Defending Against Competitive Trade Channel Encroachment

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Defending Against Competitive Trade Channel Encroachment

Defending Against Competitive Trade Channel Encroachment

May 6, 2003May 6, 2003

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Welcome to Our Mini Workshop On Defending Against Welcome to Our Mini Workshop On Defending Against Competitive Channel EncroachmentCompetitive Channel Encroachment

This is This is youryour meeting – feel free to interrupt at any time with questions meeting – feel free to interrupt at any time with questions

If you have a question, don’t be shy – it’s probably the same question If you have a question, don’t be shy – it’s probably the same question everyone else has tooeveryone else has too

Take the best and leave the restTake the best and leave the rest

Feel free to disagree with anything we say – but if you do, you must Feel free to disagree with anything we say – but if you do, you must speak-upspeak-up

Feel free to get up and move aroundFeel free to get up and move around

The benefits you derive from this workshop will directly reflect the The benefits you derive from this workshop will directly reflect the time and effort you put into it:time and effort you put into it:

• Workshop participationWorkshop participation

• Proactive participation will bring happiness and deep inner Proactive participation will bring happiness and deep inner satisfactionsatisfaction

• Use us! – we are here to answer your questions and clarify points Use us! – we are here to answer your questions and clarify points to the best of our abilityto the best of our ability

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TodayToday

Key issues facing supermarkets in the current Key issues facing supermarkets in the current competitive environmentcompetitive environment

PricePrice

Supermarket strengths and weaknesses vs. Supermarket strengths and weaknesses vs. consumer expectationsconsumer expectations

Creating value beyond priceCreating value beyond price

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To kick this off, we have a few questions…To kick this off, we have a few questions…

Whom do you see as your most serious Whom do you see as your most serious competitive threat over the next five years?competitive threat over the next five years?

What’s most threatening?What’s most threatening?

How are you trying to compete?How are you trying to compete?

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Now let’s see if our perceptions are the same as yours…Now let’s see if our perceptions are the same as yours…

The Key Issues Facing Supermarkets In The Current Competitive Environment

The Key Issues Facing Supermarkets In The Current Competitive Environment

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The U.S. Supermarket industry is under siege and, to date, has not The U.S. Supermarket industry is under siege and, to date, has not been able to develop an effective response to competition from Value been able to develop an effective response to competition from Value DiscountersDiscounters

Earlier this year, Earlier this year, USA TodayUSA Today reported one one analyst’s reported one one analyst’s forecast that supermarket’s share of the grocery business will forecast that supermarket’s share of the grocery business will drop to 34% by 2010 from its current 53% with the bulk lost to drop to 34% by 2010 from its current 53% with the bulk lost to Wal-Mart.Wal-Mart.

The BLS just reported that Club Stores’ and Supercenters’ The BLS just reported that Club Stores’ and Supercenters’ share of Food At Home sales catapulted from 1.8% in 1991 to share of Food At Home sales catapulted from 1.8% in 1991 to 7.4% in 2001.7.4% in 2001.

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Competition from Value Discounters (cont’d)Competition from Value Discounters (cont’d)

Value Discounters have forced Supermarkets to lower prices Value Discounters have forced Supermarkets to lower prices repeatedly over the past five years, thereby reducing profits, repeatedly over the past five years, thereby reducing profits, driving down stock prices and further limiting Supermarkets’ driving down stock prices and further limiting Supermarkets’ financial ability to compete effectively.financial ability to compete effectively.

Location can no longer be relied-upon as a passive Location can no longer be relied-upon as a passive Supermarket advantage because all those folks shopping at Supermarket advantage because all those folks shopping at Supercenters and Clubs are obviously Supercenters and Clubs are obviously driving arounddriving around Supermarkets to get there.Supermarkets to get there.

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On top of all this, we have…On top of all this, we have…

Trip lossTrip loss

No increase in transaction sizeNo increase in transaction size

Category hijackingCategory hijacking

Consumer shopping patterns that have morphed into Consumer shopping patterns that have morphed into regular “Big Shops” at Value Discounters, supplemented regular “Big Shops” at Value Discounters, supplemented by “fill-ins” at Supermarkets for commodity-type center-by “fill-ins” at Supermarkets for commodity-type center-of-the-store itemsof-the-store items

A continual share loss trickle to Value Discounters – A continual share loss trickle to Value Discounters – defined as Supercenters, Clubs and now Dollar Stores – defined as Supercenters, Clubs and now Dollar Stores – with no let-up in sightwith no let-up in sight

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Source: AC Nielsen Homescan, 2003

Shopper Trips By Channel (1996 – 2002)Shopper Trips By Channel (1996 – 2002)(Avg. # Trips/Household/Channel/Year)(Avg. # Trips/Household/Channel/Year)

95

16

29

8 613 13

73

1522

10 12 1421

0102030405060708090

100

Grocery Drug TraditionalDiscount

Clubs DollarStores

C&G Supercenters

19962002

180167

Total TripsDown 2.3 Down 2.3 Billion Trips Billion Trips Annually in Annually in Seven YearsSeven Years

Trip LosersTrip Losers Trip GainersTrip Gainers

Trip lossTrip loss

One trip = 105.5MM visitsOne trip = 105.5MM visits

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$37

$23

$40

$48

$80

$14

$37

$24

$41

$53

$82

$14 $14

$37

$24

$41

$54

$84

$14 $12

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Grocery Drug Stores Mass Merch Supercenters Club/Warehouse

Convenience/Gase Marts

Dollar Stores

200020012002

No increase in transaction sizeNo increase in transaction size

Annual Shopper Dollars Per Trip By ChannelAnnual Shopper Dollars Per Trip By Channel

Source: IRI Consumer Shopper Panel Database, Custom Analysis

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Dry Grocery Sales Trends In Drug Chains vs. Food StoresDry Grocery Sales Trends In Drug Chains vs. Food Stores

Snacks - Health Bars & SticksSnacks - Health Bars & SticksSpaghetti - CannedSpaghetti - CannedWater - Bottled Water - Bottled Cereal – Ready-to-EatCereal – Ready-to-EatRavioli – CannedRavioli – CannedSoup - CannedSoup - CannedSnacks – Potato ChipsSnacks – Potato ChipsCoffee - GroundCoffee - GroundSoft Drinks - CarbonatedSoft Drinks - CarbonatedDry Dinners - PastaDry Dinners - PastaJellyJellyDog Food - Dry TypeDog Food - Dry TypeCat Food - Dry TypeCat Food - Dry TypeGranola & Yogurt BarsGranola & Yogurt Bars

Food Food ‘95 to ‘99‘95 to ‘99

387%387%6%6%

77%77%-8%-8%35%35%13%13%16%16%

-16%-16%30%30%21%21%-2% -2% 24%24%16%16%-9%-9%

Drug Drug ‘95 to ‘99‘95 to ‘99

681%681%183%183%160%160%159%159%128%128%119%119%

68%68%60%60%59%59%58%58%50%50%48%48%41%41%29%29%

Source: AC Nielsen

Category HijackingCategory Hijacking

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Anyone want to guess what Grocery Store this is?Anyone want to guess what Grocery Store this is?

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Did you guess Osco Drug?Did you guess Osco Drug?

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Using Clubs vs Supermarkets as an example, for some consumers the Using Clubs vs Supermarkets as an example, for some consumers the shopping pattern appears to have morphed into something like the shopping pattern appears to have morphed into something like the following:following:

0

10

20

30

40

50

60

70

80

90

100

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

$84.00$84.00

$37.00$37.00

Annual Trip Frequencies & Transaction Size:Annual Trip Frequencies & Transaction Size:Clubs vs. SupermarketsClubs vs. Supermarkets

Avg.TransactionSize

Source: AC Nielsen Homescan, 2003 and 2001; IRI Consumer Shopper Panel Database, 2003

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Source: ACNielsen Cross Outlet*Facts 2000; Total US

DRUG STORES3.4%

SUPERCENTERS13.4%

A/O30.9%

MASS MERCH W/O SUPERS

13.7%

DOLLAR STORES1.2%

GROCERY $2MM+30.5%

WAREHOUSE CLUBS

5.9%

CONV/GAS1.0%

-1.2

-0.2

-0.5

+2.1

-0.6

+0.3

+0.0

+0.1

Daily Defections to Non-Food Trade ChannelsDaily Defections to Non-Food Trade Channels

Share/Share Chg of Supercenter Shopper $ by ChannelShare/Share Chg of Supercenter Shopper $ by Channel

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54%

6%

21%

9% 8%

2%

51%

6%

19%

13%

8%

2% 1%

50%

6%

18%

14%

9%

2% 2%

0%

10%

20%

30%

40%

50%

60%

Grocery Drug Stores Mass Merch Supercenters Club/Warehouse

Convenience/Gase Marts

Dollar Stores

200020012002

Bottom line: Steady erosion of total share to Value Bottom line: Steady erosion of total share to Value Discount formatsDiscount formats

Percent Share of Total Annual Shopper DollarsPercent Share of Total Annual Shopper Dollars

Source: IRI Consumer Shopper Panel Database, Custom Analysis

-4 pts-4 pts-4 pts-4 pts

+5 pts+5 pts+5 pts+5 pts +1 pt+1 pt+1 pt+1 pt

+1 pt+1 pt+1 pt+1 pt

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No let-up in sightNo let-up in sight

One analyst predicts that Wal-Mart will open over 3,000 One analyst predicts that Wal-Mart will open over 3,000 Neighborhood Markets by 2010:Neighborhood Markets by 2010:

• Now building 25 in Florida as we speakNow building 25 in Florida as we speak

Over the next five years Costco plans to buckshot the Over the next five years Costco plans to buckshot the landscape with 200 – 300 60K sq. ft. versions of its 10 – landscape with 200 – 300 60K sq. ft. versions of its 10 – 14% margin Club Stores.14% margin Club Stores.

Dollar Stores are planning an explosion of new outlets Dollar Stores are planning an explosion of new outlets between now and 2010, mainly in a pincer movement with between now and 2010, mainly in a pincer movement with Dollar General, Dollar Tree and Family Dollar moving Dollar General, Dollar Tree and Family Dollar moving west and 99¢ Only Stores moving east.west and 99¢ Only Stores moving east.

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Over the years, Supermarkets have responded to threats like these Over the years, Supermarkets have responded to threats like these with a variety of epidemic-like initiatives, mostly without much with a variety of epidemic-like initiatives, mostly without much success:success:

19801980 –– Direct Product Profitability (DPP)Direct Product Profitability (DPP)

19851985 –– Category ManagementCategory Management

19891989 –– “Partnering”“Partnering”

19911991 –– Activity-Based Costing (“ABC”)Activity-Based Costing (“ABC”)

19931993 –– “ECR”“ECR”

19951995 –– Prepared Take-Home MealsPrepared Take-Home Meals

19971997 –– “Club Packs”“Club Packs”

2000+2000+ –– “Meal Solutions”“Meal Solutions”

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The fundamental problem with the way in which these initiatives have been implemented is that they have focused the attentions of both Supermarkets and Suppliers on the relationships they have with

each other instead of on the relationships Supermarkets ought to be building with their

customers.

The fundamental problem with the way in which these initiatives have been implemented is that they have focused the attentions of both Supermarkets and Suppliers on the relationships they have with

each other instead of on the relationships Supermarkets ought to be building with their

customers.

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The “net” as far as Supermarket shoppers are concerned:The “net” as far as Supermarket shoppers are concerned:

Don’t care about:Don’t care about:

• DPPDPP

• Category ManagementCategory Management

• ABCABC

• ECR (etc.)ECR (etc.)

Lack compelling reasons to shop a particular store other Lack compelling reasons to shop a particular store other than location and price:than location and price:

• ““84% of consumers think all Supermarkets are alike.” 84% of consumers think all Supermarkets are alike.” (American Research Council)(American Research Council)

Have strayed from the channel by the millions and Have strayed from the channel by the millions and allowed to become habituated to shopping for groceries in allowed to become habituated to shopping for groceries in other formatsother formats

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PricePrice

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In the 50’s and 60’s Supermarkets competed mainly with other Supermarkets and In the 50’s and 60’s Supermarkets competed mainly with other Supermarkets and used price, location and assortment as their principal weapons. This worked well as used price, location and assortment as their principal weapons. This worked well as long as Supermarkets competed with other Supermarkets.long as Supermarkets competed with other Supermarkets.

No Fast FoodNo Fast Food

No Mass MerchandisersNo Mass Merchandisers

No ClubsNo Clubs

No SupercentersNo Supercenters

Independents Dominated Independents Dominated DrugDrug

A&P Dominated FoodA&P Dominated Food

Most CPG-type Products Most CPG-type Products Sold Through Sold Through SupermarketsSupermarkets

Most Meals Prepared and Most Meals Prepared and Eaten at HomeEaten at Home

The Supermarket Competitive Environment – 1950’s & 60’sThe Supermarket Competitive Environment – 1950’s & 60’s

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TodayToday

120K Convenience Stores120K Convenience Stores

32K Supermarkets32K Supermarkets

6K Mass Merchandisers6K Mass Merchandisers

20K Drug Stores20K Drug Stores

1K Club Stores1K Club Stores

12K Dollar Stores12K Dollar Stores

McDonaldsMcDonaldsBurger KingBurger KingWendy’sWendy’sJack-in-The-BoxJack-in-The-Box

48% of Food Dollars48% of Food DollarsSpent Away From HomeSpent Away From Home

Today, Supermarkets are faced with an entirely different Today, Supermarkets are faced with an entirely different environment characterized by outlet saturation and a huge excess of environment characterized by outlet saturation and a huge excess of selling spaceselling space

1950’s + 60’s1950’s + 60’s

No Fast FoodNo Fast Food

No Mass MerchandisersNo Mass Merchandisers

No ClubsNo Clubs

No SupercentersNo Supercenters

Independents Dominated Independents Dominated DrugDrug

A&P Dominated FoodA&P Dominated Food

Most CPG-type Products Most CPG-type Products Sold Through Sold Through SupermarketsSupermarkets

Most Meals Prepared and Most Meals Prepared and Eaten at HomeEaten at Home

24 FMI2003R2.ppt

Non-Choc. CandyNon-Choc. Candy

Chocolate CandyChocolate Candy

Artificial SweetenersArtificial Sweeteners

Ground CoffeeGround Coffee

Dried Fruit SnacksDried Fruit Snacks

HH CleanersHH Cleaners

Toilet TissueToilet Tissue

Paper TowelsPaper Towels

Liquid SoapLiquid Soap

Soft DrinksSoft Drinks

79.4%79.4%

83.6%83.6%

80.2%80.2%

90.2%90.2%

83.2%83.2%

78.6%78.6%

86.4%86.4%

77.8%77.8%

55.4%55.4%

97.5%97.5%

GroceryGrocery

62.0%62.0%

58.0%58.0%

21.8%21.8%

30.0%30.0%

22.8%22.8%

42.9%42.9%

50.3%50.3%

25.1%25.1%

45.0%45.0%

44.7%44.7%

MassMass

18.0%18.0%

16.6%16.6%

8.1%8.1%

11.3%11.3%

7.2%7.2%

12.1%12.1%

16.5%16.5%

6.6%6.6%

11.6%11.6%

16.9%16.9%

SuperSuperCentersCenters

12.6%12.6%

10.4%10.4%

11.9%11.9%

15.5%15.5%

12.7%12.7%

11.4%11.4%

10.4%10.4%

10.0%10.0%

10.3%10.3%

9.2%9.2%

ClubsClubs

43.5%43.5%

5.1%5.1%

5.2%5.2%

7.7%7.7%

4.2%4.2%

14.7%14.7%

19.8%19.8%

9.5%9.5%

9.9%9.9%

24.1%24.1%

DrugDrug

9.5%9.5%

1.5%1.5%

0.4%0.4%

1.0%1.0%

0.8%0.8%

0.8%0.8%

1.6%1.6%

0.6%0.6%

0.2%0.2%

20.4%20.4%

C-StoresC-Stores

Source: Scarborough Research, 1999-2000

% Buyers In% Buyers In

In addition, Supermarkets no longer have a lock on “traditional” In addition, Supermarkets no longer have a lock on “traditional” grocery items which were formerly almost exclusively theirs to sellgrocery items which were formerly almost exclusively theirs to sell

25 FMI2003R2.ppt

Source: Company SEC filings, Kroger & Albertson’s through 3 quarters, Wal-Mart & Safeway reflect full FY2002*Food Only, Total U.S.

Wal-MartWal-Mart KrogerKroger Albertson’sAlbertson’s SafewaySafeway

SalesSales $81B*$81B* $53B$53B $36B$36B $32B$32B

Operating CostsOperating Costs 16.6%16.6% 22.1%22.1% 24.1%24.1% 25.9%25.9%

Net IncomeNet Income 3.3%3.3% 2.2%2.2% 1.4%1.4% (2.5%)(2.5%)

Operating ProfitsOperating Profits 5.2%5.2% 4.9%4.9% 5.1%5.1% 5.2%5.2%

Gross MarginsGross Margins 22.2%22.2% 27.0%27.0% 29.2%29.2% 31.1%31.1%

On top of this, Supermarkets are now confronted with competition from On top of this, Supermarkets are now confronted with competition from Value Discounters whose business models deliver higher net incomes than Value Discounters whose business models deliver higher net incomes than Supermarkets at significantly lower retails. For example:Supermarkets at significantly lower retails. For example:

Wal-Mart Operating Costs vs. Leading Supermarket: Wal-Mart Operating Costs vs. Leading Supermarket: Impact on Margins – 2002/2003Impact on Margins – 2002/2003

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Question:Question:

How many of you are thinking at this point that Wal-Mart and other Value

Discounters have acquired this advantage because suppliers sell to these companies at lower net prices than they

sell to Supermarkets?

How many of you are thinking at this point that Wal-Mart and other Value

Discounters have acquired this advantage because suppliers sell to these companies at lower net prices than they

sell to Supermarkets?

27 FMI2003R2.ppt

Answer: You are 100% correct! Answer: You are 100% correct!

Suppliers Suppliers do selldo sell to Wal-Mart, Clubs and Dollar Stores at to Wal-Mart, Clubs and Dollar Stores at lower net prices than they sell to Supermarkets lower net prices than they sell to Supermarkets BUTBUT::

This is This is notnot due to these retailers’ clout or size or to due to these retailers’ clout or size or to favoritism by suppliersfavoritism by suppliers

It It isis due to the fact that these retailers have different due to the fact that these retailers have different business models and buying protocols than Supermarkets business models and buying protocols than Supermarkets which makes them inherently more efficient from a which makes them inherently more efficient from a pricing standpointpricing standpoint

Bottom line is that suppliers offer no better pricing or Bottom line is that suppliers offer no better pricing or deals to these accounts than they do to Supermarkets – deals to these accounts than they do to Supermarkets – only they structure them differentlyonly they structure them differently

Want to know how this works?Want to know how this works?

28 FMI2003R2.ppt

First thing to understand is what suppliers have available First thing to understand is what suppliers have available in terms of discretionary spending:in terms of discretionary spending:

2002 Supplier Discretionary Advertising & Promotion Spending2002 Supplier Discretionary Advertising & Promotion Spending

Net SalesNet Sales

Consumer AdvertisingConsumer Advertising

Consumer PromotionConsumer Promotion

Trade PromotionTrade Promotion

Total Adv. & PromotionTotal Adv. & Promotion

$100.00$100.00

$7.00$7.00

$5.00$5.00

$17.00$17.00

$29.00$29.00

TV, Radio, Print, Etc.TV, Radio, Print, Etc.

FSIs, Coupons, On-Packs, Etc.FSIs, Coupons, On-Packs, Etc.

Slotting, O/Is, Accruals, Bill-backs, Etc.Slotting, O/Is, Accruals, Bill-backs, Etc.

Avg. Industry A&P Spending*Avg. Industry A&P Spending*

*All numbers have been rounded to the nearest dollarSource: Cannondale Associates, Inc.; Trade Promotion spending and Merchandising 2002 Industry Study, 2003

This is known as the “Advertising & Promotion budget”:This is known as the “Advertising & Promotion budget”:

CategoryCategory SpendingSpending TypeType

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Next thing to understand are the buying protocols of Next thing to understand are the buying protocols of Value Discounters. For Example:Value Discounters. For Example:

Wal-Mart:Wal-Mart:

Does not want slottingDoes not want slotting

Does want trade promotion but is willing to accept less Does want trade promotion but is willing to accept less providing the supplier uses the balance to reduce net pricesproviding the supplier uses the balance to reduce net prices

Does not want any consumer promotion that would in any Does not want any consumer promotion that would in any way increase pricesway increase prices

Works with every supplier to achieve the right “balance” Works with every supplier to achieve the right “balance” between discretionary funds available and net pricing to between discretionary funds available and net pricing to Wal-MartWal-Mart

Works equally hard on the supply-side to keep operating Works equally hard on the supply-side to keep operating costs as low as possiblecosts as low as possible

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Buying protocols (cont’d)Buying protocols (cont’d)

Clubs:Clubs:

Require suppliers to strip-out all slotting, trade promotion Require suppliers to strip-out all slotting, trade promotion and consumer promotion and reduce prices accordinglyand consumer promotion and reduce prices accordingly

Are willing to accept up-charges for packaging changes Are willing to accept up-charges for packaging changes and use of packaging sub-contractorsand use of packaging sub-contractors

Provide full disclosure on promotion costs and require Provide full disclosure on promotion costs and require suppliers to promote only using retailer-developed suppliers to promote only using retailer-developed promotion vehiclespromotion vehicles

Pricing is Pricing is alwaysalways a negotiation a negotiation

Structure supply requirements to keep handling and labor Structure supply requirements to keep handling and labor costs at absolute minimumscosts at absolute minimums

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How Value Discounter buying protocols translate vs. How Value Discounter buying protocols translate vs. SupermarketsSupermarkets

Net SalesNet Sales

Consumer AdvertisingConsumer Advertising

Consumer PromotionConsumer Promotion

Trade PromotionTrade Promotion

Total Advertising & PromotionTotal Advertising & Promotion

Add-Backs For PackagingAdd-Backs For Packaging

Net Net

Pricing vs. SupermarketsPricing vs. Supermarkets

SupermarketsSupermarkets

$100.00$100.00

$7.00$7.00

$5.00$5.00

$17.00$17.00

$29.00$29.00

––

$29.00$29.00

––0-0-

Wal-MartWal-Mart

$100.00$100.00

$7.00$7.00

$2.50$2.50

$8.50$8.50

$18.00$18.00

––

$18.00$18.00

($11.00)($11.00)

ClubsClubs

$100.00$100.00

$7.00$7.00

––

$2.00$2.00

$9.00$9.00

$2.00$2.00

$11.00$11.00

($18.00)($18.00)

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Impact on retail prices:Impact on retail prices:

Standard case priceStandard case price

Budgeted A&P investmentBudgeted A&P investment

Actual A&P costsActual A&P costs

Balance to priceBalance to price

Net case cost to retailerNet case cost to retailer

Avg. gross margins (2002)Avg. gross margins (2002)

Retail per caseRetail per case

Per SKU (12 unit case)Per SKU (12 unit case)

% difference vs. Supermarkets% difference vs. Supermarkets


$100.00$100.00

$29.00$29.00

$29.00$29.00

$0.00$0.00

$100.00

29.1%29.1%

$129.05$129.05

$10.75

––

Wal-MartWal-Mart

$100.00$100.00

$29.00$29.00

$18.00$18.00

($11.00)($11.00)

$89.00

22.2%22.2%

$108.93$108.93

$9.08

15.5%15.5%

ClubsClubs

$100.00$100.00

$29.00$29.00

$11.00$11.00

($18.00)($18.00)

$82.00

11.1%11.1%

$92.23$92.23

$7.69

28.5%28.5%

33 FMI2003R2.ppt

Channel Pricing Index on Selected ConsumablesChannel Pricing Index on Selected Consumables(Scottsdale, AZ, 8/7/2002)(Scottsdale, AZ, 8/7/2002)

Source: Hoyt & Company Store Checks w/o 8/7/2002. Source: Hoyt & Company Store Checks w/o 8/7/2002. Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis. Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.

Formula 409Formula 409Pine SolPine SolPledgePledgeLysol Disinfecting SprayLysol Disinfecting SprayWindexWindexArrowhead WaterArrowhead WaterTea BagsTea BagsMaxwell House CoffeeMaxwell House CoffeeSweet ‘n LowSweet ‘n LowEqualEqualHershey’s KissesHershey’s KissesM&M’sM&M’sBath Tissue – 36-48 RollBath Tissue – 36-48 RollBath Tissue – 12-24 RollBath Tissue – 12-24 RollNapkinsNapkinsTowels (roll)Towels (roll)

100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100100

FoodFood

6161929268686666595992924949717192927272666665655454737360607777

SupercentersSupercenters

5353585857575454373765654545

N/AN/A43434848676754544141575739397373

ClubsClubs

Translation into real world pricing differencesTranslation into real world pricing differences

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It is because the consumer intuits these differences that It is because the consumer intuits these differences that she has become habituated to shopping different formatsshe has become habituated to shopping different formats

In 2002:In 2002: 100% of U.S. HH shopped Supermarkets approximately 1.5x’s per 100% of U.S. HH shopped Supermarkets approximately 1.5x’s per

week and spent an average of $37.00 per trip.week and spent an average of $37.00 per trip.

92% of HH shopped Mass Merchandisers about every other week 92% of HH shopped Mass Merchandisers about every other week and spent about $41.00 per trip.and spent about $41.00 per trip.

86% of HHs shopped a Drug chain about every three weeks and spent 86% of HHs shopped a Drug chain about every three weeks and spent an average of $24.00 per trip.an average of $24.00 per trip.

63% of HHs shopped a Supercenter about every 3 weeks and spent an 63% of HHs shopped a Supercenter about every 3 weeks and spent an average of $54.00 per tripaverage of $54.00 per trip

62% shopped a Dollar Store about once a month and spent about 62% shopped a Dollar Store about once a month and spent about $12.00 per trip.$12.00 per trip.

52% shopped a Club about once every 5 weeks and spent a whopping 52% shopped a Club about once every 5 weeks and spent a whopping $84.00 per trip.$84.00 per trip.

46% shopped a Convenience store about 1X per month and spent 46% shopped a Convenience store about 1X per month and spent about $14.00 per trip.about $14.00 per trip.

35 FMI2003R2.ppt

Key Message #1Key Message #1

Supermarkets Supermarkets mustmust completely revampcompletely revamp their go-to-market their go-to-market strategies in order to remain viable in the 21st century:strategies in order to remain viable in the 21st century:

• The 1950’s and 60’s model built on price, location and The 1950’s and 60’s model built on price, location and assortment is no longer working effectivelyassortment is no longer working effectively

• Fact is that Supermarkets Fact is that Supermarkets cannot compete on price alonecannot compete on price alone with Value Discounters and continue to grow profits on a with Value Discounters and continue to grow profits on a sustainable basissustainable basis

By continuing to attempt to compete with Value Discounters on By continuing to attempt to compete with Value Discounters on price, Supermarkets are allowing these channels to dictate the price, Supermarkets are allowing these channels to dictate the way they (Supermarkets) do businessway they (Supermarkets) do business

On the other hand, there is a way to create a low price On the other hand, there is a way to create a low price impression without digging one’s grave in the processimpression without digging one’s grave in the process

36 FMI2003R2.ppt

How to create a Low Price impressionHow to create a Low Price impression

Top 15 Supermarkets Items Ranked in Order of “Pulling Power”Top 15 Supermarkets Items Ranked in Order of “Pulling Power”

1.1. Baked Goods (Fresh)Baked Goods (Fresh)2.2. MilkMilk3.3. Soft Drinks-carb.Soft Drinks-carb.4.4. SnacksSnacks5.5. Paper ProductsPaper Products6.6. CandyCandy7.7. Juices/drinks-ssJuices/drinks-ss8.8. Meat & Seafood-freshMeat & Seafood-fresh9.9. ProduceProduce10.10. Packaged MeatsPackaged Meats11.11. CerealCereal12.12. Condiments/saucesCondiments/sauces13.13. CheeseCheese14.14. Pet FoodPet Food15.15. Vegetables-cannedVegetables-canned

99.499.497.897.897.797.798.798.799.399.397.997.994.794.799.999.999.999.996.796.796.196.198.398.397.597.571.171.195.495.4

35.535.534.334.330.330.325.725.723.523.521.821.820.920.919.119.118.518.518.918.917.817.817.217.217.217.219.619.614.614.6

HHHHPenetrationPenetration

PurchasePurchaseFrequencyFrequency

352935293355335529602960253725372334233421342134197919791908190818481848182818281711171116911691167716771394139413931393

PullingPullingPowerPower

698698663663585585502502461461422422391391377377365365361361338338334334332332276276275275

Index ToIndex ToMedianMedian

3.20%3.20%2.96%2.96%3.22%3.22%2.33%2.33%2.05%2.05%1.03%1.03%1.60%1.60%

14.38%14.38%9.75%9.75%2.49%2.49%1.99%1.99%1.43%1.43%2.13%2.13%1.29%1.29%0.87%0.87%

50.72%50.72%

%%of Salesof SalesXX ==

37 FMI2003R2.ppt

QuestionQuestion

Just how important is “price” relative to the other factors that influence the

consumer’s decision on where to shop?

Just how important is “price” relative to the other factors that influence the

consumer’s decision on where to shop?

38 FMI2003R2.pptSource: FMI “Spending and Saving Money”, 2003

Based on a 2003 FMI Study, not nearly as important to Based on a 2003 FMI Study, not nearly as important to Supermarket shoppers as everyone seems to assume:Supermarket shoppers as everyone seems to assume:

FMI Study results:FMI Study results:• Only 20% of shoppers compare prices on every tripOnly 20% of shoppers compare prices on every trip

• 23% compare “fairly often”23% compare “fairly often”

• 32% compare “only occasionally”32% compare “only occasionally”

• 25% “never” compare25% “never” compare

In other words, price is not the magnet it used to be with In other words, price is not the magnet it used to be with 57% of shoppers and is only marginally important to 57% of shoppers and is only marginally important to another 23%.another 23%.

Larry Johnston, CEO of Albertson’s, recently affirmed Larry Johnston, CEO of Albertson’s, recently affirmed these findings when he told analysts that although these findings when he told analysts that although Albertson’s was again lowering prices, Albertson’s Albertson’s was again lowering prices, Albertson’s research indicates that price is a determinant for only research indicates that price is a determinant for only about 35% of grocery shoppersabout 35% of grocery shoppers

39 FMI2003R2.ppt

Because price Because price isis such an important – and controversial – issue, Hoyt such an important – and controversial – issue, Hoyt & Company conducted its own (informal) survey on this subject & Company conducted its own (informal) survey on this subject during the week of March 24 in Scottsdale, AZduring the week of March 24 in Scottsdale, AZ

Approximately 100 parking lot shopper interceptsApproximately 100 parking lot shopper intercepts

Albertson’s, Fry’s (Kroger) and SafewayAlbertson’s, Fry’s (Kroger) and Safeway

Wal-Mart Supercenters and CostcoWal-Mart Supercenters and Costco

Objectives:Objectives:

Determine why consumers shop supermarkets versus Determine why consumers shop supermarkets versus alternate outletsalternate outlets

Likes/dislikes/expectations versus alternate outletsLikes/dislikes/expectations versus alternate outlets

Purpose of trip/what they buyPurpose of trip/what they buy

Other channels at which supermarket shoppers regularly Other channels at which supermarket shoppers regularly buy groceries and whybuy groceries and why

40 FMI2003R2.ppt

Hoyt & Company Survey Results – Question #1Hoyt & Company Survey Results – Question #1

Are you shopping today to fill-in or do a major shop?Are you shopping today to fill-in or do a major shop?

Major ShopMajor Shop

Fill-inFill-in

SupermarketSupermarketShoppersShoppers

SupercentersSupercentersShoppersShoppers

ClubClubShoppersShoppers

12%12%

88%88%

36%36%

64%64%

0%0%

100%100%

41 FMI2003R2.ppt


Is this the only store where you buy groceries?Is this the only store where you buy groceries?

YesYes

NoNo




8%8%

92%92%

7%7%

93%93%

0%0%

100%100%

42 FMI2003R2.ppt


In what other channels do you buy groceries?In what other channels do you buy groceries?

Other supermarketsOther supermarkets


ClubsClubs

Drug ChainsDrug Chains

Food Specialty Food Specialty (Oats, Joes, Whole Foods) (Oats, Joes, Whole Foods)

OtherOther




63%63%

33%

56%

21%21%

50%50%

13%13%

57%57%

0%0%

71%71%

29%29%

50%50%

7%7%

100%100%

27%27%

0%0%

0%0%

27%27%

0%0%

43 FMI2003R2.ppt


Does this store carry all of the items, or brands or sizes you Does this store carry all of the items, or brands or sizes you want to buy?want to buy?

YesYes

NoNo




52%52%

48%48%

57%57%

43%43%

0%0%

100%100%

44 FMI2003R2.ppt


What items do you buy What items do you buy mostly at this storemostly at this store??

Fruits & VegetablesFruits & Vegetables

Meats & FishMeats & Fish

Dairy & FrozenDairy & Frozen

Soft Drinks, Juices, CoffeeSoft Drinks, Juices, Coffee

Cereals, Cookies, Chips, Cereals, Cookies, Chips, Canned GoodsCanned Goods

Detergents and Paper Detergents and Paper Goods (Dry Grocery, Non-Goods (Dry Grocery, Non-Food)Food)




88%88%

83%83%

88%88%

75%75%

73%73%

42%42%

64%64%

57%57%

57%57%

64%64%

64%64%

64%64%

36%36%

36%36%

27%27%

64%64%

36%36%

100%100%

45 FMI2003R2.ppt


Why did you choose this particular store?Why did you choose this particular store?

Close byClose by

PricesPrices

ServiceService

More choicesMore choices

OtherOther




75%75%

13%13%

6%6%

2%2%

0%0%

21%21%

71%71%

0%0%

0%0%

7%7%

50%50%

50%50%

0%0%

0%0%

0%0%

46 FMI2003R2.ppt

Net on Supermarkets and price:Net on Supermarkets and price:

Consumers no longer perceive Supermarkets as grocery price Consumers no longer perceive Supermarkets as grocery price leaders and do not shop the channel primarily for price savingsleaders and do not shop the channel primarily for price savings::

Only 13% of supermarket shoppers said they shop Supermarkets for Only 13% of supermarket shoppers said they shop Supermarkets for price versus 71% of Supercenter shoppersprice versus 71% of Supercenter shoppers

Location, Service and “More Choices” are the three most frequently-Location, Service and “More Choices” are the three most frequently-cited reasons why consumers shop Supermarkets versus other cited reasons why consumers shop Supermarkets versus other channelschannels

Consumers have “0” expectations of both Supercenters and Clubs to Consumers have “0” expectations of both Supercenters and Clubs to provide either “service” or “more choices”provide either “service” or “more choices”

Based on these findings, continuing a 24/7 fixation on price is counter-Based on these findings, continuing a 24/7 fixation on price is counter-productive relative to focusing on other ways of meeting shopper productive relative to focusing on other ways of meeting shopper expectations that would add genuine value to the overall expectations that would add genuine value to the overall Supermarket shopping experience.Supermarket shopping experience.

47 FMI2003R2.ppt

Key Message #2:Key Message #2:

Supermarkets have Supermarkets have unique strengthsunique strengths which clearly set which clearly set them apart in the consumer’s eyes from other trade them apart in the consumer’s eyes from other trade channels selling similar products.channels selling similar products.

Supermarkets have failed to leverage these strengths by Supermarkets have failed to leverage these strengths by imitating rather than leading.imitating rather than leading.

The extent to which Supermarkets can learn to leverage The extent to which Supermarkets can learn to leverage these strengths is the extent to which Supermarkets will these strengths is the extent to which Supermarkets will be able to move away from price-based merchandising be able to move away from price-based merchandising and create value that aligns with shopper expectations of and create value that aligns with shopper expectations of what a Supermarket should deliver.what a Supermarket should deliver.

48 FMI2003R2.ppt

Supermarket Strengths and Weaknesses versus Consumer Expectations

Supermarket Strengths and Weaknesses versus Consumer Expectations

49 FMI2003R2.ppt

Despite higher overall prices, 100% of U.S. households Despite higher overall prices, 100% of U.S. households continue to shop the Grocery channel with no drop-off in sight:continue to shop the Grocery channel with no drop-off in sight:

% Household Penetration By Channel Per Year: 1996 - 2002% Household Penetration By Channel Per Year: 1996 - 2002

ChannelChannel

GroceryGrocery

Convenience and GasConvenience and Gas

Drug ChainsDrug Chains

Traditional DiscountTraditional Discount

Warehouse ClubsWarehouse Clubs


Dollar StoresDollar Stores

19961996

100

5252

9090

9595

4949

N/AN/A

3939

19981998

100

5252

8686

9494

4949

4747

4747

19991999

100

5050

8787

9595

5050

5252

5252

20002000

100

4848

8686

9494

4949

5454

5555

20012001

100

4545

8686

9393

5050

6060

5959

20022002

100

4646

8686

9292

5252

6363

6262

+ Pts+ Ptsvs. ‘96vs. ‘96

––

-6-6

-4-4

-3-3

+3+3

+16+16

+23+23

Source: AC Nielsen, Channel Blurring Studies, 1998 - 2002 inclusive

19971997

100

5252

8989

9494

4848

N/AN/A

4545

50 FMI2003R2.ppt

In addition, consumers shop Grocery far more frequently than any In addition, consumers shop Grocery far more frequently than any other channel and 3.5 Xs more than lower-priced Supercentersother channel and 3.5 Xs more than lower-priced Supercenters

US CPG ChannelsUS CPG ChannelsTrip Frequency – Annual # Trips/Household/Year/Channel, 1996 - 2002Trip Frequency – Annual # Trips/Household/Year/Channel, 1996 - 2002

ChannelChannel

GroceryGrocery

Mass MerchandiseMass Merchandise

DrugDrug


DollarDollar

Warehouse ClubsWarehouse Clubs

Convenience and GasConvenience and Gas

TotalsTotals

19961996

9595

2929

1616

1313

66

88

1313

180180

19981998

8585

2828

1515

1414

99

99

1818

173173

19991999

8383

2626

1515

1515

1010

99

1313

171171

20002000

7878

2525

1515

1717

1010

1010

1414

169169

20012001

7575

2323

1515

1818

1111

1010

1515

167167

20022002

7373

2222

1515

2121

1212

1010

1414

167167

+ Pts+ Ptsvs. ‘96vs. ‘96

(22)(22)

(7)(7)

(1)(1)

88

66

22

11

(13)(13)

Source: AC Nielsen, Channel Blurring Studies, 1998 - 2002 inclusive

51 FMI2003R2.ppt

Consumer satisfaction surveys repeatedly show that shopper Consumer satisfaction surveys repeatedly show that shopper satisfaction levels are higher with Supermarkets than with any other satisfaction levels are higher with Supermarkets than with any other channelchannel

Your SupermarketYour Supermarket


Mass MerchandisersMass Merchandisers

Wholesale ClubsWholesale Clubs

Dollar StoresDollar Stores

Chain Drug StoresChain Drug Stores

Fast-food RestaurantsFast-food Restaurants

Convenience StoresConvenience Stores

7.497.49

6.676.67

6.496.49

6.166.16

6.056.05

5.935.93

5.115.11

5.095.09

Shopper SatisfactionShopper Satisfaction1-10 Scale: 1 = not satisfied, 10 = extremely satisfied1-10 Scale: 1 = not satisfied, 10 = extremely satisfied

Source: Progressive Grocer, 2002

52 FMI2003R2.ppt

Other Key Strengths Unique to SupermarketsOther Key Strengths Unique to Supermarkets

Channel of Choice for Perishables – the primary reason Channel of Choice for Perishables – the primary reason why 100% of households come to visit 1.5 times per weekwhy 100% of households come to visit 1.5 times per week

Proximity – Short driving distance relative to other Proximity – Short driving distance relative to other channelschannels

Full Variety – Only channel that offers 35-50K+ Full Variety – Only channel that offers 35-50K+ foodfood items, including items, including regionalregional brands brands

Ability to tie-in with community events and configure Ability to tie-in with community events and configure assortments and services to local tastes.assortments and services to local tastes.

53 FMI2003R2.ppt

QuestionQuestion

With such an overwhelming advantage in the competition for U.S. grocery dollars, why are Supermarkets steadily losing both trips and share to other channels where groceries are

not even their destination business?

With such an overwhelming advantage in the competition for U.S. grocery dollars, why are Supermarkets steadily losing both trips and share to other channels where groceries are

not even their destination business?

54 FMI2003R2.ppt

Based on current research, the answer appears to be Based on current research, the answer appears to be comprised of a combination of factors:comprised of a combination of factors:

PricePrice – Always important but, as we have seen, not – Always important but, as we have seen, not thethe primary primary driver for the majority of food shoppersdriver for the majority of food shoppers

Time PressuresTime Pressures – Now cut across all economic strata and direct food – Now cut across all economic strata and direct food shopping to any outlet that best satisfies “Quick, Easy and shopping to any outlet that best satisfies “Quick, Easy and Convenient”Convenient”

The Declining Importance of Food versus Other Lifestyle PrioritiesThe Declining Importance of Food versus Other Lifestyle Priorities – – Both as a daily ritual and as a percentage of disposable incomeBoth as a daily ritual and as a percentage of disposable income

The Failure of Supermarkets to Connect with Consumers in Ways The Failure of Supermarkets to Connect with Consumers in Ways That Add Value Beyond Price and LocationThat Add Value Beyond Price and Location – The result of 50 years – The result of 50 years of price-based competition coupled with a passive “Build it and they of price-based competition coupled with a passive “Build it and they will come” philosophywill come” philosophy

The Value-Added Provided By Other ChannelsThe Value-Added Provided By Other Channels – Namely, – Namely, Supercenters and Clubs, Supercenters and Clubs, in addition toin addition to lower prices lower prices

55 FMI2003R2.ppt

Time PressuresTime Pressures – Root Causes – Root Causes

75% of families now have two wage-earner incomes.75% of families now have two wage-earner incomes.

65% of married women with children under six are in the 65% of married women with children under six are in the workforce.workforce.

70% of working women say that the number of things 70% of working women say that the number of things they have to do in a day is a big cause of stress.they have to do in a day is a big cause of stress.

58% of consumers say convenience is a key determinant 58% of consumers say convenience is a key determinant of what they eat and where they eat it.of what they eat and where they eat it.

40% of the population say they have no idea of what they 40% of the population say they have no idea of what they are having for dinner at 4:00 pm.are having for dinner at 4:00 pm.

56 FMI2003R2.ppt

Time PressuresTime Pressures – Span All Economic Strata – Span All Economic Strata

48%

55%

67%

27%

31%

47%

54%

49%

18%

13%

70%

67%

0% 20% 40% 60% 80%

Pay Someone To Do Chores

Eat Frozen Prepared Foods

Order by Phone/Mail/PC

Shop In Convenience Stores

Eat At Fast Food Restaurants

Bring Home Take-Out Meals

Have Nots Haves+15+16

+2+21

+5+19

+16+6+4

+14

+7+7

Pt. ChangeSince 1986

Roper Starch Worldwide U.S. Consumer Survey% Americans Saying Do “Often” / “Sometimes” to Save Time

57 FMI2003R2.ppt

Source: National Eating Trends DataSource: National Eating Trends Data

Time PressuresTime Pressures – Impact On Family Meal Preparation – Impact On Family Meal Preparation and Eating Habits:and Eating Habits:

The average time spent in meal preparation these days is less The average time spent in meal preparation these days is less than 20 minutes – down from 2.5 hours in 1960.than 20 minutes – down from 2.5 hours in 1960.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1960 1980 2000

Time Spent Preparing MealsTime Spent Preparing Meals

2.5 Hours2.5 Hours

1 Hour1 Hour

20 Minutes20 Minutes

58 FMI2003R2.ppt

Time PressuresTime Pressures - Impact on Shopper Decision Time - Impact on Shopper Decision Time

25%

33%

42%

Shopper’s Decision TimeShopper’s Decision TimePercent of Total ShoppersPercent of Total Shoppers

5 seconds or less5 seconds or less

6-15 seconds6-15 seconds

More than 15 More than 15 secondsseconds

Source: Price Knowledge and Search of Supermarket Shoppers – P Dickson and A. Sawyer

Product selection, shelf position and in-store merchandising are criticalProduct selection, shelf position and in-store merchandising are critical

59 FMI2003R2.ppt

Net On Time PressuresNet On Time Pressures

““Quick, Easy and Convenient” must now drive Quick, Easy and Convenient” must now drive the strategythe strategy

Must not only include “with it” product Must not only include “with it” product assortments but store operations – how fast the assortments but store operations – how fast the customer can get out the doorcustomer can get out the door

Supermarkets must think of themselves as Supermarkets must think of themselves as facilitators, not just conduits for productsfacilitators, not just conduits for products

60 FMI2003R2.ppt

In addition to time pressures, food and food shopping are In addition to time pressures, food and food shopping are simply no longer big deal prioritiessimply no longer big deal priorities

Food as a % of Personal Consumption $: 1960-2000Food as a % of Personal Consumption $: 1960-2000Food as a % of Personal Consumption $: 1960-2000Food as a % of Personal Consumption $: 1960-2000

17.5

13.8 13.211.6 10.9

14.1

10.38.9

7.25.9

3.4 3.6 4.2 4.4 4

02468

101214161820

1960 1970 1980 1990 2000

Food Food at Home Purchased Meals & Beverages

61 FMI2003R2.ppt

Because time pressures and low food interest cut across all channels, the one factor Because time pressures and low food interest cut across all channels, the one factor that stands-out as particularly applicable to Supermarkets is Supermarkets’ failure that stands-out as particularly applicable to Supermarkets is Supermarkets’ failure to connect with consumers in ways that create value beyond priceto connect with consumers in ways that create value beyond price

While Supermarkets repeatedly rank #1 in consumer satisfaction While Supermarkets repeatedly rank #1 in consumer satisfaction surveys, a 2003 Gallup Study clearly details why making customers surveys, a 2003 Gallup Study clearly details why making customers “Extremely Satisfied” is not going far enough.“Extremely Satisfied” is not going far enough.

Gallup tracked trip frequencies and expenditures in a leading Gallup tracked trip frequencies and expenditures in a leading supermarket chain for a one month period and classified these supermarket chain for a one month period and classified these according to the following customer satisfaction levels. according to the following customer satisfaction levels.

FrequencyFrequency ExpendituresExpenditures

Less than “Extremely Satisfied”Less than “Extremely Satisfied”

““Extremely Satisfied”Extremely Satisfied”

““Extremely Satisfied and Emotionally Connected”Extremely Satisfied and Emotionally Connected”

Vs. “Extremely Satisfied”Vs. “Extremely Satisfied”

4.34.3

4.14.1

5.45.4

+31.7%+31.7%

$166$166

$144$144

$210$210

+45.8%+45.8%

Satisfaction levelSatisfaction level

62 FMI2003R2.ppt

Gallup’s ConclusionsGallup’s Conclusions

In the case of those who were “Extremely Satisfied” In the case of those who were “Extremely Satisfied” versus those who were “Less Than Extremely Satisfied”, versus those who were “Less Than Extremely Satisfied”, the “Extremely Satisfied” actually visited less and spent the “Extremely Satisfied” actually visited less and spent less and therefore represented no material value-added to less and therefore represented no material value-added to the store.the store.

On the other hand, those who were both “Extremely On the other hand, those who were both “Extremely Satisfied” and “Emotionally Connected” visited their Satisfied” and “Emotionally Connected” visited their stores 32% more often and spent 46% more money than stores 32% more often and spent 46% more money than those who were “Extremely Satisfied” but lacked an those who were “Extremely Satisfied” but lacked an emotional bond.emotional bond.

Gallup’s Net: “Without a strong emotional bond, Gallup’s Net: “Without a strong emotional bond, “Satisfaction is a Trivial Pursuit.”“Satisfaction is a Trivial Pursuit.”

63 FMI2003R2.ppt

Retail-tainment – “Fun place to Shop”Retail-tainment – “Fun place to Shop”

Works hard to become part of the local communityWorks hard to become part of the local community

• Offers parking lots for local fundraisers Offers parking lots for local fundraisers (HS car washes, etc)(HS car washes, etc)

• Charitable donations to local causesCharitable donations to local causes

Maintains and USES a massive database to understand its consumers Maintains and USES a massive database to understand its consumers and their shopping behaviorand their shopping behavior

• Assorts stores based on demographicsAssorts stores based on demographics

• Allows regional variances in products offeredAllows regional variances in products offered

Bonds with suppliers to create excitement via highly visible local Bonds with suppliers to create excitement via highly visible local eventsevents

Multi-format: Discount, Supercenters, Club, Neighborhood Markets Multi-format: Discount, Supercenters, Club, Neighborhood Markets and on-line to address a variety of consumer purchase occasionsand on-line to address a variety of consumer purchase occasions

What Wal-Mart has done to add value to the shopping What Wal-Mart has done to add value to the shopping experience beyond priceexperience beyond price

64 FMI2003R2.ppt

CostcoCostco

Treasure Chest Items – a new “surprise” every visitTreasure Chest Items – a new “surprise” every visit

Continual sampling and demosContinual sampling and demos

Constantly changing, fluid assortmentsConstantly changing, fluid assortments

Multiplicity of servicesMultiplicity of services

Eat-in restaurants, on-premise automotive, gas and Eat-in restaurants, on-premise automotive, gas and opthalmicsopthalmics

Makes shopping a Big Deal Occasion with lots of fun and Makes shopping a Big Deal Occasion with lots of fun and in-store activitiesin-store activities

65 FMI2003R2.ppt

Key Message #3Key Message #3

There is There is no questionno question that developing a that developing a consumer-basedconsumer-based strategy to rebuild trips and profitable top line sales must strategy to rebuild trips and profitable top line sales must now be the single most important priority of every now be the single most important priority of every Supermarket who wishes to remain in business long-term.Supermarket who wishes to remain in business long-term.

Unless Supermarket Executives understand and accept Unless Supermarket Executives understand and accept the fact that they can the fact that they can no longer compete on a price-only no longer compete on a price-only basis with Value Discountersbasis with Value Discounters, they will , they will nevernever succeed in succeed in acquiring the vision necessary to add value to the acquiring the vision necessary to add value to the shopping experience beyond price and create emotional shopping experience beyond price and create emotional bonds with their customers.bonds with their customers.

66 FMI2003R2.ppt

Creating Value Beyond PriceCreating Value Beyond Price

67 FMI2003R2.ppt

Let’s talk about “Value” . . .Let’s talk about “Value” . . .

How many of you have bought something How many of you have bought something other than the lowest priced item OR shopped other than the lowest priced item OR shopped somewhere other than the lowest priced store?somewhere other than the lowest priced store?

Why? Why?

68 FMI2003R2.ppt

Value ComponentsValue Components

ServiceProduce Store

Layout

Check-out Speed

Deli

Ties to Local

Community

MeatsFrozen

Personnel(Training)

Dairy

CleanlinessOne-Stop

Convenience

BakeryAssortment

Store Decor & Environment

Service &Service &

Full VarietyFull Variety

69 FMI2003R2.ppt

Based on a 2002 Based on a 2002 Supermarket NewsSupermarket News survey of 1,500+ shoppers, the survey of 1,500+ shoppers, the expectations of what Supermarkets should deliver beyond price are expectations of what Supermarkets should deliver beyond price are as follows:as follows:

CleanlinessCleanliness

QualityQuality

Fast ShopFast Shop

Broadest AssortmentBroadest Assortment

Courtesy and ServiceCourtesy and Service

Pleasant and “Fun” Shopping ExperiencePleasant and “Fun” Shopping Experience

Consistency – Repeatable on Every TripConsistency – Repeatable on Every Trip

70 FMI2003R2.ppt

Establishing and Nurturing an Emotional Bond – Key Establishing and Nurturing an Emotional Bond – Key ComponentsComponents

Instead of : “Grow share, grow sales, grow profits”, shift Instead of : “Grow share, grow sales, grow profits”, shift focus to: focus to: “Give the customer and emotional reason to “Give the customer and emotional reason to return.”return.” (The former will follow.) (The former will follow.)

Instead of: “Increase trip frequency and transaction Instead of: “Increase trip frequency and transaction size”, shift focus to: size”, shift focus to: “Pamper, surprise and reward.”“Pamper, surprise and reward.”

Instead of: “Just another supermarket selling groceries”, Instead of: “Just another supermarket selling groceries”, embed yourself in the local communityembed yourself in the local community and become an and become an acknowledged part of the flow.acknowledged part of the flow.

Promote to satisfy your customersPromote to satisfy your customers, not your suppliers., not your suppliers.

71 FMI2003R2.ppt

Let’s talk about this “Emotional Bond” thing . . . Let’s talk about this “Emotional Bond” thing . . .

What’s your favorite restaurant?What’s your favorite restaurant?

Why?Why?

72 FMI2003R2.ppt

““Pamper, Surprise & Reward” ExamplesPamper, Surprise & Reward” Examples

Free ice cream cone with every $100 spentFree ice cream cone with every $100 spent

Local school support programsLocal school support programs

Kid’s corner – videos, story telling, games while mom shopsKid’s corner – videos, story telling, games while mom shops

Free cookies every weekFree cookies every week

Wine tasting nightWine tasting night

Make-overs in cosmetics departmentMake-overs in cosmetics department

Checkout surprisesCheckout surprises

Local heroes photo galleryLocal heroes photo gallery

Local artists’ showsLocal artists’ shows

Preferred infants parking spacesPreferred infants parking spaces

Frequent and highly visible parking lot eventsFrequent and highly visible parking lot events

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Embedding Oneself In The Local Community - AJ’s Embedding Oneself In The Local Community - AJ’s Saturday Cook-OutsSaturday Cook-Outs

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Equity:Equity:

The sum of the parts of one’s Value EquationThe sum of the parts of one’s Value Equation

The reason why shoppers will drive 100 miles RT from NYC to The reason why shoppers will drive 100 miles RT from NYC to Norwalk every week to shop at Stew Leonard’sNorwalk every week to shop at Stew Leonard’s

The reason why consumers will pay a 15-20% premium for a The reason why consumers will pay a 15-20% premium for a Coke or a Dog Chow versus a NBE private labelCoke or a Dog Chow versus a NBE private label

Is total corporate driven, not category drivenIs total corporate driven, not category driven

Can be continually leveraged in different ways to attract and Can be continually leveraged in different ways to attract and hold new consumers while retaining current customershold new consumers while retaining current customers

Provides a Provides a strategic frameworkstrategic framework for all advertising, promotion for all advertising, promotion activities and pricing strategiesactivities and pricing strategies

Your signature – what the consumer perceives you are famous Your signature – what the consumer perceives you are famous forfor

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The more Equity one builds, the less The more Equity one builds, the less dependent on price one becomes.dependent on price one becomes.

Why Equity?Why Equity?

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Creating Value & Equity – Resources & Funding

Creating Value & Equity – Resources & Funding

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Without question, the single best resource Supermarkets can use to Without question, the single best resource Supermarkets can use to begin creating value beyond price is the data and intellectual begin creating value beyond price is the data and intellectual resources of suppliersresources of suppliers

There are approximately 1,500 suppliers to the U.S. There are approximately 1,500 suppliers to the U.S. Supermarket industry who are in the business of creating Supermarket industry who are in the business of creating value and equity for national brandsvalue and equity for national brands

What suppliers bring to the party is:What suppliers bring to the party is:

• Built-in consumer focusBuilt-in consumer focus

• Unparalleled marketing expertiseUnparalleled marketing expertise

• A demonstrated willingness to help at every turnA demonstrated willingness to help at every turn

Pick whom you think are the best, ask them to do some Pick whom you think are the best, ask them to do some homework and get their recommendations on what they homework and get their recommendations on what they think you could/should do to begin building sustainable think you could/should do to begin building sustainable valuevalue

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In addition…In addition…

Talk to your customers!Talk to your customers!

• What they expect of Supermarkets!What they expect of Supermarkets!

• How well you are delivering on this!How well you are delivering on this!

• What What theythey would like to see improved! would like to see improved!

• Why they shop other channels – the Why they shop other channels – the specificsspecifics of what they like and don’t like! of what they like and don’t like!

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Suppliers can also serve as a resource for Suppliers can also serve as a resource for incremental incremental fundingfunding providing the return is thereproviding the return is there

Where The Money Comes FromWhere The Money Comes From

MarketingMarketing$$$$$$

TradeTrade$$$$$$

OROR

Typically slated for Typically slated for consumer advertising consumer advertising

& promotion& promotion

A fixed pot slated A fixed pot slated for all types of for all types of trade activitytrade activity

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To get Marketing Dollars in addition to Trade Dollars To get Marketing Dollars in addition to Trade Dollars requires delivering above and beyond ROI resultsrequires delivering above and beyond ROI results

Let’s say that “Company A’s” normal marketing ROI is 2.5X:Let’s say that “Company A’s” normal marketing ROI is 2.5X:

ROI on Consumer Advertising & Promotion InvestmentROI on Consumer Advertising & Promotion Investment

Marketing (A&P) InvestmentMarketing (A&P) Investment

Net SalesNet Sales

ROIROI

$100MM$100MM

$250MM$250MM

2.5 X’s2.5 X’s

If Supermarkets can demonstrate the ability to generate a higher ROI If Supermarkets can demonstrate the ability to generate a higher ROI than 2.5X for this Company’s Marketing Investment, then getting than 2.5X for this Company’s Marketing Investment, then getting Marketing Dollars in addition to Trade Dollars becomes feasible.Marketing Dollars in addition to Trade Dollars becomes feasible.

Because of horrific media fragmentation over the past 20 years, all Because of horrific media fragmentation over the past 20 years, all marketing people we know would be more than receptive to any marketing people we know would be more than receptive to any proposition that enables them to reach consumers more effectively and proposition that enables them to reach consumers more effectively and efficiently than currently available vehicles.efficiently than currently available vehicles.

One heads-up: Marketing $$ need to be a complete pass-throughOne heads-up: Marketing $$ need to be a complete pass-through

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Features/Displays/TPRs/In-Store POSFeatures/Displays/TPRs/In-Store POS

FSPs/Direct MailFSPs/Direct Mail

Community Outreach/Community Outreach/Local Event MarketingLocal Event Marketing

Retailer On-Line SellingRetailer On-Line Selling& Web Promotions& Web Promotions

MediaMedia• TVTV

•RadioRadio•BillboardsBillboards•Floor SignsFloor Signs

How? Benchmark your vehicles and use the results to sell How? Benchmark your vehicles and use the results to sell your suppliers’ Marketing Departmentsyour suppliers’ Marketing Departments

TradeTradeDollarsDollars

MarketingMarketingDollarsDollars

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Moral of StoryMoral of Story

It’s not just price; it’s a combination of It’s not just price; it’s a combination of factors, carefully blended and balanced to factors, carefully blended and balanced to

satisfy a particular consumer need or satisfy a particular consumer need or aspiration. Each supermarket has to aspiration. Each supermarket has to

search within its own strengths to find the search within its own strengths to find the right formula. There are no easy answers right formula. There are no easy answers but – frankly – the alternatives look bleakbut – frankly – the alternatives look bleak

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Questions???Questions???

We really appreciate the time and attention We really appreciate the time and attention you have given us today!you have given us today!

Specifically, we want to thank the FMI for Specifically, we want to thank the FMI for inviting us and trust that this has been inviting us and trust that this has been

both fun and helpful.both fun and helpful.

We really appreciate the time and attention We really appreciate the time and attention you have given us today!you have given us today!

Specifically, we want to thank the FMI for Specifically, we want to thank the FMI for inviting us and trust that this has been inviting us and trust that this has been

both fun and helpful.both fun and helpful.

www.hoytnet.com

8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]

Documents

Defending Against Competitive Trade Channel Encroachment