retail analysis

38 Capabilities Needed New Approach to Key Account Management Needed 38 High Sheila Gallagher Trading Director, Tesco Low STRATEGIC FIT Future Bets Problem Supplier Strategic Partners Cash Generators "A best in class supplier must have a shopper focused growth agenda, understand the operational and commercial model of the retailer, have the ability to adapt quickly to changing market conditions and help us to differentiate. Its approach is fact-driven as opposed to brand-driven. Low PROFIT High Source: Kantar Retail analysis

39 Short-term ROI Mentality Taking Centre-Stage 39 Dalton Philips Philip Clarke Lars Oloffson Improving Free Cash Flows Improve Sales & Margin Improve EBIT (Op. Profits) Leverage Working Capital Reduce Capital Expenditure Sweat Own Assets / Ride Other s Assets Source: Kantar Retail

40 Customers Adopting Low Capital Intensive Models as Focus Shifts to Balance Sheet Economics 40 Middle East, North Africa Central Asia Southeast Europe (Balkans) West & Central Africa Rapid Entry into New Countries + 6 countries + 4 countries + 8 countries COUNTRIES REGIONS CURRENT Egypt, Saudi Arabia, Jordan, Iraq, Kuwait, Bahrain, Qatar, UAE, Oman, Iran, Pakistan. TURKEY (SABANCI) Greece, Bulgaria, Cyprus, Macedonia (FYR). Middle East, North Africa, Southern Balkans EXPANSION Kazakhstan, Armenia, Azerbaijan, Georgia, Libya, Lebanon Albania, Serbia, Montenegro, Bosnia & Herz., Cameroon, Congo, Côte d'ivoire, the Democratic Republic of the Congo, Gabon, Ghana, Nigeria & Senegal Central Asia, Western Balkans, West and Central Africa SYNERGY MODEL 1. Promotional designs 2. Coordinated supply chain 3. Property/franchise development 4. Business philosophy (senior managers ex-carrefour) In October 2013 Carrefour reorganized the Balkans and Turkey where Balkan expansion is managed from Cyprus +25 countries by 2015 Potential of +40 in 5 to 10 years Source: Kantar Retail

41 EDLP vs Promo What Helps the Retailer Optimise P&L and Balance Sheet Economics 41 Ease of Demand Forecasting Operating Expense Reduction Ease of Inventory Management

42 Conclusion Some Food for Thought 42 Targeted innovation in product and promotional execution is the best way to ensure a longer term weaning from promotional reliance Possible/desirable to cede market share by steadily decreasing promotions? The upside could include enhanced margins and a shoring up of brand equity Offer retailers something else aside from price promotions, such as exclusivity, differentiation, contests or engagement with CSR objectives Initiatives such as limited edition SKUs, contests, social media and direct-to-consumer loyalty schemes could provide an alternative route to shopper engagement

43 Kantar Retail The Retail & Shopper Specialists 43

44 Kantar Retail The Retail & Shopper Specialists 44

45 45 For further information please refer to Contact: Himanshu Pal Director of Retail Insights T: +44 (0) M: +44 (0) Himanshu_Pal