EXCELLENCE IN STORE OPERATIONS - India Food … shopper demands You have to really KNOW shopper demands to be able to satisfy them: 1. Well known demands: important and acted on by

© Drs. Joost van der Laan Mumbai January 2016 © Drs. Joost van der Laan

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

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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.

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The Netherlands

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Bali

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Contents

• Shopper frustrations become USP’s

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

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Frustrations become USP’s

Understand the shoppers delightsand frustrations,

and learn how to turn theseinto Unique Selling Propositions

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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

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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

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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

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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

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What is shopper demand?

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Is this “unique action”?

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Jumbo case

Discover amazing exampleshow to prove to your customers

that you have the best store in town

First example

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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

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Category management

Know how to discoverthe specific profit driversof each product category

and create commercial strategiesleading to effective and efficient tactics

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Category management process

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Category definition

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Category

Subcategory A Subcategory B Subcategory C Subcategory D

A1 A3 A5

A2 A4

B3 B2 B3 C1 C3 C4

C2

D1 D2

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


Category presentation

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Category roles

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Destination

Transaction builder

Routine

Convenience

Traffic builder

Mai

n S

trea

m

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

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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

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Assortment and presentation

REDUCE COSTS and IMPROVE MARGINSby optimizing assortmentsand shelf-space allocation

Using Direct Product Profitability (DPP)

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DPP/turnover matrix

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Products have different DPP/sales profiles


DPP/turnover matrix

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Price

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

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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

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Price-level

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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

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Price - image

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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

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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

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Profitability

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But how to increase profitability?

First the accountant approach:


Accountant approach

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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

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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

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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

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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

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Accountant: negative feedback

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++


Price: positive feedback

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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

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W al-M art net sales development

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annual growth net sales


New online virtuous cycle

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Quality-image

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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

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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

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Profitable market development

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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)

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Law of Increasing Returns

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



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Productivity

Improve productivitywith the internal benchmarking technique

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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

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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

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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

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Productivity improvement

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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

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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

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Online store costs

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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

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India


India

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

[email protected]

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http://www.retaileconomics.com/

mailto:[email protected]

Documents

EXCELLENCE IN STORE OPERATIONS - India Food … shopper demands You have to really KNOW shopper demands to be able to satisfy them: 1. Well known demands: important and acted on by