Private Label Profit

7/28/2019 Private Label Profit

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CATEGORY MANAGEMENT&

PRIVATE LABEL PROFITABILITY

W. Frank Dell II, CMC

DELLMART & Company

May, 2001


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DELLMART & COMPANY 2

Agenda

Category Management Introduction

Distributor Program

Supplier Program

Private Label Profitability Introduction

Activity Based Costing

Net Profit Applications


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Objectives

Provide an overview of category management andits process

Identify strengths and weaknesses

Outline a suppliers approach

INTRODUCTION


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Definitions

CategoryA distinct, manageable group of products/services

that consumers perceive to be interrelated and/or

substitutable in meeting a consumers needs.

Category Management

The distributor/supplier process of managing

categories as strategic business units, producing

enhanced business results by focusing on deliveringconsumer value.

INTRODUCTION


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Charter for Change

FromPush

Salesperson

Buyer/Seller

Cost Averaging

Deals

Sales Drivers

ToPull

Business Team

Account Management

Cost to Serve

Pay for Performance

Profit Drivers

INTRODUCTION


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Charter for Change

FromData Protection

Data

Shelf Management

Win/Lose

Fast

ToData Sharing

Knowledge

Assortment Management

Win/Win

Fastest

INTRODUCTION


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Does Category Management Work?

Copps Corporation - Wisconsin, USA

Snack Category 3 year increase 87% Year 1 33%

Year 2 22% Year 3 15%

Candy Category 2 year increase 111% Year 1 60%

Year 2 32%

INTRODUCTION


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Brand Management

Started in the 50s & 60s Brand General Manager

Product

Development

Promotions

Advertising

Profit & Loss

Responsibility

Brand

Management

INTRODUCTION


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Supplier Migration

Brand Management

Snap, Crackle & PopVs

Tony The Tiger

Vs

General Mills

Category Management

KelloggVs

General Mills

&

Breakfast Alternatives

INTRODUCTION


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Components

Strategy

Business Process

ScorecardCollaborative Trading

Partner Relationships

Information

Technology

Organization

Capabilities

DISTRIBUTOR


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Elements

Manage the category as a strategic business unit Develop strategic category plans based on category

goals, competitors and market conditions

Determine price, merchandising, promotion and

product mix Collaborate with suppliers

DISTRIBUTOR


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Process Activities

Category Definition

Category Role

Category Assessment

Category Scorecard

Category Strategies

Category Tactics

Plan Implementation

CategoryReview

DISTRIBUTOR


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Definition

What products are in a category? How will categories be grouped?

Source: ECR Category Management

Category

Sub-Category

Sub-Category

Segment

Segment

Segment

Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-Segment

Sub-SegmentSub-Segment

Sub-Segment

DISTRIBUTOR


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Category Role

DestinationTo be theprimarycategory provider and help define the retailer as the store of

choice by delivering consistent, superiortarget consumer value.

Routine

To be one of thepreferredcategory providers and help develop the retailer as

the store of choice by delivering consistent, competitive target consumervalue.

Occasional/Seasonal

To be a majorcategory provider, help reinforce the retailer as the store of

choice by delivering frequent, competitive target consumer value.

Convenience

To be a category provider and help reinforce the retailer as the store of choice

by delivering goodtarget consumer value.

DISTRIBUTOR


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AssessmentDISTRIBUTOR

Share

&

Efficiently

Contribution

&

Productivity

Market Share

&

Benchmarks

Buyer Profile

&

Purchase Behavior

Distributor

Market

Consumer

Supplier

CategorySub-Category

Segment

Brand

SKU


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Distributor ScorecardConsumer Current Target

Retention Level _______________ _______________Purchase Incidence _______________ _______________

Satisfaction Rating _______________ _______________

Share

Category of Department _______________ _______________

Category of Market _______________ _______________

Sales

Category $ _______________ _______________

Growth _______________ _______________

Sales/Sq. Ft/Week _______________ ______________

Profit

Gross Profit $ _______________ _______________Gross Margin _______________ _______________

Gross Profit Sq. Ft/Week _______________ _______________

Private Label

Sales _______________ _______________

% of Gross Profit _______________ _______________

Gross Margin _______________ _______________

Product Supply

Days of Supply _______________ _______________Inventory $ _______________ _______________

Turns _______________ _______________

GMROI _______________ _______________

Service Level _______________ _______________

DISTRIBUTOR


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Consumer Strategies

CategoryRoles

Attract Strategy

- Traffic Building

- Image Enhancing

Build Loyalty Strategy

- Transaction Building

- Turf ProtectorMicro marketing

DC/Store Receiving

- Auto Replenishment

Transportation

- DSD, Backhaul

DC/Store Handling

- Cross Dock- Sale-Ready Packaging

DC/Store Receiving


Transportation

- DSD, Backhaul

DC/Store Handling

- Minimize Handling

- Reduce Shrink

Transportation

- Reduce Transit Time

DC/Store Handling

- Reduce Shrink- Sale-Ready Packaging

DC/Store Receiving


DC/Store Handling

- Minimize Handling

- Reduce Shrink

Acquisition Strategy

- Best Quality/Reliability

- Best Cost & Terms

Transaction Strategy

- All EDI & EFT



- Best Cost & Terms


- Majority EDI & EFT



- Best Cost & Terms


- Some EDI & EFT


- Low Cost

Full Service

- (If Necessary)

Differentiated

- (From Competition)



- Turf Protecting

Cluster Marketing

Semi-Service

- (If Necessary)

Non-Differentiated


Attract Strategy

- Traffic Building

- Excitement Creating

Cluster Marketing



Uniform Marketing

Self Service

- (If Necessary)

Non-Differentiated- (From Competition)

Self-Service

Non-Differentiated


Category

Roles

Category Strategies

Procurement Distribution Marketing In-Store Service

Destination

Routine

Occasional/

Seasonal

Convenience

DISTRIBUTOR


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Distributor Strategies

Traffic Building

Transaction Building

Profit Contribution

Cash Generating

Excitement Creating

Image Creating

Turf Defending

Higher Ring-up, Impulse Purchasing

Higher Gross Margin, Higher Turns

Higher Turns, Frequently Purchased

Impulse, Lifestyle-Oriented, Seasonal

Category Strategies Category Strategies Characteristics

Frequently Purchased, Highly Promoted, Impulse,Unique Items, Seasonal

Used by Retailers to Draw Traditional Customer Base

High Share, Frequently Purchased, High % of Sales

DISTRIBUTOR


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Distributor Tactics

Prime Store Location

- High Traffic

- High Exposure Time

High Cube Allocation

(Cube to Time Supply)

Leadership

- Best Value

(Per Unit or Use)

- Entire Category

Competitive/Consistent

- Equal to Competition

(Per Unit or Use)

- Sub-Categories

- Segments

- Major Brands/SKU

- Reduce Shrink

Competitive/Seasonally

- Close to Competition

(Per Unit or Use)

- Sub-Categories- Segments

Non-Inflammatory

- Within Reach to

Competition

(Per Unit or Use)

- Major Brands/SKUs

Complete Variety

- Sub-Categories

- Segments

- Brands

- SKUs

Broad Variety

- Sub-Categories

- Segments

- Major Brands

- Major SKUs

Timely Variety

- Sub-Categories

- Segments

Select Variety

- Major Brands/SKUs

High Level of Activity

(If Necessary)

- High Frequency

- Long Duration

- Multiple Vehicles

Average Store Location

- High Frequency

High Cube Allocation


Average Level of Activity

(If Necessary)

- Average Frequency

- Average Duration

- Multiple Vehicles

Good Store Location

- High Traffic

Average Cube Allocation


Available Store Location

Low Cube Allocation


Seasonal/Timely Activity

(If Necessary)

- Multiple Vehicles

Low Level of Activity

- Multiple Vehicles

Category

Roles

Category Tactics

Assortment Pricing ShelfPresentation

Promotion

Destination

Routine

Occasional/

Seasonal

Convenience

DISTRIBUTOR


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Retail Category Portfolio

Flagship Cash Machine Maintain/Grow

Core Traffic Under Fire Rehab

Sales Dollars LowHigh

High

Low

Gross

Margin

Percent

DISTRIBUTOR


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Retail Category Portfolio

Sleeper Winners

Questionable Opportunity Gaps

Market Growth

Retailer

Share of

Market

Low High

High

Low

DISTRIBUTOR


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Consumer Based Category Roles

Staples Niches

Necessities Fill-ins

Reach

Frequency

LowHigh

High

Low

DISTRIBUTOR


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Before Organization

VP Merchandising

Buyer Buyer Buyer Administration

Retail Pricing AdvertisingSpace

DISTRIBUTOR


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After Organization

Product Supply

Space Allocation

Retail Merchandising

Category Analysis

Retail Pricing

Advertising Coordination

Price/Data Integrity

Marketing Services

Allowance/Cost Control

Category

Management

DISTRIBUTOR


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Responsibilities

Responsibilities Retailers Wholesalers

Negotiation with suppliers 84.6%

Determine investment buys 76.9%

Determine promotions- items/schedule 73.1%Sales/profit/market share goals 57.7%

Develop strategic alliances 53.8%

Budget development 50.0%

Strategic category planning 46.2%

Competitive store analysis 34.6%

Optimize by store clusters 26.9%

Develop shelf plan-o-gram

86.4%

83.1%

71.2$69.5%

66.1%

64.4%

61.0%

61.0%

44.1%

42.4% 26.9%

DISTRIBUTOR


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Category DefinitionsNUMBER OF CATEGORIES RETAILERS WHOLESALERS

1 TO 99 20.0% 16.7%

100 TO 199 30.0% 16.7%

200 OR MORE 27.5% 25.0%

Average Number 191 148

DISTRIBUTOR


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Review Frequency

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

Weekly

Monthly

Quarterly

Semi-annually

Annually

Sporadic

Retailer Wholesaler

DISTRIBUTOR


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Whats Really Happening?

1. Official approach leaves out consumer

Merchandisers see CM to lift sales

Executives see CM to raise margins

Neither see it for what it was intended:

framework for understanding theconsumer

2. Wide gap between results and expectations

Cornell study ranged from 3 to 8 point lift in

EBIT

73% of CM practitioners rate experience

somewhat or not at all successful Many of the few that claim success cant

support it with metrics

3. Official approach is too complicated

Only 15% claim to be following the guidelines

CEO at large chain: Wed have to hire 14full-time people just to fill out and maintain

the templates.

Personnel talent a problem

4.One-size-fits-all is not working

40% dont even see need to assign roles

Half do not employ Activity-Based-Costing Industry current-state is too diverse. Take

merchandising approaches: high/low, every-

day low, premium, limited selection, semi-

warehouse, superstore, etc..

DISTRIBUTOR


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Scope

Alliance

SUPPLIER


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Sales Evolution

Available Sales

Gross Margin

Share

D.P.P.

Category

Management

SUPPLIER


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Perspective

DifferencesSupplier

Retailer

Store

Brands

Check your bias at thedoor

Bring your knowledge

SUPPLIER


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Principles

Consumer is the common focus

Mutually agreed objectives, strategies, tactics and

scorecard measures

Rewards support collaborative goals

Relationships and trust are earned, not given Information sharing is essential

Win/win is critical for success

Multifunctional access and communication

Openness to change traditional attitudes and

relationships

SUPPLIER


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Supplier Steps

Preparation ExecutionCoordination

Create team Develop plan

Collect information

Develop tools Package program

Target customers Present plan

Establish goals

Organize team Develop scorecard

Establish schedule

Share information Perform analysis

Develop plan

Implement plan Monitor results

Modify plan

SUPPLIER


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Objectives

Provide introduction to Activity Based Costing (ABC)

Identify Net Profit Applications

INTRODUCTION


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What is Net Profit?

Sales- Cost of Goods Sold

= Gross Margin

+ Direct Revenue

- ABC Costs= Net Profit

INTRODUCTION


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Definition

ABC is a cost allocation or assignment methodology

Cost assignment based on:

Activities - Tasks within a process

Drivers - Factors creating costs

ABC


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ABC Vs DPPABC DPP

Sales Yes Yes

Cost of Goods Yes Yes

Direct Revenue Yes Yes

Headquarters Yes No

Warehouse Yes Yes

Transportation Yes Yes

Store Yes Yes

ABC


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Allocates All Costs Headquarters

Management

Merchandising

Finance & Accounting

Human Resources

Warehouse Management

Labor

Benefits

Space

Utilities

Transportation

Labor

Equipment

Supplies

Stores Management

Labor

Benefits

Space

Utilities

ABC


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Primary Processes

Product-In Product-Out

Buying DistributionStore

OperationsAdministration

ABC


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Costs Follow Product Flow

Distribution

Center

Direct Store

DeliveryDropShip Wholesaler

Store

ABC


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Greatest cost is Display SpaceABC


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Sales By Department

Edible

29%

Non-Edible

9%Frozen

7%Dairy

15%

Bakery4%

HBC

4%

Gen. Merch.

1%

All Other

31%

Edible

Non-Edible

Frozen

Dairy

Bakery

HBC

Gen. Merch.

All Other

ABC


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Gross Margin By Department

Edible

20%

Non-Edible

7%

Frozen

7%

Dairy

18%

Bakery

4%

HBC

3%

Gen. Merch.

1%

All Other40%

Edible

Non-EdibleFrozen

Dairy

Bakery

HBC

Gen. Merch.

All Other

ABC


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Net Profit By Department

Edible

29%

Non-Edible

10%Frozen

10%

Dairy

30%

Bakery

5%

HBC

3%

Gen. Merch.

2%

All Other

11%

Edible

Non-Edible

Frozen

Dairy

Bakery

HBC

Gen. Merch.

All Other

ABC


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Superior Private Label Categories

Private Label products achieved results superior to branded inthe following categories:

Baby Food & Formula Bleach Rfg Dips Hair Conditioner

Baking Cups/Paper Charcoal Rfg Sour Cream Hair Spray/Spritz

Baking Needs Diapers English Muffins Home Health Diagnostics

Bottled Water Pet Suppliers Adult Incontinence Internal Analgesics

Candy Tobacco Products Cold/Allergy/Sinus Liq Mouthwash

Coffee Creamer Fz Fruit Cold/Allergy/Sinus Tab Shaving Cream

Pasta Fz Potatoes/Onions Cosmetics - Nail Weight Control Liq/Pwd

Powdered Milk Fz Prepared Vegetables Eye Care Products Auto Fluids/Antifreeze

Spices/Seasonings Other Frozen Foods First Aid Treatments FilmSugar Rfg Butter Food Care Products Plastic Bottles

Vegetables Rfg Cottage Cheese

ABC


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PLMA ModelAPPLICATIONS


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Success Factors

Logical presentation Reasonable assumptions

Demonstrate knowledge of business

Promote benefits

Consumer sales Customer profits

APPLICATIONS


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New Products Life blood for retailers and

suppliers

Primary driver of growth

Replacement Vs

Cannibalization Strategy

APPLICATIONS


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Approach

Select items for replacement Low sales

Matching consumer target markets

Collect customer and competitive data

Run model Present

Current sales and net profit

Projected sales and net profit

APPLICATIONS

APPLICATIONS


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Retail Space Most coveted merchandise

element

Interacts with pricing

Shelf space is greatest item

cost

APPLICATIONS

APPLICATIONS


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Balance Space

Too Little

Consumer cant find

Reduced sales

Lost sales

Too Much

Lower profits

APPLICATIONS

APPLICATIONS


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Diminishing Returns

$-

$5.00

$10.00

1 2 3 4 5 6 7 8

Facings

Sales

Excess space does not increase sales

Minimum - Case plus order cycle Minimizes stocking labor

APPLICATIONS

APPLICATIONS


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Approach

Determine minimum units and facings

Identify net profit

Test & evaluate alternatives

Increase unit sales

Increase facings

Present



APPLICATIONS

APPLICATIONS


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Retail Pricing Price discussions should not

be taboo

Price too high

Lost sales

Price too low

Lost sales Lost profit

APPLICATIONS

APPLICATIONS


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Retailer Goals

Low

Price Image

Gross Margin

Quality Ratio

High

APPLICATIONS

APPLICATIONS


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Consumers Recall up to 200 item prices

Frequently purchased items

High consumables

Translates to 500 - 1,000

items creating stores price

image

APPLICATIONS

APPLICATIONS


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Value is King

Value =

Price

Quality

APPLICATIONS

APPLICATIONS


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Approach

Compare product quality

Load model


Change retail price

Hold constant and change unit sales

Present



APPLICATIONS

APPLICATIONS


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Promotions Most frequently used

promotion tool

Advertising

Display

Price reduction

Private Label under-

represented

Accrual funds

Lack targeted program

APPLICATIONS

APPLICATIONS


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Why Promote?

Create merchandising excitement

Attract customer

Foster consumer trial

Load pantry

Reward loyal consumers Present value proposition

APPLICATIONS

APPLICATIONS


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Promotions are Difficult

SelectionSelection

CompetitionCompetitionHolidayHoliday

WeatherWeather

SeasonSeason

ThemeTheme

PricePrice

ProfitProfit

ExecutionExecution

StoresStoresAdvertisingAdvertising

BuyingBuying

APPLICATIONS

APPLICATIONS


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Many Promotional Factors

Advertising

(ABC)

Advertising

(ABC)PricePrice DiscountDiscount

DisplayDisplay POPPOP SeasonSeason

APPLICATIONS

APPLICATIONS


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Promotion Conclusions

Low Private Label share

Moderate Private Label share

Natl. BrandPrivate Label

Natl. BrandPrivate Label

APPLICATIONS

APPLICATIONS


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Approach

Research past promotions

Load model


Change price

Change index

Present



APPLICATIONS

APPLICATIONS


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Summary

Net Profit is the ultimate sales tool

PLMA Net Profit Model

Easy to use

Provides great flexibility

Great learning tool

Coach customer to increase profits

APPLICATIONS

Documents

Private Label Profit