WHAT DO RETAILERS WANT?

Transcription

1 WHAT DO RETAILERS WANT? Presented by: Bryan Roberts Research Director May 2013

2 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 2

3 What do retailers want? MASSIVE PILES OF CASH Source: Kantar Retail 3

4 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 4

5 Severe headwinds facing major retailers Harder than ever to drive sales from existing stores Sainsbury s like-for-like growth: +0.9% Includes: Store extensions Online grocery sales Inflation Leading Justin King to the conclusion that volumes are negative for the first time in around 30 years 5

6 Severe headwinds facing major retailers Big box is losing its appeal 310k less transactions per store Transactions per store (m) Source: Carrefour; Kantar Retail 6

7 Severe headwinds facing major retailers Margins under pressure from investments in stores & prices Real Value = Price + Quality + Service EDLP, promo, hybrid Assortment, customer service, availability, convenience PL, brands, solutions 7

8 Severe headwinds facing major food retailers Greater promiscuity & choice for shoppers 8

9 Severe headwinds facing major food retailers Expenses can only be cut so far 9

10 Severe headwinds facing major food retailers Expenses can only be cut so far 10

11 Severe headwinds facing major food retailers Shoppers switching to costlier channels 11

12 Severe headwinds facing major food retailers Shoppers switching to costlier channels

13 Severe headwinds facing major food retailers All of which means that big customers are not necessarily winning customers Rising stars Checklist 1. Proximate 2. Small 3. Disruptive 4. Efficient 5. Good value 6. Brand builder 7. Differentiated 8. Private 9. Focused 10. Multi-channel 13

14 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 14

15 How retailers work Sales ROCE (Return on Capital Employed) Return (Operating Income) Asset Investment X Gross Margin - Expenses Net Inventory + Fixed Assets 15

16 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 16

17 In general - Many retailers have seen inventory turns decline amid weakening demand & strong competition - Legislation in some markets has pressured days payable - This has detrimentally impacted working capital 17

18 What this means for suppliers Minimising retailers inventory (supply chain efficiencies, collaborative forecasting etc.) Increasing throughput in the supply chain (crossdocking, floor-ready packaging) Insights & assistance on SKU reduction programmes Accepting pressure to increase days payable? 1 8

19 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 19

20 How retailers work Sales ROCE (Return on Capital Employed) Return (Operating Income) Asset Investment X Gross Margin - Expenses Net Inventory + Fixed Assets 20

21 Labour is the single biggest component that suppliers can help retailers with.. Expense Component Labour 65% P, P&E 25% Marketing 5% Other 5% Labour is the Single Biggest Operating Expense for a Retailer Expenses reduced through: DSD & merchandising Floor/shelf-ready packaging EDI CPFR 21

22 Suppliers should highlight their contributions towards OpEx reduction Source: Kantar Retail 22

23 Suppliers should highlight their contributions towards OpEx reduction Source: Kantar Retail 23

24 What this means for suppliers Anything they can do, or have done, for retailers to enhance labour efficiency in DCs or instore is a useful value-add for negotiations Best practice in shelf-ready/floor-ready packaging from other markets/customers should be exploited Any initiative that simultaneously brings efficiency & a shopper solution is gold dust 2 4

25 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 25

26 How retailers work Sales ROCE (Return on Capital Employed) Return (Operating Income) Asset Investment X Gross Margin - Expenses Net Inventory + Fixed Assets 26

27 Buyers are usually responsible for total 3 net margin PRICE ON THE SHELF x UNITS SOLD - COST PRICE ON THE INVOICE x UNITS SOLD = STORE GROSS PROFIT (1 NET) + % VOLUME REBATE x UNITS SOLD x COST AT INVOICE = GROSS PROFIT (2 NET) Where does the focus lie? + SERVICE FEES (AS % OR LUMP SUM) = TOTAL 3 NET GROSS PROFIT 27

28 What this means for suppliers In negotiations, customers will clearly pressure suppliers for better terms on invoice cost, rebate & additional back margin contributions Suppliers need to make sure that they are getting counterparts for this investment Counterparts should be measurable & accountable and compliance should be monitored & upheld 2 8

29 We should be aiming to negotiate for conditional back margin support 29

30 Compliance for promos, listings & in-stock should be stringently monitored 30

31 Agenda What do retailers want? The challenges How retailers work Inventory Expenses Gross margin Sales The future 31

32 How retailers work Sales ROCE (Return on Capital Employed) Return (Operating Income) Asset Investment X Gross Margin - Expenses Net Inventory + Fixed Assets 32

33 The sales equation Sales revenue = N x C x x N TRAFFIC C F BASKET B C - % capture of those who purchased in a store at least once during a period (year) N number of people in the catchment area B average check or spend per trip F average shopping frequency during a period (year) 33

34 Making a category easier to shop Diageo & Sainsbury s launched cocktail bays in the spirits aisle Within two months, spirits category volumes were up by 8%. We have identified an opportunity to develop the market for cocktail-making at home by making it more accessible for our customers d

35 Multi-brand/multi-category suppliers can encourage shoppers to shop more categories Source: Kantar Retail 35

36 Utilize the power of adjacency & impulse Source: Kantar Retail 36

37 Leveraging the power of new & exclusive Source: Kantar Retail 37

38 Agenda What food retailers actually want The challenges How food retailers work Inventory Expenses Gross margin Sales The future 38

39 The store of the future Edited assortment Localized assortment Personalized assortment Small footprint Proximate Limited non-food lines Personalized service Facial recognition technology Tertiary services E-commerce collection/return Access to long-tail catalogue Source: Kantar Retail 39

40 The store of the future Source: Kantar Retail 40

41 @BryanRoberts Bloomsbury Way London WC1A 2PX UK +44 (0)