RETAILERS CHALLENGES. Open Program Jedda, June 12

Transcription

1 RETAILERS CHALLENGES

2 Quality FIRST IMPERATIVE: GET SHOPPERS Shoppers Attraction How To Influence Perceptions in Order to Attract Shoppers? Quality shoppers Value shoppers Price sensitive shoppers Local shoppers All Shoppers Are Welcome

3 CONVENIENCE & QUALITY OF STORES Location & access, neighbourhood More categories (???) More choices, but not too many More services, one stop shopping More new items More in-store service (opening hours, # of checkouts) Communication Previous perception Private label & fresh products No out-of-stock

4 PRICE PERCEPTION OF STORES perceived price objective average price

5 PRICE PERCEPTION OF STORES Actual prices of key brands Category leaders Big shelf space High awareness Emotional importance Local goodies Price of private label & fresh products Promotions Price advertising Local advertising - In-store service

6 AGENDA Shoppers Attraction Second Imperative

7 SECOND IMPERATIVE First directive leads to the second one maximising shopper spending No left to be spent elsewhere and still feeling happy willing to come back

8 MAXIMISING SHOPPERS SPENDING optimised shelf space allocation assortment Appropriate for shoppers and environment Expansion: captive shoppers and one stop shopping Uniqueness Type of shopping trip no out-of-stock Inventory Holding Cost vs. Out of Stock Cost of Capital Employed prices & promotions EDLP short and deep vs. long and shallow

9 PRICE COMPARISONS Internet, Media Pressure on manufacturers Different packaging Private label, no way to compare or special series of branded goods H-P laptops for Wal-Mart at $298 Unilever, P&G special series at lowest prices without changing prices on standard products

10 MANAGING ASSORTMENT: SKU S SOLD PER WEEK PER STORE (TYPICAL SUPERMARKET / HYPERMARKET) % OF ASSORTMENT US EUROPE less than once 45% 55% 1 14% 5% % 11% 6-9 8% 9% more than 10 times 9% 20% Source: ACNielsen

11 OUT-OF-STOCK & SALES Out-of-Stock (%) Retail Sales Loss (%) Worldwide US NW Europe SE Europe Other Regions Source: Data Ventures

12 WALLET SIZE AND SHIFT OF CATEGORY SHARES OECD countries Emerging markets Before After Before After Wallet $100 $80 $60 $45 FMCG $25 $25 (+6pp) $20 $20 (+11pp) Bigger share of food Lower share: energy, tobacco Bigger share of food Lower share: tobacco Semi-durables $25 $20 $15 $11 No major changes No major changes Durables $25 $10 (-12pp) $15 $5 (-14pp) Decline: cars Increase: bicycles, telephones Decline: cameras, computers, jewellery, watches Increase: bicycles, medical equipment, health care Services $20 $16 $5 $4 (+3pp) Increase: Education Increase: housing Decline: health care, insurances, financial services Saving $5 $9 (+6pp) $5 $5 (+3pp) Source: INSEAD

13 AGENDA Shoppers Attraction Shopping Basket Size Loyalty

14 LOYALTY?!? WHAT LOYALTY?

15 78% OF U.S. HOUSEHOLDS PARTICIPATE IN A GROCERY FREQUENT SHOPPER PROGRAM % of U.S households w/grocery frequent shopper card Source: ACNielsen Homescan surveys

16 BUT, 63% ARE IN MULTIPLE PROGRAMS! one two three four % of U.S households belonging to 1 or more Grocery Chain Loyalty programs Source: ACNielsen Homescan survey

17 From shopper attraction Towards shopper retention!

18 LOYALTY Loyalty cards Stratified marketing Are really all shoppers welcome? Stealth marketing NPV of a customer as a benchmark for investment

19 AGENDA Shoppers Attraction Shopping Basket Size Loyalty Store Brand

20 STORE BRAND Bargaining power Profitability Price image Addiction factor

21 Quality & Relative price PRIVATE LABEL: THE NATURE OF THE BEAST Time & Investment

22 PRIVATE LABELS TRENDS Share of Market Growth rate Global 17% Global 5% Europe 23% Europe 4% North America 16% North America 7% Emerging Markets 6% Emerging Markets 11% Asia Pacific 4% Asia Pacific 5% Latin America 2% Latin America 5% 0% 5% 10% 15% 20% 25% 0% 2% 4% 6% 8% 10% 12% Source: Nielsen ; April 2008 April 2009

23 SHARES WILL GROW Private label continued its rise in 2009, particularly given tough economic conditions and focus on price. Although value ranges are set for growth, at the other end of the spectrum, retailers are reporting strong sales of premium ranges, as consumers eat out less and treat themselves at home. Key benefits to the retailer - profitability and customer loyalty are crucial in today s retail climate. Sourc: Planet Retail, Nielsen

24 BRANDS & PRIVATE LABELS (SALES 2008) $ bn Auchan Kimberly-Clark Rewe Group Kroger Metro Group Anheuser Busch InBev Seven & I L'Oreal Coca-Cola Kraft Foods Pepsico Schwarz Group Tesco Carrefour Unilever Philip Morris Aldi Procter & Gamble Nestle Wal-Mart Source: Planet Retail, Google Finance, company data, own calculations

25 PRIVATE LABELS: PURCHASE DRIVERS Key drivers to purchase private labels, % of surveyed European shoppers Low Price Better value than branded equivalent They are the same as branded 26 My supermarket has a good reputation for own products 24 Better quality than branded equivalent 12 Looks appealing 10 Convenient option 8 Friends' recommendation I'd only buy it if my normal brand is oos 6 6 Healthy option 4 I only by some own brand ranges on special occasions 3 Source: IGD Consumer Research

26 TESCO PRIVATE LABEL Tesco s private label eggs: shelf price

27 TESCO PRIVATE LABEL Tesco s private label bagged salad: shelf price

28 TESCO PRIVATE LABEL

29 TESCO PRIVATE LABEL Tesco s private label soap: shelf price

30 PRIVATE LABEL IN NEW PLACES Amazon.com

31 Penetration of private label % of sales CATEGORY INNOVATION & PRIVATE LABEL SHARE Cheese Syrup Oil Rice Pasta Chocolate Coffee Yogurt Product innovation % of products introduced in past 5 years Deep-frozen food Source: G.l. Jiment and Mira

32 BASKET OF BRANDED ITEMS: 46.98

33 EQUIVALENT ALDI BASKET: 23.25

34 AGENDA Shoppers Attraction Shopping Basket Size Loyalty Store Brand Profitability Factors

35 RETAIL SALES ($BN) Source: Planet Retail, national statistical institutes

36 RETAIL SALES CHANGE 2009 VS Source: Planet Retail, national statistical institutes

37 TOP 15: CHANGE IN SALES 2009 VS Source: Planet Retail

38 DOWNTURN EFFECTS Cost reduction Increased price competition hard discount as a reference point Financial pressure lower margins tougher borrowing

39 PROFITABILITY FACTORS Net Profit Equity = Net Profit Sales * Sales Assets * 1 + Debt Equity Return on Equity = Net Profit Margin * Assets Turnover * Financial Leverage

40 ASSETS = LIABILITIES Assets Fixed Operating Receivables Debt Equity Long term Short term Payables Return

41 COMPARATIVE PROFITABILITY ROE = NPM * AT * FL Manufacturers: 24.0 = 8.0 * 1.0 * 3.0 Retailers: 24.0 = 1.6 * 2.5 * 6.0

42 RETURN ON EQUITY Net Profit Sales Sales Assets 1+ Debt Equity With falling net margin to maintain the same ROE it is necessary to: Increase assets turnover by; Reducing fixed assets Minimising inventory Growing sales Increase good leverage; Growing payables

43 FURTHER COST REDUCTION Reduced investments advertising almost exclusively on price more focus on modernisation of existing stores instead of opening new ones increase share of food more energy saving technologies store layout and assortment matching environments and shoppers profiles More self check-outs, less staff Less durables less staff and after sales services costs Consolidation Small local chains creating buying groups

44 SALES & PROFITS - 2 % - 5 % Sales 100,000 98,000 95,000 Cost of goods sold 78,000 76,440 74,100 Gross profit 22,000 21,560 20,900 Fixed costs 16,000 16,000 16,000 Variable costs 4,000 3,920 3,800 Net profit 2,000 1,640 1,100 Change - 18 % - 45 %

45 AGENDA Shoppers Attraction Shopping Basket Size Loyalty Store Brand Profitability factors Value Drivers

46 VALUE DRIVERS Differentiation Turnover Buying

47 DIFFERENTIATION Other retailers Multiple formats / locations Private label & Exclusive products Loyalty schemes Services Store as a brand

48 TESCO S STORE FORMAT EVOLUTION Tesco.com E-tail format Tesco Extra Hypermarket equivalent Compact Metro Located in prime high street sites to attract town centre shoppers Offers range of Tesco Superstore products and services on smaller scale Express This format combines a petrol forecourt and convenience store stocking 1,400 products Superstore Superstore format offers a constant large range of products and a pleasant surrounding Source: Management Ventures Inc.

49 WAL-MART FORMATS Cash & Carry: Sam s Club Discount: Wal-Mart Hypermarket: Wal-Mart Supercenter Convenience :WM Neighborhood store Small box:

50 TURNOVER Growth imperative: cathedrals formatisation internationalisation Assets base & cost of capital employed Efficiency & systems

51 BUYING Size Internationalisation Integration of buying & marketing Risk sharing

52 SLOWER EXPANSION ABROAD More focus on key markets critical mass needed more than ever before Carrefour leaves Russia, Thailand, and considers further pull outs Casino keeps on closing operations Wal-mart, after departure from Germany and South Korea, has only entered Chile, now moving in to South Africa China i India the only two exceptions Going back home need to confirm position there

53 Ahold Metro Carrefour Schwarz Aldi Auchan Rewe Tesco Seven & I Walmart Safeway ITM Leclerc SHARE OF INTERNATIONAL SALES 80% 70% 60% 50% 79% 76% 72% 63% 64% 61% 62% 58% 55% 55% 55% (forecast) 40% 30% 39% 40% 40% 33% 32% 30% 36% 24% 25% 20% 10% 17% 18% 14% 11% 10% 7% 0%

54 FORMATS OPTIMISATION Change in shoppers behaviour: More bulk shopping (assortment in hypermarkets) Smaller basket, bigger food share Less topping trips (prices at convenience stores) Great is not welcome: Walmart Tesco Wallet size and category proportions General rule: format should be matching shopping area

55 HYPERMARKETS REPRESENT NOW AT LEAST 75% OF SALES FOR 10 RETAILERS OUT OF TOP % 25-74% 0-24% Source: Planet Retail

56 BUT FORECASTS POINT TO A SHIFT: Stores to be created between 2009 and 2013 Source: Planet Retail

57 AGENDA Shoppers Attraction Shopping Basket Size Loyalty Store Brand Profitability Factors Value Drivers Retailers Valuable Assets

58 RETAILERS VALUABLE ASSETS Shelf space & points of sales in general

59 SHELF EYE LEVEL INCREASES SALES -45% -80% +10% +43% Source: Progressive Grocer Merchandising Research (Average Results -- size of an item, seasonality, and promotions also affect results)

60 PURCHASE DECISIONS % of FMCG purchases Specifically Planned Generally Planned Substitute Unplanned UK US F

61 RETAILERS VALUABLE ASSETS Shelf space & points of sales in general Interaction with shopper/consumer direct contact shopper data objective: offer what is demanded, instead of selling what is available

62 AGENDA Shoppers Attraction Shopping Basket Size Loyalty Store Brand Profitability Factors Retailers Valuable Assets Before Negotiations

63 ROADS TO WIN-WIN Information Exchange to fully exploit shopper/consumer data to remove inefficiency from supply chain Logistics Brand building in-store promotional actions because shopping is boring Keeping hard-discounters in check Exploring joint gains (Wal*mart asking Manufacturers to buy together raw materials)

64 CATEGORY MANAGEMENT Do both categories play the same role? Do all brands play the same role in a category? How to allocate shelf space?

65 ROLE OF FOODLES & WOODLES?oodles traffic builder price image builder?oodles profit builder B a c k

66 DO ALL BRANDS PLAY THE SAME? Private Label profit price image bargaining Which brand to copy? Loss leaders? B a c k

67 HOW TO ALLOCATE SHELF SPACE? Market share Profit contribution Over-shelf small brands Under-shelf large brands B a c k

68 RETAILER STRATEGY Strategy first, then tactics BE CONSISTENT! Foodles vs. Woodles Competitive reaction Tempted by manufacturers candy