WHAT DO RETAILERS WANT? - PROGRESSIVE

Presented by:

WHAT DO RETAILERS WANT?

Bryan RobertsResearch Director

May 2013

© Copyright 2013 Kantar Retail

Agenda

–What do retailers want?–The challenges–How retailers work–Inventory–Expenses–Gross margin–Sales–The future

2

http://progressive.bg/en/events/fmcg-events/iv-progressive-conference-retail-network/1041/


What do retailers want?

MASSIVE PILES OF

CASH3

Source: Kantar Retail


Agenda


4



Severe headwinds facing major retailersHarder than ever to drive sales from existing stores

5

Sainsbury’s like-for-like growth: +0.9%

Includes:Store extensionsOnline grocery sales Inflation

Leading Justin King to the conclusion that “volumes are negative for the first time in around 30 years”


Severe headwinds facing major retailers

6

Source: Carrefour; Kantar Retail

Big box is losing its appeal – 310k less transactions per store

Transactions per store (m)


Severe headwinds facing major retailersMargins under pressure from investments in stores & prices

7

– Real Value = Price + Quality + Service

EDLP, promo, hybrid

PL, brands, solutions

Assortment, customer service, availability, convenience


Severe headwinds facing major food retailersGreater promiscuity & choice for shoppers

8

http://www.google.co.uk/imgres?imgurl=http://solebaycheese.co.uk/wp-content/uploads/2011/01/Intense-Public-Protection-Tesco-logo.jpg&imgrefurl=http://solebaycheese.co.uk/2011/01/10/leiston-tesco-news/intense-public-protection-tesco-logo/&h=538&w=2000&sz=56&tbnid=rco4P_gXrLzAXM:&tbnh=40&tbnw=150&prev=/search?q=tesco+logo&tbm=isch&tbo=u&zoom=1&q=tesco+logo&usg=__6X28YhtHN-tuj3wCAXAc0Ltyj60=&sa=X&ei=q52tTdm1DcjX8gPI29HzAQ&ved=0CB4Q9QEwAg

http://www.google.co.uk/imgres?imgurl=http://www.dvp.co.uk/dvp2010/wp-content/uploads/2010/01/waitrose_logo1.jpg&imgrefurl=http://www.dvp.co.uk/?attachment_id=209&h=395&w=1740&sz=111&tbnid=1ILlBTJc3aHfeM:&tbnh=34&tbnw=150&prev=/search?q=waitrose+logo&tbm=isch&tbo=u&zoom=1&q=waitrose+logo&usg=__D_qHsyskVqwcAJlcr9hKC2SmogI=&sa=X&ei=xJ2tTb31CNGq8AOIl63zAQ&ved=0CCcQ9QEwAw

http://www.google.co.uk/imgres?imgurl=http://johnlyle.files.wordpress.com/2010/11/aldi_logo.jpg&imgrefurl=http://johnnylyle.co.uk/2010/11/19/aldi-chorizo-a-little-sign-of-a-big-brand-problem/&usg=__xmG6MxRD6X3x0biY3TswgFeYulw=&h=1786&w=1502&sz=247&hl=en&start=2&zoom=1&itbs=1&tbnid=J3RM3ynDLlltMM:&tbnh=150&tbnw=126&prev=/search?q=aldi+logo&hl=en&safe=off&sa=X&rlz=1T4GGLS_enGB405GB405&tbm=isch&prmd=ivns&ei=r5-tTaqXH9O38QOjncHyAQ

http://www.google.co.uk/imgres?imgurl=http://www.kingmanns.com/web_images/lidl_logo.png&imgrefurl=http://www.kingmanns.com/index.php?p=1_43_Clients&usg=__ci4Gg7PQKb4vm-Y9_o5O319ijGU=&h=320&w=320&sz=41&hl=en&start=8&zoom=1&itbs=1&tbnid=ATY9si_JcVtjFM:&tbnh=118&tbnw=118&prev=/search?q=lidl+logo&hl=en&safe=off&sa=X&rlz=1T4GGLS_enGB405GB405&tbm=isch&prmd=ivns&ei=FaCtTaTsBsWy8QPT6dTyAQ

http://www.google.co.uk/imgres?imgurl=http://www.jupitercreative.co.uk/blog/wp-content/uploads/2008/11/brand_logo.jpg&imgrefurl=http://www.jupitercreative.co.uk/blog/2008/12/12/the-home-of-family-value-a-new-look-brand-unveiled-for-wilkinson/&usg=__lyFqa0n2OQSTyA4kG7O7CVoZUwI=&h=280&w=395&sz=12&hl=en&start=3&zoom=1&itbs=1&tbnid=5t0riPua-P7PMM:&tbnh=88&tbnw=124&prev=/search?q=wilkinson+logo&hl=en&safe=off&sa=X&rlz=1T4GGLS_enGB405GB405&tbm=isch&prmd=ivns&ei=daCtTYW1CIWV8QPBiKnzAQ

http://www.google.co.uk/imgres?imgurl=http://www.tjmorris.co.uk/press-images/large/home-bargains-logo.jpg&imgrefurl=http://www.tjmorris.co.uk/press.html&usg=__7H0WzTd6GjXUkwWXTz0kx5JxHJY=&h=583&w=2842&sz=186&hl=en&start=9&zoom=1&um=1&itbs=1&tbnid=OfYc2MjEG1z3tM:&tbnh=31&tbnw=150&prev=/search?q=home+bargains&um=1&hl=en&safe=off&sa=N&rlz=1T4GGLS_enGB405GB405&tbm=isch&ei=CaGtTZClOIKo8AOp5aXzAQ

http://www.google.co.uk/imgres?imgurl=http://www.stjamesshopping.com/logos/poundland.jpg&imgrefurl=http://www.stjamesshopping.com/directory.php?categoryId=10&usg=__NC7HDu_ziWUpRKCEHCwI_es9eTs=&h=100&w=150&sz=5&hl=en&start=2&zoom=1&um=1&itbs=1&tbnid=mIF1jxQsR7a_lM:&tbnh=64&tbnw=96&prev=/search?q=poundland&um=1&hl=en&safe=off&sa=N&rlz=1T4GGLS_enGB405GB405&tbm=isch&ei=NKGtTfXkJcap8AOX59HyAQ

http://www.99pstoresltd.com/index.asp


Severe headwinds facing major food retailersExpenses can only be cut so far

9


Severe headwinds facing major food retailersExpenses can only be cut so far

10


Severe headwinds facing major food retailersShoppers switching to costlier channels

11


Severe headwinds facing major food retailersShoppers switching to costlier channels

12

£5

£20

£12

£5

£5


Severe headwinds facing major food retailersAll of which means that big customers are not necessarily winning customers

13

1. Proximate

2. Small

5. Good value

4. Efficient

6. Brand builder

7. Differentiated

8. Private

9. Focused

3. Disruptive

10. Multi-channel

Rising stars Checklist

http://www.google.co.uk/imgres?imgurl=http://www.broadbandgenie.co.uk/images/fckImages/amazon-logo.jpg&imgrefurl=http://www.broadbandgenie.co.uk/news/20110120-amazon-acquire-lovefilm-good-thing-movie-fans&usg=__HtArPGDvY_1ulTUkuOUQhMtdqAA=&h=240&w=240&sz=8&hl=en&start=1&zoom=1&um=1&itbs=1&tbnid=XbVGon3diAnvwM:&tbnh=110&tbnw=110&prev=/images?q=amazon+logo&um=1&hl=en&safe=off&sa=X&rlz=1T4GGLS_enGB405GB405&tbs=isch:1&ei=FG9iTcbJHcWH4Qal_vXfCQ

http://www.google.co.uk/imgres?imgurl=http://upload.wikimedia.org/wikipedia/en/6/64/B&m_logo.png&imgrefurl=http://en.wikipedia.org/wiki/File:B&m_logo.png&usg=__1oYRzmSIPiSxuU8fMzxPJn0JZlE=&h=350&w=600&sz=53&hl=en&start=6&zoom=1&um=1&itbs=1&tbnid=qDFHX8X_q-SAdM:&tbnh=79&tbnw=135&prev=/images?q=b&m+logo&um=1&hl=en&safe=off&rlz=1T4GGLS_enGB405GB405&tbs=isch:1&ei=onJiTbPzIuqW4gavlaTACQ


Agenda


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How retailers work

15

ROCE(Return on Capital

Employed)

Return(Operating Income)

Asset Investment

Sales

Gross Margin

Expenses

X

-

Net Inventory

Fixed Assets

+


Agenda


16


© Copyright 2013 Kantar Retail17

In general…

- Many retailers have seen inventory turns decline amid weakening demand & strong competition

- Legislation in some markets has pressured days payable

- This has detrimentally impacted working capital


What this means for suppliers

–Minimising retailers’ inventory (supply chain efficiencies, collaborative forecasting etc.)

–Increasing throughput in the supply chain (cross-docking, floor-ready packaging)

–Insights & assistance on SKU reduction programmes

–Accepting pressure to increase days payable?

18


Agenda


19



How retailers work

20


Employed)


Asset Investment

Sales

Gross Margin

Expenses

X

-

Net Inventory

Fixed Assets

+


Labour is the single biggest component that suppliers can help retailers with..

21

Labour 65%

P, P&E 25%

Marketing 5%

Other

Expenses reduced through:• DSD & merchandising• Floor/shelf-ready packaging

•EDI•CPFR

ExpenseComponent

Labour is the Single Biggest Operating Expense for a Retailer

5%


Suppliers should highlight their contributions towards OpEx reduction

22



Suppliers should highlight their contributions towards OpEx reduction

23




–Anything they can do, or have done, for retailers to enhance labour efficiency in DCs or instore is a useful value-add for negotiations

–Best practice in shelf-ready/floor-ready packaging from other markets/customers should be exploited

–Any initiative that simultaneously brings efficiency & a shopper solution is gold dust

24


Agenda


25



How retailers work

26


Employed)


Asset Investment

Sales

Gross Margin

Expenses

X

-

Net Inventory

Fixed Assets

+


Buyers are usually responsible for total 3 net margin

27

PRICE ON THE SHELF x UNITS SOLD-COST PRICE ON THE INVOICE x UNITS SOLD=STORE GROSS PROFIT (1 NET)

+ % VOLUME REBATE x UNITS SOLD x COST AT INVOICE=GROSS PROFIT (2 NET)

+ SERVICE FEES (AS % OR LUMP SUM)=TOTAL 3 NET GROSS PROFIT

Where does the

focus lie?



–In negotiations, customers will clearly pressure suppliers for better terms on invoice cost, rebate & additional back margin contributions

–Suppliers need to make sure that they are getting counterparts for this investment

–Counterparts should be measurable & accountable and compliance should be monitored & upheld

28


We should be aiming to negotiate for conditional back margin support

29


Compliance for promos, listings & in-stock should be stringently monitored

30


Agenda


31



How retailers work

32


Employed)


Asset Investment

Sales

Gross Margin

Expenses

X

-

Net Inventory

Fixed Assets

+


The sales equation

33

N= x x xSales revenue

C

N – number of people in the catchment area

C - % capture of those who purchased in a store at least once during a period (year)

F – average shopping frequency during a period (year)

B – average check or spend per trip

B F NSales revenue

CTRAFFIC BASKET


Making a category easier to shop– Diageo & Sainsbury’s

launched cocktail bays in the spirits aisle

– Within two months, spirits category volumes were up by 8%.

– “We have identified an opportunity to develop the market for cocktail-making at home by making it more accessible for our customers”

d


Multi-brand/multi-category suppliers can encourage shoppers to shop more categories

35



Utilize the power of adjacency & impulse

36



Leveraging the power of new & exclusive

37



Agenda

–What food retailers actually want–The challenges–How food retailers work–Inventory–Expenses–Gross margin–Sales–The future

38


The store of the futureEdited assortmentLocalized assortmentPersonalized assortmentSmall footprintProximateLimited non-food linesPersonalized serviceFacial recognition technologyTertiary servicesE-commerce collection/returnAccess to long-tail catalogue

39



The store of the future

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+44 (0)207 031 0272www.KantarRetailiq.eu

24-28 Bloomsbury WayLondon WC1A 2PXUK

[email protected]@BryanRoberts72

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WHAT DO RETAILERS WANT? - PROGRESSIVE