Trade relationships: it all starts with the shopper Prof. Gino Van Ossel 24th November 2010...

Trade relationships:it all starts with the shopperProf. Gino Van Ossel24th November 2010

Gino.VanOssel@Vlerick.com

introduction

Source: GfK-FNLI Top Topics 2011 - manufacturer (n=290)

“% of top managers that mentions…”

agenda

3 |

1. shopper trends

2. retail trends

3. trade relationships

4. conclusion

agenda

4 |

1. shopper trends

2. retail trends

3. trade relationships

4. conclusion

shopper trends:decreasing loyalty

1

shopper trends:decreasing loyalty

6 |

shopper trends:decreasing loyalty

7 |

shopper trends:decreasing loyalty – 1st level

8 |

the Berlusconi syndrom

shopper trends:decreasing loyalty – 1st level

9 |

the Berlusconi syndrom

shopper trends:decreasing loyalty – 1st level

10 |

the Berlusconi syndrom

shopper trends:decreasing loyalty – 1st level

11 |

the Berlusconi syndrom:from brand loyalty to brand sensitivity

shopper trends:decreasing loyalty – 2nd level

12 |

shopper trends:decreasing loyalty – 2nd level

13 |

shopper trends:decreasing loyalty – 2nd level

14 |

A brand loversA brands represent >70% in purchased units

switchersA brands represent between 40 and 69% in purchased units

private label loversA brands represent <40 % in purchased units

source: GfK panel services Belgium

shopper trends:decreasing loyalty – 2nd level

15 | source: GfK panel services Belgium

(index 81)(index 111)(index 107)

shopper trends:decreasing loyalty – 2nd level

16 |

het “neusje dicht”-paradigma

shopper trends:decreasing loyalty – 2nd level

17 |

het “neusje dicht”-paradigma:from brand sensitivity to indifference

shopper trends:increasing price sensitivity

2

shopper trends: increasing price sensitivitygrowth of discount

market share discount – Western Europe(source: Nielsen)

shopper trends: increasing price sensitivitygrowth of private label

20 |

market share private label – Western Europe(source: Nielsen)

shopper trends: increasing price sensitivityincreasing promotion intensity

12,0 11,9 11,5 11,7

10,5 10,4 10,510,1

11,9

13,512,9 12,7

11,2

15,1

13,8

12,813,3 13,1 12,8

14,3

13,1

17,516,6

15,416,2

15,2

19,9

15,8

16,816,1

15,7 15,8 15,6 15,4

6,0

8,0

10,0

12,0

14,0

16,0

18,0

20,0

22,0

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

2008

2009

2010

source: GfK panel services Netherlands

shopper trends:choice stress

3

shopper trends:choice stress

23 |

how much ketchup does a store need ?

shopper trends:choice stress

increasingprice

sensitivity

choicestress

decreasingloyalty

agenda

25 |

1. shopper trends

2. retail trends

3. trade relationships

4. conclusion

retail trends:managing price perception

1

source: investor relations meeting, Greece, 3rd December 2009

Source: Carrefour half year results, 30th August 2010

retail trends:cost management

2

source: investor relations meeting, Greece, 3rd December 2009

Source: Carrefour half year results, 30th August 2010

32 | source: Tesco Preliminary Results, 24th April 2010

retail trends:rethinking product ranges

3

retail trends:rethinking product ranges

less is more

source: investor relations meeting, Greece, 3rd December 2009

SKU’s - 7.5%

Source: Carrefour half year results, 30th August 2010

retail trends:rethinking product ranges

less is more private label proliferation

retail trends:rethinking product ranges: private label proliferation

Nielsen, MAT week 37 change 2009 vs. 2007, Belgium

salesvalue growth

SKUgrowth

correlation between changes in # PL SKU’s and PL market share

7300 SKUs(38% of total)

Source: Carrefour half year results, 30th August 2010

retail trends:rethinking product ranges

less is more private label proliferation more space for non-food & services

42 |

retail trends:in short…

efficiency rethinkingproduct ranges

managingprice

perception

agenda

44 |

1. shopper trends

2. retail trends

3. trade relationships

4. conclusion

© Vlerick Leuven Gent Management School© Vlerick Leuven Gent Management School

trade relationships:price cuts, promotions & delistings

De Standaard11 Feb 09

trade relationships

Source: GfK-FNLI Top Topics 2011 Retail (N=72) vs. manufacturer (n=290)

“% of top managers that mentions…”

Source: Unilever Q3 results, 4th November 2010

Source: Unilever half year results, 4th August 2010

Source: Unilever half year results, 4th August 2010Source: Unilever Q3 results, 4th November 2010

trade relationships:retailer vs. manufacturer margin

52 |

3,0%

5,7%

6,8%

5,4%4,8% 4,7% 4,5%

3,9%

3,2% 3,2%

Colruyt* Wal-Mart Tesco DelhaizeGroup

Ahold Casino Carrefour Kroger Metro Sainsbury

Operating Margin 2008/2007

* Concerns 2008 fiscal year results (year end March 2009)

agenda

54 |

1. shopper trends

2. retail trends

3. trade relationships

4. conclusion

conclusion

pressure on trade relationships:

starts with the needs of the shopper (consumer)

makes all retailers respond in similar ways

is accelerated by ‘human nature’: retailers envy margins (vs.

ROCE !!)

makes in turn all manufacturers respond in similar ways

conclusion

56 |

conclusion

if this were a weather forecast……rain with major risk of thunderstorms

58 |

conclusion

“The tough market conditions in the mature world are not expected to become easier in the near future, while for the FMCG companies the comparison base is becoming tougher. In addition, commodity costs are rising while consumer sentiment does not allow for price increases.

source: Petercam: Unilever (EUR 22.12, Reduce): Acquiring Alberto Culver for USD 3.7bn in cash, 27 th Sept 2010

conclusion

“The tough market conditions in the mature world are not expected to become easier in the near future, while for the FMCG companies the comparison base is becoming tougher. In addition, commodity costs are rising while consumer sentiment does not allow for price increases.

This environment forces the industry to further step up A&P spending etc. and likely to accept some margin pressure or to accept lower growth. Hence we expect tough times for the sector, with Unilever performing in line with the sector. “

source: Petercam: Unilever (EUR 22.12, Reduce): Acquiring Alberto Culver for USD 3.7bn in cash, 27 th Sept 2010

conclusion

“The tough market conditions in the mature world are not expected to become easier in the near future, while for the FMCG companies the comparison base is becoming tougher. In addition, commodity costs are rising while consumer sentiment does not allow for price increases.

This environment forces the industry to further step up A&P spending etc. and likely to accept some margin pressure or to accept lower growth. Hence we expect tough times for the sector, with Unilever performing in line with the sector. “

source: Petercam: Unilever (EUR 22.12, Reduce): Acquiring Alberto Culver for USD 3.7bn in cash, 27 th Sept 2010

conclusion

don’t let competition outpace you !

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Gino.VanOssel@Vlerick.be

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