EXCELLENCE IN STORE OPERATIONS - India Food … shopper demands You have to really KNOW shopper...

EXCELLENCE INSTORE OPERATIONS

Incl. the case of Jumbo supermarkets

by drs. Joost van der Laan

Mumbai - January 2016

Drs. Joost van der Laan

• Department stores Marketing and Logistics

• Ahold logistics and controlling

• Jumbo format development

• Retail consulting

• PWC Efficient Consumer Response

• Nielsen category management

• AT Kearney TQM

• Erasmus Food Management Institute research

The Netherlands

17 million people

After the USA, the Netherlands is the world's second exporter of agricultural products.

After the USA and Spain, the Netherlands is the world's third producer of vegetables and fruit.

The Netherlands

Contents

• Shopper frustrations become USP’s

• Category management• Assortment and presentation• Price• Productivity• Omni-channel• Jumbo case

Frustrations become USP’s

Understand the shoppers delightsand frustrations,

and learn how to turn theseinto Unique Selling Propositions

Real shopper demands

You have to really KNOW shopper demands to be able to satisfy them:

1. Well known demands: important and acted on by shoppers – IMPORTANT TO ADDRESS

2. Political correct answers: claimed as “important” but not acted on - only for external politics

3. Subconscious demands: “not important” for shoppers, but acted on - IMPORTANT TO ADDRESS

4. Not important for shoppers and not acted on

How do we know “subconscious demands” of shoppers?

1. Look at BEHAVIOR of shoppers, especially in case of in-store problems

2. Analyze COMPLAINTS (= free advice of emotionally involved customers)

3. Ask shoppers what they generally consider “ANNOYING” in a store

And: hypnosis interviews

What do shoppers find ANNOYING?

• Waiting in line

• High prices

• Products not available

• Produce not fresh

• Unfriendly store employees

No surprises, but solutions often NOT CREDIBLE

Addressing shopper demands

How do you make an Unique Selling Proposition of a real shopper demand?

• Take the demand serious

• Take UNIQUE actions

• Offer PROOF

The combination of unique action and proof is key for TRUST and competitive advantage

What is shopper demand?

Is this “unique action”?

Jumbo case

Discover amazing exampleshow to prove to your customers

that you have the best store in town

First example

Commitment and proof

Example of an unique action and the offer of proof:

• Shopper demand: NOT WAITING IN LINE

• System: POS week planning and automatic shopper movement measurement

• COMMITMENT: maximum 3 shoppers in line

• PROOF: line > 3: products in cart are FREE

This is an example of the Jumbo case

Category management

Know how to discoverthe specific profit driversof each product category

and create commercial strategiesleading to effective and efficient tactics

Category management process

Category definition

Category

Subcategory A Subcategory B Subcategory C Subcategory D

A1 A3 A5

B3 B2 B3 C1 C3 C4

–SKU 1–SKU2–SKU3–SKU4–SKU 5..SKU X–SKU X + 1

Category presentation

Category roles

Destination

Transaction builder

Routine

Convenience

Traffic builder

To ensure the category fulfils the occasional needs of primary shoppers

To ensure the category adequately fulfils the daily/weekly needs of primary and secondary shoppers

To maximize basic and discretionary spending by primary and secondary shoppers for their daily/weekly needs

To provide regular positive incentives for secondaryand (in some cases) other shoppers to visit stores

Primary shoppers' automatic choice for the category

Category tactics

Category profit drivers

What are profit drivers of different categories?

• Wines: product quality and know-how• Heineken beer: high availability but low visibility

• Produce: freshness and low waste• Meat: optimized partitioning into max. price

• Dairy: efficient logistics and cooling• Organic products: visibility and reasonable price

Assortment and presentation

REDUCE COSTS and IMPROVE MARGINSby optimizing assortmentsand shelf-space allocation

Using Direct Product Profitability (DPP)

DPP/turnover matrix

Products have different DPP/sales profiles

DPP/turnover matrix

discover the difference between price LEVEL and price IMAGEand develop a profitable price strategy

Price-level

What is the PRICE-LEVEL of a retail format?• Price level is measured

• by collecting the product prices

• of a fixed basket of products

• by an independent company

And comparing this with the industry average

Price-level

Are there any measurement LIMITATIONS?• Only basket of NATIONAL BRANDS

• While some stores only carry private labels

• Some discounters are excluded!

Can retailers “fix” the price measurements?• No promotions included, but:

• Timing and basket products are anticipated

• And temporary price reductions are included

Price - image

What is price-image?• Customer price level PERCEPTION

• based on interviews with customers.

What are drivers of price image (besides price-level):• store presentation

• assortment mix

• promotions

• PROOF! (Jumbo case)

Price-level and price-image

How do you achieve SHAREHOLDER VALUE?• Favorable (low) price-image

• Plus medium or high price-level

How does this combination work?• Low price image good for SALES

• and for traffic and customer retention

• Medium price level good for GROSS MARGIN

• High sales plus high margin good for NET PROFIT

Price-level and price-image

Profitability

But how to increase profitability?

First the accountant approach:

Accountant approach

For an accountant, higher profit means higher prices or lower costs, or (preferably) a combination.

But:• Higher prices create a COMPETITIVE problem

• Lower costs often create a SERVICE problem

Alternative: positive feedback

Positive feedback

What is “positive feedback”?

• ENFORCING loop

• Can be downwards: vicious cycle

• Can be upwards: virtuous cycle

The exponential growth of the virtuous cycle is a powerful tool in retail strategy

Profitable price strategies

What are the best price strategies?

• High/low (promotions): Albert Heijn

• Every Day Low Pricing (EDLP): Jumbo

• High share of private label products (discounters)

Focus on price image by PROOF

PROOF generates TRUST

Price: positive feedback

What is the effect of EDLP?

• For EDLP to work, prices must be dropped, which leads to lower gross margins

• Lower margins means that VOLUME must increase substantially

• To get increased volume, the strategy must create a low-price image in consumers’ mind

EDLP requires positive feedback

Price positive feedback

Accountant: negative feedback

Price: positive feedback

Positive feedback at Walmart (US):

• Buying at low costs from China

• Selling at Every Day Low Prices (EDLP)

• Effective promotions for favorable price image

• Local pricing after competition is wiped out

• Low salaries and focus on cost reduction

• Attracting customers from a wide area

• Using high profits for expanding the store format

Walmart exponential growth

W al-M art net sales development

fiscal year

100000

120000

140000

160000

180000

200000

annual growth net sales

New online virtuous cycle

Quality-image

What is “QUALITY IMAGE” of a store?

Customer perception of:• Assortment choice

• Private label quality

• Natural product quality (example: wines)

• Freshness of produce

• Clean store

• Friendly store employees

Quality-image / price-image

How do you achieve CUSTOMER VALUE?• Excellent quality image

• plus favorable price image

Examples of great customer value:• Aldi: low price levels, excellent product quality

• WholeFoods: organic choice, excellent presentation

• Jumbo: low price levels, excellent proven service

Quality-image / price-image

Profitable market development

How to increase total store sales?

• Increase FREQUENCY existing customers (turn secondary customers into primary customers)

• Increase BASKET SIZE of existing consumers

• Increase PENETRATION existing market

• Increase MARKET SIZE

How do you increase market size?

The “Law of Increasing Returns” of larger stores:• A WIDER and DEEPER assortment attracts more

customers

• Customers will buy more (larger BASKET SIZE)

Law of Increasing Returns

The Law of Increasing Returns has a significant effect on the retail landscape

Productivity

Improve productivitywith the internal benchmarking technique

Benchmarking

What is benchmarking?

• Comparing elements of your operation with best (world class) examples

• Analyzing improvement opportunities• Implementing improvements• Measuring results, continuous improvement

External and internal benchmarking

Internal benchmarking

Productivity with internal benchmarking, fase 1:

1. Picture actual productivities of individual store departments of your own stores

2. Relate productivity to the relevant driver

3. Calculate the productivity-driver relation

Productivity with internal benchmarking, fase 2:

1. Introduce a productivity improvement factor

2. Make standardized store planning with average improved productivity

3. Use outliers as example for laggards

Productivity improvement

outliers

New standard productivity

outlier

laggard

Omni-channel

Omni-channel grocery retailing is the future

• The physical supermarket is a COMPETITIVE and sustainable business model

• Online grocery retail with home delivery is a necessary additional SERVICE

• Online presentation of food products will ENHANCE the physical store

Grocery retailing is an UNIQUE business

Store - home-shopping

Online cost-drivers

What drives online grocery distribution costs?

• Turnover• Assortment• Temperatures (including fresh and frozen?)• Manual or mechanised picking, productivity• Average basket size• Average distance to consumer homes• Average distance between consumers• Percentage returnables• Number of complaints

Online store costs

Online cost reduction

What are extra online distribution costs?• 15% OF TURNOVER

How to reduce extra distribution costs?• PICK-UP POINTS (“Drives” or “Pups)

BUT consumer prefers home delivery

BUT is willing to pay only 5% for home delivery

India has online grocery potential:

• Rise of the middle class• Favorable demographics (millennials)• Internet users 600 million in 2020• Smartphone penetration• Populated cities• But also metropolitan issues (traffic jams)

Low labor costs for order-picking and home delivery

Thank you

Drs. Joost van der Laan

www.RetailEconomics.com

jvdl@retaileconomics.com

EXCELLENCE IN STORE OPERATIONS - India Food … shopper demands You have to really KNOW shopper...

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