DANIEL LUCHT Global Research Director ResearchFarm

Transcription

1 DANIEL LUCHT Global Research Director ResearchFarm

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3 EXPLORATION OF GERMAN RETAIL CHANNEL POSITIONING

4 What we will talk about Where have the discounters come from? Understanding their success from a consumer perspective Targeting the Anglo-Saxon markets Impact on convenience and other retail What are their likely future plans in-store?

5 Where have the discounters come from? German market origins and operational characteristics

6 Similarities Business principles Austerity (post 1945) & ruthless efficiency, one copycat of the other Price leadership, EDLP, PL, product focus, not customer centric Number of SKUs fits with store size, DCs, n of suppliers-> footprint flexing

7 Operational set up Store details perfected over decades, nothing that could be subtracted DCs, focus on simplicity, standardised approach, OSA, JIT, cost management through bundling supplier trips into the DC Private ownership, DE: training academy for executives as well as customers

8 Differences Lidl is much more vertically integrated (security, speed, costs, NPD) 2 fascia/format retailer (Kaufland), biggest Euro retailer in, x markets Lidl highly innovative: brands, PL NPDs, promos and store formats

9 Differences rather in degree than kind Hard almost exclusively PL Tight SKU range Conservative expansion policy Soft (er) introduction of FMCG A brands SKU range extension Aggressive expansion policy Higher sales density Faster top line growth

10 Differences top level view Sales: 56.7bn 64.0bn Stores: 9,995 10,362 Density: 5,976 sq/m 5,806 sq/m

11 Differences top level view Sales: 63.4bn 74.0bn Stores: 11,086 11,077 Density: 4,389 sq/m 4,939 sq/m

12 Understanding their success from a consumer perspective: marketing, pricing, convenience, quality and brands

13 Private label strategy: marketing, pricing Non-food promos as footfall driver (Lidl Asian weeks - overstretch), food and non food, early spotting of trends EDLP softened, Super Saturdays 2-4 FMCG A brands with PL on busiest shopping day of the week TV advertising, (bi) weekly fliers, online

14 Private label strategy PL strategy disables price comparison, Aldi product specs (quality/contents) as price floor for the sector in DE Lidl PL as Pan EU - huge scale benefits. Aldi, more local approach, but difference in magnitude Aldi sales per SKU much bigger than Walmart

15 Quality and brands Premiumisation: shifting quality perceptions, deluxe as Pan EU umbrella range, overstretch A brands added where PL is weak - baby food, h&b etc - but only there Price leadership as defining business principle for Aldi

16 Consumer perspective: drivers Reduced choice (!!!), speed at which shoppers get out of the store Trust, tight range works together with price leadership and EDLP Exclusive product, non food promos, premium food SKUs for holidays

17 Convenience Growth driver: the addition of fresh and bake off Drawing footfall and building baskets, bake off as loss leader Move towards neighbourhood shop - local player

18 Targeting the Anglo-Saxon markets How fast are they growing and what is the potential?

19 Anglo Saxon opportunity: ideal conditions Rule of law, little corruption, high purchasing power, established hyper/supermarket sector, strong demographic profile Relatively high priced grocery markets, can be undercut, also financial crisis as massive opportunity, shopping behaviour shifts Infrastructure is in place (DCs, logistic operations, relationships with suppliers)

20 UK Aldi Aldi couldn't cope, outsourced capacity at DCs, too many shoppers Car parks, tills and floor space as bottlenecks, 1.0m new customers gained in 2014 according to Nielsen Plans: 65 stores per year, up to 1,000 stores in total, better quality

21 UK Aldi Aldi is now increasing the number of items in shoppers baskets every month, overtaking Tesco in terms of the number of items customers put in their basket in : 60% growth in meat and fruit & vegetables, with 51% UK sourced, Specially Selected range increased sales by 90% 2014/5: Aldi overtakes Waitrose, listing as a FMCG brand with the discounter has become a lot more interesting Site location strategy crucial. Tipping point reached, Aldi is stepping up investment, will spend 600m over the next two years.

22 UK Lidl Fresh produce as 40% of total sales in Opened its 9th DC ~ 5m shoppers each week, 220mn store expansion strategy, overall target of 1,500 stores in the UK sales 4bn, growth: 24%, success of fashion range (3 day turn)

23 Problems and potential Problem: finding right locations (perfect: box with ample parking space) Heavy competition, general shift to smaller basket size shopping, more trips etc - real estate costs, new thinking required Potential: DE discount channel ~ 40%. In UK? DE and UK attitudes to food similar (not France) - no natural ceiling, depends on store estate

24 USA Aldi 1,300 stores across 23 states, plans to double its presence by 2018, acquired 66 store estate of Bottom Dollar. Coast to coast operator, regional DC and HQ in California. The new regional DC has capacity for 200 stores. Investment around US$3.0bn, as Lidl is about to enter the market. Walmart catchments, potential 10k stores across the US

25 Trader Joe's Highest sales density in US grocery sector, 11,495 per sq m in Natural and organic products, around 80% PL. Strong focus on costs SKU range: 3,000 lines, selling space 800-1,500 sq m. ~ 400 stores.

26 Australia Aldi: 350 stores, sales of AUS$5.3bn. AUS$700m investment: 130 stores (in 2016) and two DCs. NZ? Lidl to enter USA, 2017/8, 100 stores - also scouting in OZ Follows Aldi s lead, builds out DC, then stores, takes suppliers with it

27 Impact on convenience and other retail Should other retailers be competing, or co operating?

28 7 Strategies 3 of which are counterproductive 1) Private label proposition relaunch 2) Price wars 3) Discounter launch or acquisition

29 7 Strategies 2 are tried and tested 4) Co-location strategy 5) Convenience retailing

30 7 Strategies 2 on which the jury is still out 6) Online retailing 7) Raising buying synergies (France)

31 Footfall & loyalty, colocation From competition to cooperation Following consumer expectations and behaviour/use case Aldi dm tie up - defensive against Lidl

32 What are their likely future plans in-store? The discounters have found that investment in store in fresh and bake off has worked very well. What is next?

33 Convenience Lidl Dedicated fascias Lidl Belgium, UK, DE Tunnel scanner Sweden, self check out UK UK healthy checkouts, NFC payment trials (Por)

34 Convenience Aldi Dedicated fascias UK, DE Kilburn store since April 2013, smashing all Aldi s expectations and targets, second city store in London in Q (Tooting). Shopping baskets, brands, tills, no non food

35 Outlook FMCG A brands Premiumisation: from price to quality/fresh, move away from hard discounter image, Lidl s wine promo attracting different demographics FMCG A brands, Lidl 94% Aldi 96% PL, limited shelf space for Brands Margin dilutive, enables price comparison, overall deflation, competitor brand dragged in, control over presentation in store and logistics

36 Outlook store design updates Range upgrading reflected by new store design Format flex: possibility to go over two storeys, Lidl has experience with Kaufland, would free up space for the non food ranges Every in store module to see update, bake off station to tills etc

37 Outlook Online Opportunity to roll out a click & collect offer - integrate into store Dia, Leaderdrive in France non food online, big opportunity with vertical integration, PL branding

38 Conclusion & recommendations

39 Conclusion Convenience players: think about co-location strategies FMCG: Lidl, Pan Euro promotions (wine), scale and premium Discounters: online push, click & collect, home delivery Other retailers: online & service, 3P marketplaces

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41 DANIEL LUCHT Global Research Director ResearchFarm