The Twin Disruptors: How Aldi and Lidl are Poised to Shake Up the US Retail Landscape

Transcription

1 The Twin Disruptors: How Aldi and Lidl are Poised to Shake Up the US Retail Landscape PLMA 2017 Private Label Trade Show Mike Paglia, Director 14 November 2017

2 Agenda Surveying the Macroeconomic Backdrop Aldi and Lidl s Five Pillars of Disruption How Manufacturers Should Respond 2

3 Recession A Post-Recovery Macro Environment Mixed indicators relative to pre-recession 4.4% $120,000 Tailwinds Benefiting Retail Unemployment Rate 10.0% 4.2% Household Net Worth 6.0% 4.0% 2.0% 0.0% Headwinds Dampening Retail Wage and Salary Growth Uneven Regional Job Trends 5% 4% 3% 2% 1% 0% Renewed/Sustained Challenges Growth in Healthcare Costs Gasoline Prices $80,000 $40,000 S $ Source: U.S. Department of Labor, gasbuddy.com, Kantar Retail analysis 3

4 The Big Middle Gets Smaller as Demographic, Economic, and Retail Trends Bifurcate RETAIL FORMAT INCOME BIFURCATION Online Have Big Box Mass Small box, limited assortment consumables retailers Middle Income Have Not HOUSEHOLD Empty nesters/ Retiring boomers Families Millennial households without children Middle income suburban family GEOGRAPHY Big city/urban New Suburbs Small city/rural 4

5 Shopper DNA Continues to Evolve Demand for stress-free shopping and value essentially now equal What Matters to Shoppers (% ranking factor among top four most important when shopping in general) Minimizing spending Feeling like I got a "good deal" Stress-free shopping Shopping in one place Completing shopping quickly Purchasing high-quality products Having fun/enjoying myself Employee interaction Discovering new products/brands Having acccess to info Shopping to reflect my values 19% 16% 11% 11% 27% 48% 44% 37% Engagement 60% 65% 64% Value Convenience Note: Arrows indicate direction of change vs. previous year. ShopperScape, April 2016-March

6 How Will the Value Shopper Change Over Time? Almost three out of every four dollars spent on services, automobiles, and gasoline by 2022 Income Growth Slower than prerecession 5.5% 4.0% Core Goods Spending Slower 5.3% 3.3% Fragmentation Divides Shoppers Brand Choice Have/Have Not Big City/Small City Boomer/Millennial B&M/Online Premium Brands: Unprocessed/natural, exclusivity, authenticity, solution oriented, reflects personal affiliation & values Traditional Brands Value Brands: Private label, limited assortment, single-price point, large/small pack size, versatility/utility 6

7 Agenda Surveying the Macroeconomic Backdrop Aldi and Lidl s Five Pillars of Disruption How Manufacturers Should Respond 7

8 USD Millions USD Millions Aldi and Lidl Are Growing at a Time that Maximizes Their Disruptive Potential $30,000 ALDI US 3,000 LIDL US $8, $25,000 $20,000 $15,000 $10,000 $5,000 $- Sales Stores 2,447 2,307 2,167 2,032 1,902 1,757 $23,997 $21,770 $19,791 $17,913 $16,184 $14, E 2018E 2019E 2020E 2021E 2022E 2,500 2,000 1,500 1, $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 530 Sales Stores $7,080 $5, $3,776 $2, $122 $ E 2018E 2019E 2020E 2021E 2022E

9 Both Retailers Are Riding Global Momentum Rank ^Walmart ex. Sam s Club Retailer Retail Sales in $US Billions Sales Added ($US Billions) Sales CAGR % of KR % of Global Total Added Retail Growth E 2022E '12-'17E '17E-'22E '12-'17E '17E-'22E '12-'17E '17E-'22E 1 Walmart^ $ 397 $ 457 $ 507 $ 60 $ % 2.1% 3% 1% 2 Amazon.com $ 59 $ 155 $ 248 $ 96 $ % 9.9% 6% 2% 3 Schwarz Group $ 89 $ 138 $ 191 $ 49 $ % 6.7% 3% 1% 4 Costco $ 99 $ 126 $ 172 $ 27 $ % 6.4% 3% 1% 5 Carrefour $ 115 $ 123 $ 136 $ 8 $ % 1.9% 1% 0% Top 5 Retailers $ 759 $ 999 $ 1,253 $ 240 $ % 4.6% 16% 4% 6 Kroger $ 92 $ 115 $ 142 $ 23 $ % 4.2% 2% 0% 7 Aldi $ 78 $ 111 $ 145 $ 33 $ % 5.5% 2% 1% 8 Seven & I $ 94 $ 101 $ 116 $ 7 $ % 2.9% 1% 0% 9 Home Depot $ 74 $ 99 $ 125 $ 25 $ % 4.7% 2% 0% 10 Walgreens Boots Alliance $ 70 $ 98 $ 125 $ 28 $ % 5.0% 2% 0% Top 10 Retailers $ 1,166 $ 1,523 $ 1,907 $ 357 $ % 4.6% 24% 7% All Other KR Chains $ 4,356 $ 5,202 $ 6,451 $ 845 $ 1, % 4.4% 76% 22% Total KR Chains $ 5,522 $ 6,725 $ 8,358 $ 1,202 $ 1, % 4.4% 100% 28% Global Formal Sales $ 16,381 $ 20,133 $ 25,941 $ 3,753 $ 5, % 5.2% n/a 100% 9

10 Let s Look Beyond the Buzz What do Aldi s and Lidl s presence really mean?

11 Five Pillars of Disruption Formats Price Points Quality Expectations Assortment Trip Missions 11

12 Dairy Frozen Foods Blurring the Lines Between Formats Lidl is one box that can be multiple formats Frozen Foods Beer/Wine Household Freezer Theme Weeks Household Essentials Lidl surprises Packaged Goods Household Essentials Checkout Lidl surprises Packaged Goods Household Essentials Packaged Goods Packaged Goods Meat Meat Packaged Goods Chilled Items Produce Flowers Bakery Entrance 12

13 Blurring Lines Between Formats Look how Aldi has elevated the discounter in-store experience 13

14 Format Takeaway: On the One Hand. Food.But on the Other Hand Non food Big box Supermarket Small box Discounter Hybrid stores Defies classification Multiple behaviors and capabilities Historical channel/format taxonomy is being challenged 14

15 Resetting Price Points Core items, organics, and high quality general merchandise, company circular 15

16 Punctuated Discounting Impacts the Entire Box 0% -10% -20% -30% -40% -50% -60% -57% -51% -43% -31% Lidl Cheaper/Pricier By: -4% -2% -14% -11% -10% -26% -23% -21% -20% -19% Lidl is less expensive than WMT Lidl is more expensive than WMT 0% 0% -70% 16

17 Pricing Takeaway: Pricing becomes more than just a number Lowering pricing benchmarks Changing how pricing is merchandised Reshaping shopper expectations increased pressure on suppliers to lower prices Even if you don t sell to Lidl or Aldi, your customers will be impacted Develop new ways to capitalize on stoppage points 17

18 Elevating Quality Expectations Private label stress tests the traditional value equation 18

19 Dairy Frozen Foods Lidl and Aldi Extend the Private Label Value Equation No tradeoffs PRICE x QUALITY x CONVENIENCE Frozen Foods Beer/Wine Household Freezer Theme Weeks Household Essentials Lidl surprises Packaged Goods Household Essentials Checkout Lidl surprises Packaged Goods Household Essentials Packaged Goods Packaged Goods Meat Meat Packaged Goods Chilled Items Produce Flowers 36,000 sq ft Bakery Entrance 19

20 Quality Expectations Takeaway: A small store (i.e. Lidl/Aldi) can now offer: A curated, easy to shop assortment AND Low prices AND High quality products Suppliers will have to meet elevated expectations at the minimum Branded differentiation more important than ever Invest in innovation 20

21 Lidl and Aldi are Assortment Rotators Nothing lasts forever Traditional Sales Lidl Ramp-up Launch and investment Assumes item meets/exceeds velocity hurdles Begin to recoup investment Soft landing exit Time Sales Item #1 Item #2 Item #3 Time 21

22 A Small Format Treasure Hunt Creates excitement, generates repeat traffic General merch Urgency Cross category Private label 22

23 Assortment Takeaway: The clock is ticking Some long held truths being challenged: You only have to sell the item in once Set it and forget it Items have an indefinite lifespan in the store Newness, surprise, and discovery will matter more than ever Applies to marketing, pricing, promotion, even packaging Apply your rotational strategy 23

24 Blurring Lines Between Trip Missions Versatility drives value for shoppers Fill in Stock up, company circulars 24

25 SHOPPER GROUP Lidl and Aldi Can Bridge Multiple Divides TRIP TYPE 25

26 Trip Mission Takeaway: Trip missions and formats will become decoupled Aldi and Lidl can fulfill which trip mission? A. Stock up B. Fill in C. Immediate consumption D. Treasure hunt E. Planned F. Impulse G. All of the above Trip mission versatility will become a new capability Your items will have different roles for different trip missions for different shoppers at different times Link portfolio to new trip and shopper types 26

27 Five Pillars of Disruption Formats Price Points Quality Expectations Assortment Trip Missions 27

28 Agenda Surveying the Macroeconomic Backdrop Aldi and Lidl s Five Pillars of Disruption How Manufacturers Should Respond 28

29 So, What Do Aldi and Lidl REALLY Mean for U.S. Retail? Canaries in the coal mine? Multilingual, multi-capable retailers Reshaping shopper expectations More innovation, agility, and flexibility from suppliers 29

30 Supplier Action Items For today and tomorrow Formats: What is your playing field? Map your role in the box Price Points: Take price reduction on selected noncore items that Lidl doesn t sell Reconsider what the right price is for your item Quality Expectations: Invest in innovation Raise the bar for branded suppliers Assortment: Create a sense of newness, excitement, unexpected delight around your items Treat Lidl and Aldi like a small club Trip Missions: Identify & classify every item in your portfolio Understand how the role of your category at either retailer redefines your competitive set 30

31 For further information please refer to Contact: Mike Paglia Director T: +1 (617) 31

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