MADE TO TRADE. A better functioning food supply chain: the retailers views. Status: 1 October 2012 METRO AG 2012
METRO GROUP. At a glance. One of the world s leading retail and wholesale companies Presence in around 2,200 locations in 33 countries* More than 280,000 employees from almost 180 nations Four sales divisions with leading positions METRO Cash & Carry: self-service wholesale Real: hypermarkets Media-Saturn: consumer electronics stores Galeria Kaufhof: department stores Geared towards sustainable positive earnings development *On 4 July 2012 the sale of 30 wholesale stores in the UK has been completed. From this time on, METRO GROUP has locations in 32 countries. 1
METRO GROUP. Key data. Mitarbeiter 1 Sales 31.2 billion 11.2 billion 20.6 billion 3.4 billion EBIT 1 1,148 million 134 million 542 million 121 million 643 million Locations 747 423 902 137 Countries 2 30 6 16 2 30 Status: 31 December 2011 (Sales, EBIT) 30 June 2012 (other figures) 1Adjusted for special items from Shape 2012 2On 4 July 2012 the sale of 30 wholesale stores in the UK has been completed. From this time on, METRO/MAKRO C&C has locations in 29 countries 2
METRO GROUP: 2,209 locations in 33 countries*. METRO Cash & Carry 747 locations; Real 423 locations; Media-Saturn 902 locations; Galeria Kaufhof 137 locations. Germany METRO C&C 107 Real 314 Media-Saturn 393 Galeria Kaufhof 122 Austria METRO C&C 12 Media-Saturn 44 Belgium MAKRO C&C 11 Media-Saturn 21 Galeria Kaufhof 15 Bulgaria METRO C&C 14 China METRO C&C 55 Media-Saturn 7 Croatia METRO C&C 7 Czech Republic MAKRO C&C 13 Denmark METRO C&C 5 France METRO C&C 92 Greece MAKRO C&C 9 Media-Saturn 10 Hungary METRO C&C 13 Media-Saturn 21 India METRO C&C 11 Italy METRO C&C 48 Media-Saturn 113 Japan METRO C&C 9 Kazakhstan METRO C&C 8 Luxembourg Media-Saturn 2 Moldova METRO C&C 3 Netherlands METRO C&C 17 Media-Saturn 39 Pakistan METRO C&C 9 Poland MAKRO C&C 41 Real 54 Media-Saturn 61 Portugal MAKRO C&C 11 Media-Saturn 9 Romania METRO C&C 32 Real 24 Russia METRO C&C 66 Real 18 Media-Saturn 37 Serbia METRO C&C 9 Slovakia METRO C&C 6 Spain MAKRO C&C 34 Media-Saturn 68 Sweden Media-Saturn 25 Switzerland Media-Saturn 27 Turkey METRO C&C 24 Real 12 Media-Saturn 25 Ukraine METRO C&C 31 Real 1 United Kingdom MAKRO C&C 30 Vietnam METRO C&C 17 Egypt MAKRO C&C 2 Status: 30 June 2012 *On 4 July 2012 the sale of 30 wholesale stores in the UK has been completed. From this time on, METRO GROUP has locations in 32 countries. 3
A better functioning supply chain focuses on the customer. Relationship retailer farmer. Example Real Germany. Farmer Manufacturer Wholesale & Retail Customer Direct relationships farmer-retailer Facts Real Germany Direct relationships farmer-retailer Background 350 stores in Germany. Sales of 9 billion Euro. 0ver 6000 food suppliers. About 50.000 listed food articles per store. Only 30 farmers deliver about 200 articles directly to our stores This accounts for only 0.5 % of our supplier base and 0.4 % of our food assortment. Since customers demand more regionality we try to increase our direct business relations with farmers. However this is merely impossible due to simple structural problems: Most farmers cannot deliver our quantities on a reliable basis. Small farmers neither have the necessary quality certificates nor the packaging standards. Issues like no online access (for our ordering), etc. Even though retailers would emphasize more direct relationships with farmers, there are very few direct ones existing due to structural deficits. 4
A better functioning supply chain focuses on the customer. Common interest for suppliers and retailers. Suppliers and retailers have to provide their customers with the right variety of products in the right quality at the right place at the right price at the right time. Both suppliers and retailers want to turn consumers into shoppers. Success can only be based on common interests, goals and target groups, which requires collaboration between both parties. 5
A better functioning supply chain focuses on the customer. Product Range Design is based on the customer s expectations. Customer Customer expectations & demands Product range design is part of Retail Branding and a way of differentiation from competition Limiting Elements Variety of products Profitability Sales Area PRODUCT RANGE Product Range Design is always based on the expectations, needs and wishes of the CUSTOMER. 6
A better functioning supply chain focuses on the customer. The customer decides what is offered on the shelves. If my favourite brand is not available in a store, I will buy it in another store! totally/ mainly agree (Top 2) partly agree/ disagree totally/ mainly disagree (Bottom 2) Sparkling wine Coffee laundry detergent 43,6% 42,3% 37,0% 27,2% 23,8% 27,3% 29,1% 33,9% 35,6% Chocolate bar Prepared sauce Dish washing detergent Cream cheese Yoghurt 35,0% 33,7% 27,0% 25,8% 23,9% 29,6% 24,5% 23,8% 29,6% 30,4% 35,4% 41,8% 49,1% 44,7% 45,7% Cookies 21,2% 33,3% 45,5% Canned fruit 18,1% 30,4% 51,4% Source: Customer Survey, Institute for Retail Research Cologne At least one third of the customers changes the store in case her/his favourite brand is not available. 7 1C
A better functioning supply chain focuses on the customer. High complexity of product variety and individual customer demands. Range of products = approx. 1 Mio. items Source: EHI Retail Institute 2009 / A.T. Kearney 2011 / Own Calculations. Demand = 2,000 items 0.002% Almost 1 million items are generally available in the German market... The German customer buys approximately only 2,000 different products per year. The German customer makes use of 0.002 % of the daily product range. 8
A better functioning supply chain focuses on the customer. Example 1: Variety of Milk SKUs Real Germany. Characteristics of the milk assortment at Real hypermarkets in Germany (320 Stores): 100 different articles for milk alone Fresh Milk UHT Milk Lactose free Milk Organic Milk Goat Milk Each from 0.1 to 3.9 % fat Different packaging units from 0.5 to 1.5 litres Glass and PET 25 different suppliers for Real Germany Only 3 national suppliers counting for 15-20 articles. 22 suppliers are local - 80 % regional share Large Price Range with differences up to 530 % 45 Cents to 2.39 Euro. Price differences up to 530 %. * Data based on an average Real hypermarket store in Germany 9
A better functioning supply chain focuses on the customer. Example 2: Complexity of Italian Cheese Market. The Italian Cheese Market is characterized by a high variety and a high relevance of the regional products: Each of the 20 Regions in Italy has different methods of cheese production and uses different basic products (cow, goat, sheep and buffalo milk). 51% of the entire Italian milk production is used for cheese production. 820 different types of cheese in Italy. In Europe there are 170 PDOs*, 40 of them come from Italy: account for 50% of total European production market. These 40 PDOS are produced by 1700 manufacturers. Total sales of about 3.6 billion Euro. *Protected Designation of Origin 10
A better functioning supply chain focuses on the customer. Example 2: Complexity of Italian Cheese Market. 1200 products (SKUs) for each Metro Cash & Carry Store in Italy. 360 cheese articles: Average number of products present on shelf. Regional products of high importance. 26 of 40 Italian PDOs available. 120 suppliers. 11
A better functioning supply chain focuses on the customer. Conclusion: Why retailers need the manufacturer and vice versa. Retailers need manufacturers because: Suppliers have deeper knowledge about their brands and their specific target groups. Retailers face thousands of products in only one category, whereas a supplier only has to manage a few: A retail category manager has to deal with about 100 times more articles than a supplier. Retail companies need to differentiate themselves with their product range and tailor their offers accordingly. Manufacturers need retailers because: Retail companies have more insight regarding the in-store customer behavior. Successful brands provide a coherent experience for the customer. Therefore suppliers should have a say in what happens in the store. Important elements are display, pricing, promotions etc. In order to maximize their success retailers and suppliers are depending on each other. A well functioning supply chain will become more and more important as customers become more and more demanding. 12
Principles of Good Practice. METRO GROUP s position I/II. We are present with our sales lines in 18 EU countries. About 90 % of our turnover is generated within the EU, where we also source over 90 % locally! We have about 50.000 suppliers, over 30.000 of those are food suppliers. Not even 1 % of all suppliers account for 50% of the sales, all others are smaller suppliers with an annual invoice sum of about 1 Mio Euro. The European market is the most important one for us as is the relationship with our 50.000 suppliers! 13
Principles of Good Practice. METRO GROUP s position II/II. The implementation of the proposed principles of good practice would mean a significant financial and organizational burden for our company. We would have to edit each and every single supplier contract. Practically we are facing contracts with about 30.000 food suppliers. Internally we would have to implement procedures and trainings for all of our 5.000 employees who are dealing with food suppliers. This would cause enormous implementation costs and a huge organizational burden. We would be more than willing to take the effort in terms of costs and time if it adds to the fostering of the relationship with our suppliers. 14
Just imagine a world without a functioning supply chain 15
Contact. Michael Wiedmann Corporate Public Policy Schlüterstraße 1 40235 Düsseldorf Tel.: +49 (211) 969 2631 Fax: +49 (211) 969 4902 631 E-Mail: wiedmann@metro.de Internet: www.metrogroup.de 16
Backup. Supply Chain Example Milk Price. Share before price rise Estimate of the price rise in the value chain - Price example 1 l milk, 3,5% fat I Germany - Farmers (28 Cent) Dairies (15 Cent) Retail (8,5 Cent) Tax (3,6 Cent) Total: 55 Cent Share after price rise - 18% Farmers (34 Cent) + 21% Dairies (17 Cent) + 13% Retail (7 Cent) Tax (4,1 Cent) Total: 62 Cent The retail industry s share of the milk price is low and also volatile. Retailers have very little influence on the formation of the milk price. 17