061220 Gmroii Orientation

Internal Use Only 1

Wal*Mart Global Account Team

GMROII Orientation

Internal Use Only 2

GMROII 101

1. What is GMROII?

2. What does GMROII tell us about the profitability of our categories and efficiency of our inventory?

3. How can I use GMROII to sell the value of our categories?

Internal Use Only 3

GMROII is a Retail Metric that measures the productivity and profitability of an element of the business

Sales

InventoryGrossMargin

Maintain Margin Maintain Margin (Gross Margin)(Gross Margin)

Average On-Hand Average On-Hand Inventory CostInventory Cost

GMROIIGMROII(Gross Margin Return (Gross Margin Return

On Invested Inventory)On Invested Inventory)

Measures the amount of gross profit dollars generated on an annual basis

for each dollar of inventory purchased

=

Source: MVI research and company reports

See actual formula in Appendix

Internal Use Only 4

GMROII is a simple, yet powerful Metric

INVENTORY COST OR INVESTMENT

PROFIT OR RETURN ON INVESTMENT

If you invest one If you invest one dollar in inventory dollar in inventory and you sell that and you sell that

inventory for $1.25, inventory for $1.25, Then you have gained Then you have gained

a return on a return on investment of $0.25 investment of $0.25

or a 20% margin.or a 20% margin.After the end of one After the end of one year you sell your year you sell your

inventory 20 times, inventory 20 times, each time making each time making

$0.25 for each dollar $0.25 for each dollar of inventory of inventory

investment. Your investment. Your return on one dollar of return on one dollar of

investment into investment into inventory is 20 inventory is 20

quarters or $5.00.quarters or $5.00.Source: CCE Internal Training

Internal Use Only 5

GMROII is a more advanced Metric than Retailers have traditionally used

Most Retailers are Here

Wal*Mart Aspires to be HereAllows buyers to make more

strategic and intellectual buying decisions

Balances Margin and Velocity to obtain optimum inventory


Internal Use Only 6

Wal*Mart’s GMROII Performance

Wal*Mart has emphasized GMROII as a key performance metric starting in 2006

Wal*Mart Corporate maintains an average GMROII of 2.33 (2004), well-below its own best-in-class performers


2.08 2.21 2.24 2.33

4.01

4.42 4.51 4.61

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2001 2002 2003 2004

WMT Corporate ASDA

WMT vs. ASDA GMROII Performance

(All categories)

Internal Use Only 7

The CSD category has traditionally out-performed other categories

Apparel Sporting Toys Electronics CSDs Goods

Turns 5.0 3.0 3.0 4.0 110

Margin 35 28 30 20 10

GMROII $2.70 $1.20 $1.30 $1.00 $12.00

Source: CCE North America - 2005

Internal Use Only 8

1) If we only consider Margin, we’re only taking into account profitability (not productivity)

Source: Retail Link – CCNA, 52 Weeks (200547 – 200646)

Fineline Fineline Desc Initial Margin %

9546 20 oz 31.50%3404 Energy 25.84%3403 Tea 23.68%9211 / 9212 Water 19.73%9514 Coke Pet Multipack 10.71%9570 2 Liter 7.85%9515 12 pack cans 4.67%9550 24pk Cans 4.66%Total CCNA, all bottler-delivered products 11.17%

What actions might WMT take based on only the profitability data?

- Focus on Immediate Consumption

- Focus on Energy and Tea

Internal Use Only 9

2) If we only consider Turns, we’re only taking into account productivity (not profitability)


What actions might WMT take based on only the productivity data?

- Focus on Future Consumption

- Minimize inventory of slow moving products such as Energy

Fineline Fineline Desc Turns

9570 2 Liter 74.09514 Coke Pet Multipack 67.29515 12 pack cans 52.99550 24pk Cans 49.99211 / 9212 Water 32.49546 20 oz 27.23403 Tea 22.73404 Energy 13.6Total CCNA, all bottler-delivered products 40.1

Internal Use Only 10

3) GMROII allows us to consider both profitability and productivity enabling better decision-making


What actions might WMT take based on only the full GMROII story?

- Focus on a balance of Immediate and Future Consumption products

- Optimize display space to feature higher GMROII multi-pack PET

- Increase availability of chilled 20 oz products

Fineline Fineline Desc Turns Initial Margin %

GMROII

9546 20 oz 27.2 31.50% $12.49

9514 Coke Pet Multipack 67.2 10.71% $8.05

9211 / 9212 Water 32.4 19.73% $7.96

3403 Tea 22.7 23.68% $7.04

9570 2 Liter 74.0 7.85% $6.30

3404 Energy 13.6 25.84% $4.74

9515 12 pack cans 52.9 4.67% $2.59

9550 24pk Cans 49.9 4.66% $2.44

Total CCNA, all bottler-delivered products 40.1 11.17% $5.04


GMROII in Action: How Wal*Mart is using GMROII to assess inventory performance

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 208% 1.0 9% 1.0

10% 1.0 2.0 11% 1.0 2.0 2.1 12% 1.0 2.0 13% 1.0 2.0 2.1 14% 1.0 2.0 15% 1.1 2.0 16% 1.0 2.1 17% 1.0 2.0 18% 1.1 2.0 2.2 19% 1.0 2.1 20% 1.0 2.0 21% 1.1 2.1 22% 1.1 2.0 23% 1.2 2.1 24% 1.0 2.2 25% 1.0 2.0 26% 1.0 2.1 27% 1.1 2.2 28% 1.1 2.0 29% 1.2 2.0 30% 1.2 2.1

Rotación de Inventarios (Anual)

Margen

(%)

Margen

(%)

Non Profit Zone

Opportunity

Zone

ProfitZone

GMROII = Margin % XTurnover

rate

Annual Inventory Turnover rate

MARGIN

Source: Wal*Mart Mexico - 2007

Coke ZoneGMROII > $5

GMROII < 1 = Loss


What the Global Account Team will do to help

1. January ’07 – GMROII Customer selling tool (Powerpoint and Excel) to help you understand and sell your GMROII story

2. GMROII On-line training using CARS

3. GMROII templates in CARS / report examples in RetailLink

4. GMROII will be included as a metric within the CDP (Category Development and Planning) curriculum.


GMROII tells you how much profit you get back at the end of one year for GMROII tells you how much profit you get back at the end of one year for investing one dollar in inventoryinvesting one dollar in inventory..

GMROII (Gross Margin Return On Invested Inventory

GMROII = XINVENTORY

TURNS (1YEAR)

GM %1 - GM %

EXAMPLE:

If an item is sold for $1.25 and the item cost the retailer $1.00, then the Gross Margin is 20%. 25-Cents is profit and $1.00 is cost. Yearly turns for this example are 52 times per year.

GMROII = XINVENTORY

TURNS (1YEAR)

GM %1 - GM % X 52

20%1 - 20%= = $13.00

What does $13.00 mean? For every dollar that is purchased of inventory the retailer will receive $13.00 in Gross Margin by the end of the year.

Appendix 1) GMROII Formula


Appendix 2) GMROII Quadrant

Sleepers High Margin

Low Turns

Price - Lower Prices

Assortment - Add segments; reduce coverage percent

Shelf Presentation - Reduce space

Promotions - Increase frequency

Product Supply - Reduce inventory

Mid point: Average

Questionables Low Margins

Low Turns

Price - Increase prices

Assortment - Reduce segments; reduce coverage percent

Shelf Presentation - Reduce space

Promotions - Run off shelf

Product Supply - Reduce cost, Reduce Inventory

Winners High Margins

High Turns

Price - Maintain, check against competitors

Assortment - Add segments increase percent coverage

Shelf Presentation - Better location, more space

Promotions - More frequency

Product Supply - Increase Inventory, Reduce out-of-stocks

Net Margin / Turns TURNS

Opportunities Low Margins

High Turns

Price - Review segment mix, Increase prices

Assortment - Increase percent coverage

Shelf Presentation - More space for high turn SKU’s

Less space for lower turning SKU’s

Promotions - Maintain, check promoted segments

Product Supply - Increase inventory, reduce out-of-stocks

Net Margin Percentage


Appendix 2) GMROII Quadrant Example

Source: ABC StudySource: ABC Study

Source: ABC Study Brazil

-20,0%

-10,0%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

- 100 200 300 400 500 600 700

Middle PointsAxis x = Annual Turns 177Axis y = Net Margin 6,4%

Sleeper Winner

Traffic GeneratorQuestionable

PET 2,0 L 6 Pack {526} {5,8}

PET 2,0 L {185} {-0,1}

CAN 12PACK {354} {12,5}

CAN 24PACK {286} {16,5}CAN 12PACK {92} {16,7}

CAN {114} {9,4}

600 ml 6Pack {118} {19,8}

1 Liter{48} {-5,7}

Others {52} {37,6}

GMROII by Package

Business

061220 Gmroii Orientation