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© Kantar Retail 2015
Promotions in the Age of EDLP – Lessons for Bulgarian Retailers & FMCG Suppliers…
Presented By:
Himanshu Pal, Director of Retail Insights
May 2015
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
2Trade Investments Have Increased by ~5 Times Over the Last 35 Years…
Source: Gartner
5% of Sales Turnover
25% of Sales Turnover
1980 2014
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
3Trade Promotions Effectiveness – Roughly 67% of Promotions Don’t Make Money…
Source: Nielsen Trade Promotion Landscape analysis
71%
58%
58%
51%
43%
42%
41%
29%
42%
42%
49%
57%
58%
59%
0% 20% 40% 60% 80% 100%
USA
France
UK
Spain
Germany
Canada
Italy
Trade Promotions that DON'T Break Even
Trade Promotions that Make Money
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
4Retailing Environment Globally is Evolving Rapidly…
Source: Kantar Retail
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
5Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
CountryC
Channel
Customer
ConsumerC
C
C
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
“Insanity is doing the same thing over and over again and expecting different results.”
Albert Einstein
6Riding Through the ‘Perfect Storm’ Needs a New Approach
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
7Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
CountryC
Channel
Customer
ConsumerC
C
C
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
8Shift in ‘Balance of Power’ in Search of the Next Incremental € (Sales and Profitability)…
Source: Kantar Retail
Modern Trade Sales CAGR 2014-19e
<3%
3-5%
5-9%
>9%
LFL driven growth SQFT driven growth
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
9Increased Promotional Reliance to Drive LFL Sales and Market Share Improvement…
Source: Kantar Worldpanel, and Kantar Retail research
% spend on dealsJan 2014 Jan 2015
Tesco 43% 46%ASDA 41% 47%Sainsbury’s 43% 46%Morrisons 46% 44%Waitrose 38% 44%
PROGRESSIVE Conference (Sadanski) - May 2015
1. Alcoholic drinks 69%2. Confectionery 67%3. Non-alcoholic drinks 66%4. Personal care 64%5. Household goods 58%6. Chilled and fresh food 50%7. Frozen foods 50%8. Ambient foods 50%9. Pet care 40%10. Pet food 40%
© Kantar Retail 2015
10Increased Promotional Spending Across Europe – But is it Helping???
Source: IRI
In Europe, level of Trade Promotions increased by 0.8% but Volume Sales decreased 0.7%
0,2%
8,2%
3,6%
0,7%
-0,6%
1,2%0,8%
-2,9%-1,8%
-0,5%-1,6%
-0,5%
-4%
-2%
0%
2%
4%
6%
8%
10%France Netherlands Italy Spain UK Germany
Change in Sales Volume (Food) on Promotion
Change in Volume Sales (Food)
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
11Capabilities Needed - Trade Promotion Management and Optimisation – What & How Promotions Work?
Source: Gartner and Kantar Retail research
High
Retailer Growth
Mutual Growth
Subsidization ManufacturerGrowth
Hig
hLo
wR
etai
ler B
enef
it
Low Manufacturer Benefit
24%
27%
17%
32%
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
10,0%5,0%
-1,0%3,0%
7,0%
8,0%
6,0%
-3,5%
2009 2010 2011 2012
LFL - Traffic Growth % LFL - Basket Growth %17.0%
13.0%
5.0%
-0.5%
- Total LFL Growth %
The retailer managed to fix the issue with declining traffic but its actions proved counter-
productive as the basket value dropped.
12Capabilities Needed - When Planning Promotional Activity do Evaluate all Possible Impacts…
Source: X5 Retail, and Kantar Retail analysis
PROGRESSIVE Conference (Sadanski) - May 2015
Drive Traffic Build Basket
Promotions
© Kantar Retail 2015
13Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
CountryC
Channel
Customer
ConsumerC
C
C
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
14Rapidly Changing Consumer Profile…
Source: Kantar Retail research
PROGRESSIVE Conference (Sadanski) - May 2015
In 1998, 21% of Europeans were aged 65 or older
By 2025, this proportion will have
grown to 33%
By 2050, it will
be 47%
Ginni Coefficient in Bulgaria has increased from 25 (2009) to 35.4 (2013)
Bulgaria Romania Europe Avg.
Internet Penetration 56% 50% 68%
Mobile SubscriptionPenetration 154% 104% 139%
© Kantar Retail 2015
15Changing Consumer Profile Influencing Shopper Expectations, Behaviour and Definition of VALUE…
Source: Kantar Retail research and analysis
SHOPPER DECISION TREE
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
16Shoppers in Quest for Value are Increasingly Open to Store/Brand Switching…
Source: Nielsen Shopper Trends
16% 19%25% 23%
14% 18% 15%
42%
25%
8%
35%
16%
30%19% 20% 20%
29%24% 27%
17%
22%22%
21%20%
20%20%
19%
18%
18%
18%
17%
16%
16%
16% 14% 13%
12%12% 10%
10%
0%
10%
20%
30%
40%
50%
60%
70%
I change stores based on which one I think has the best promotions that trip
I regularly buy different brands because of promotions
Promotion Sensitivity (%)
PROGRESSIVE Conference (Sadanski) - May 2015
High Sensitivity Medium Sensitivity Low Sensitivity
© Kantar Retail 2015
17However, Shopper Definition of VALUE No Longer Limited to Price…
Source: Kantar Retail analysis
Real Value = Price + Time + Quality + Experience
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
18Time has Become One of the Most Prized Investment for Shoppers…
Source: Kantar Retail research
2.73.63.83.8
5.610.0
12.718.5
23.329.2
52.3
0 10 20 30 40 50 60
Offers
Lay-out
Quality fresh
Habit
Parking
Service
Private label
Variety
Prices & offers
Value for money
Proximity
Reasons for Store Selection
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
19Time Starved Shoppers Looking for Clear and Consistent Price Offer and Messaging…
Source: Etude TNS Distrivision GMS 2013
46%
44%
41%
54%60% 61%
2005 20052008 2011 20112008
40%
2013
61%
2013
“Grocery shopping is fun” “Grocery shopping takes too long”% Agree % Agree
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
20Capabilities Needed – Category & Brand Plans Need to be Based on Shopper-First Principle…
Source: Kantar Retail
• Different strokes for different folks – EDLP vs Hi-Low pricing for different shopping missions and categories
• Pricing as an enabler for time saving –Clear, simple, consistent, clutter-free pricing and promotional mechanics
• Get ready for the new digital age - connect, engage, trigger purchase, and stay connected with digitally enabled shoppers
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
21Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
CountryC
Channel
Customer
ConsumerC
C
C
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
22Channels Evolving to Cater to the Changing Shopper Needs…
Source: Kantar Retail
Growth of DiCE (Discount, Convenience & Online)
Hypermarket Re-invention
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
23DiCE Gaining Momentum in the Balkans…
Source: Kantar Retail research
In Romania, Delhaize partnered with online consumer electronics retailer eMAG to use the latter’s platform to sell groceries online. Almost overnight the retailer went from having no eCommerce operations to selling online…
Market
Sales CAGR (2013-19e)
Discounter Market Share
Discounters Overall Grocery 2013 2019e
Romania 12.4% 7.5% 16.4% 21.4%
Greece 5.6% 2.5% 11.7% 14.0%
Croatia 9.8% 4.0% 6.2% 8.6%
Bulgaria 16.0% 9.1% 8.5% 12.3%
Growth of Discounters eCommerce = Everywhere Commerce…
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
24Channel Blurring Challenging the Traditional Operational & Commercial Models…
Source: Kantar Retail
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
25Convergence of Pricing & Promotional Mechanics …
Source: Kantar Retail
EDLP Hi-LowEDLP+ Medium-Low Premium
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
26Discounters are Using Weekly Promos to Tie Shopping Trips to Particular Days of the Week…
13% 12% 13% 11% 12% 16%10% 11% 10% 9% 4%
9%
19% 13% 19%13%
8%6%
17%17%
17%19% 31% 17%
13%15%
13%19% 8% 17%
18% 23% 18% 20%19% 24%
10% 9% 10% 9% 18% 12%
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Buy Certain Products You prefer
in discounters
Top up on fruit and
vegetables
Top up on staple items
Buy certain products You can ONLY get in
discounters
Buy Non food items
Do your main shopping trip
Day shoppers tend to conduct particular missions (excl. shoppers that state they had no regular day)
31% shoppers do their non-food shopping on the same day as Non-Food Weekly Specials begins
24% shoppers do their main Discounter shopping on Saturday (often the day
retailers such as Lidl have ‘Super Saturday’ – 50% Off on selected groceries
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
27Penny (CZ) has Used Newer and More Promotional Mechanics to Supplements its Core EDLP Offer…
Source: Kantar Retail
Rounded Price Point Promotions
Promotions linked to competitions
Promotions Price
reductions
Promotions linked to loyalty card
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
28Increased Promo has Helped Penny (CZ) Stem the Decline in Basket Size…
Source: GfK
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
29But has Adversely Impacted Penny’s Price Perception…
Source: BrandZ
Lidl has done a better job of highlighting its quality credentials against price meaning more shoppers do not think the brand costs more than they are willing to payRanked in order of best
price perception
2008 2013Plus acquired by Penny
% of shoppers who think the brand doesn't’ cost more than they are willing to pay
12 3 12 3
12 3
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
30Capabilities Needed – Innovative Thinking and Assets Needed to Connect & Engage…
Source: Tesco.com and Kantar Retail analysis
???
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
31Current Retailing Environment Resembles a ‘Perfect Storm’
Source: Kantar Retail analysis
CountryC
Channel
Customer
ConsumerC
C
C
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
Key Account Management – Growth will come from Uncomfortable Areas…
Choice 1b: “Uncomfortable Clusters” –Hard Place
– With larger more comfortable customers the wins are going to come from targets and clusters within those customer bases that have historically been underserved̶ Therefore shoppers should become the
center of your growth planning
Choice 1a: “Win with the Winners” –Rock
– Problem is, the winners are all deeply challenging customers that are hard for large suppliers to sustainably keep focus on:̶ “Too tiny”̶ “Too mean”̶ “Too dilutive”̶ “Too complicated”
32
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
33Key Customers – Who To Choose/Partner? Partnering with the ones we know, top sales volumes today
COMPANY % CAGR ‘14 – ‘19 € GROWTH (billions)
5.3% +23.4
1.8% +5.6
1.1% +3.5
1.5% +4.4
4.6% +12.9
2.4% +5.9
2.4% +5.6
4.5% +10.4
4.5% +9.4
5.3% +8.2
1
CHALLENGE:No matter which turtle you pick, not moving
quickly
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
34Key Customers – Who To Choose/Partner? Make bets on customers growing faster than the market
COMPANY % GROWTH ’14 –’19 € GROWTH (billions)
16.9% +22.4
5.3% +23.4
5.3% +8.2
4.6% +12.9
4.5% +10.4
4.5% +9.4
4.4% +5.1
3.9% +4.2
3.8% +4.3
2.6% +2.5
2
CHALLENGE:For the most part, we don’t
know and/or like these customers… and they might
not like or need us
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
35…and the interpretation of EDLP is fairly subjective!
-1
0
1
2
3
4
5
22 Ju
n 14
20 Ju
l 14
17 A
ug 1
4
14 S
ep 1
4
12 O
ct 1
4
09 N
ov 1
4
07 D
ec 1
4
04 Ja
n 15
01 F
eb 1
5
01 M
ar 1
5
29 M
ar 1
5
Chan
ge in
% S
ales
on
Prom
otio
n
Asda Moves from 42% to 47% on Deal Compared to 2014
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
36Despite Increased Pricing/Promotional Activity Retailer Margins Haven’t Really Seen Erosion…
Source: Company reports and Kantar Retail
PROGRESSIVE Conference (Sadanski) - May 2015
19,319,9
16,8 16,7 16,8 17,0
22,4%
24,7%
22,1% 22,0%
22,5%
22,8%
20%
21%
22%
23%
24%
25%
15
16
17
18
19
20
21
2009 2010 2011 2012 2013 2014G
ross
Mar
gin
Gro
ss P
rofit
(EU
R b
illio
n)
Gross Profit Gross Margin Gross Margin in Recent Years Grew by:
Poland
4.7%Czech Rep.
1.6%
Germany 1.9%
UK 2.0%
Group 0.2%
© Kantar Retail 2015
37Suppliers Often Perceived and Treated as “Cash Cows” …
Source: Company Reports and Kantar Retail analysis
(EUR Million) Carrefour Nestle Coca-Cola CompanySales 74,706 76,153 34,650
Sales Growth (%) (0.2)% 1.3% (1.8)%Cost of Sales (59,207) (39,529) (13,476)
Gross Profit 15,436 36,624 21,175
Gross Margin (%) 20.7% 48.1% 61.1%Operating Expenses (9,777) (25,181) (13,861)
Operating Profits 2,387 11,443 7,313
Operating Margin (%) 3.2% 15.0% 21.1%Inventory 5,975 7,296 2,402
Trade Payables 7,724 13,109 2,089
Working Capital 1,749 5,813 (313)Inventory Turnover 9.9 5.4 5.6
Capital Expenses 2,411 3,914 2,406
Free Cash Flow 306 11,751 4,376
With an operating margin of 3.2% (versus your double digit margins) expect Carrefour to fight extremely hard, especially as their 3% margin comes under further pressure
Carrefour under growing pressure from shareholders for short-term ROI will look to generate higher Free Cash Flow by increased focus on Margin and Working Capital management
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
HighPROFIT
38Capabilities Needed – New Approach to Key Account Management Needed…
Source: Kantar Retail analysis
Sheila Gallagher —Trading Director, Tesco
"A best in class supplier must have a shopper focused growth agenda, understand the operational and commercial model of the retailer, have the ability to adapt quickly to changing market conditions and help us to differentiate. Its approach is fact-driven as opposed to brand-driven.”
FutureBets
Strategic Partners
ProblemSupplier
CashGenerators
Hig
hLo
wST
RAT
EGIC
FIT
Low
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
39Short-term ROI Mentality Taking Centre-Stage
Source: Kantar Retail
Improving Free Cash Flows
— Improve Sales & Margin
— Improve EBIT (Op. Profits)
— Leverage Working Capital
— Reduce Capital Expenditure
— Sweat Own Assets / Ride Other’s Assets
Dalton Philips Philip Clarke Lars Oloffson
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
40Customers Adopting ‘Low Capital Intensive’ Models as Focus Shifts to Balance Sheet Economics…
Source: Kantar Retail
REGIONSCOUNTRIESCURRENT
EXPANSION
Egypt, Saudi Arabia, Jordan, Iraq,Kuwait, Bahrain, Qatar, UAE, Oman, Iran, Pakistan. TURKEY (SABANCI)
Kazakhstan, Armenia, Azerbaijan, Georgia, Libya, Lebanon
Greece, Bulgaria, Cyprus, Macedonia (FYR).
Albania, Serbia, Montenegro, Bosnia & Herz.,
Middle East, North Africa, Southern Balkans
Central Asia, Western Balkans, West and Central Africa
Cameroon, Congo, Côte d'Ivoire, the Democratic Republic of the Congo, Gabon, Ghana, Nigeria & Senegal
+ 8 countries
West & CentralAfrica
+ 6 countries
Middle East, North AfricaCentral Asia
+ 4 countries
Southeast Europe(Balkans)
RapidEntry into
New Countries
SYNERGY MODEL1. Promotional designs2. Coordinated supply chain3. Property/franchise development4. Business philosophy (senior
managers ex-Carrefour)
+25 countries by 2015Potential of +40 in 5 to 10 years
In October 2013 Carrefour reorganized the Balkans and Turkey where Balkan expansion is managed from Cyprus
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
41EDLP vs Promo – What Helps the Retailer Optimise P&L and Balance Sheet Economics
Ease of Demand Forecasting
Ease of Inventory ManagementOperating Expense Reduction
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
42Conclusion – Some Food for Thought…
Targeted innovation in product and promotional execution is the best way to ensure a longer term weaning from promotional reliance
Possible/desirable to cede market share by steadily decreasing promotions? The upside could include enhanced margins and a shoring up of brand equity
Offer retailers something else aside from price promotions, such as exclusivity, differentiation, contests or engagement with CSR objectives
Initiatives such as limited edition SKUs, contests, social media and direct-to-consumer loyalty schemes could provide an alternative route to shopper engagement
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
43Kantar Retail – The Retail & Shopper Specialists
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
44Kantar Retail – The Retail & Shopper Specialists
PROGRESSIVE Conference (Sadanski) - May 2015
© Kantar Retail 2015
For further information please refer to www.kantarretail.com
Contact:Himanshu Pal
Director of Retail Insights
T: +44 (0) 2074 502 613M: +44 (0) 7990 566 007
Himanshu_Pal
45