Transcript Presented To

Are Traditional Retailers Turning the Corner?
Moderator:
Brian Todd, The Food Institute
Speakers:
Jim Hertel, Willard Bishop
Bill Bishop, Willard Bishop
Webinar:
June 27, 2007
2:00 – 3:00 PM EDT
Food Institute
Moderator: Brian Todd
 The Food Institute strives to be the best, “single source” for current, timely, and
relevant information about the food industry from “farm to fork.”
 For 78 years, we have aided and informed food industry professionals.
 Resources include the weekly FOOD INSTITUTE REPORT, daily email
updates, informational publications, seminars, and webinars
 Consider us as a new career center for the food industry.
 We are privileged to collaborate with Willard Bishop on today’s webinar as part
of our series.
 For more on the Food Institute, go to www.foodinstitute.com.
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Format for today’s event
 By now you should have received “The Future of Food Retailing Report” via
email. This report provides an in-depth look at the data covered in today’s
presentation.
 To access a copy of the report during the webinar, go to
www.foodinstitute.com\futureoffood.pdf.
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Jim Hertel
Managing Partner, Willard Bishop
 In addition to his role as managing partner,
Jim leads the firm’s business development,
client service, and strategy development practice.
 Throughout his career, he has developed
insight-based growth strategies for many of the
top consumer-packaged goods companies
in the industry.
 Prior to joining Willard Bishop, Jim worked in brand
management at Procter & Gamble and led the client service group at Spectra
Marketing.
 His B.A. degree in Economics is from Duke University.
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Bill Bishop
Chairman, Willard Bishop
 Bill has been involved in retail research and
consulting for over 30 years.
 In his new role as Chairman, Bill continues
to provide strategic guidance and thought
leadership to both the organization and the industry.
 Throughout his career, he has led major studies
on everything from pricing strategies, category
management and new retail formats, to loyalty
marketing and health and wellness at retail.
 His education in Economics includes a Ph.D. from Cornell.
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The grocery game is changing…again
Today, we’ll discuss:
 The state of the industry—who’s doing well and what the future holds.
 How supermarkets are fighting back and what it means to your business as a
supplier.
 How new players are changing the rules of the grocery game and what
suppliers will need to do to keep up.
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Five key takeaways from today’s presentation
 Traditional supermarkets’ responses to the past decade’s competitive activity
are taking hold.
 Another round of format innovation is gathering momentum.
 Retail growth results from strong shopper value propositions.
 The implication for traditional retailers  Even more productive responses will
be required in the future; this is no time to rest.
 The implication for suppliers  The opportunity to collaborate for growth can
be found in both traditional and non-traditional channels.
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Who are the players?
Traditional Retailers
Non-Traditional Retailers
 Traditional Supermarket
 Wholesale Club
 Fresh Format
 Supercenters
 Limited-Assortment
 Dollar Stores
 Super Warehouse
 Drug
 Other (Small Grocery)
 Mass
 Military
Convenience
 With Gas
 Without Gas
Traditional Retailers see two-thirds or more of their sales
coming from food and consumable products
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While traditional retailers comprise the largest
channel, non-traditional retailers are a major force
Sales by Segment
Share by Segment
(Billions)
$427.6
Traditional
Retailers
$292.4
Non-Traditional
Retailers
Convenience
Source: Willard Bishop, 2007
Convenience
16.2%
Non-Traditional
Retailers
34.0%
Traditional
Retailers
49.8%
$138.9
Source: Willard Bishop, 2007
 2006 total industry sales grew 4% to $859 Billion.
 Non-traditional retailers’ grocery volume is equivalent to 68% of food and
consumables sold in the traditional retailer channel.
 Non-traditional retailers account for one-third of groceries sold
in the US.
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Over the past two decades, traditional retailers
have lost significant ground
Market Share by Segment
89.6%
49.8%
43.5%
42.8%
40.3%
41.2%
42.2%
42.2%
34.0%
16.2%
7.9%
2.5%
16.2%
1988
2006
Traditional
2011(e)
Non-Traditional
15.9%
2012(e)
15.7%
2013(e)
Convenience
Source: Willard Bishop, 2007
By 2013, non-traditional retailers will equal traditional retailers in food and
consumables sales.
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Traditional Supermarket sales
show signs of recovery
…Still, they are projected to lose share over the next five years.
Sales Growth Rate
2.6%
Current and Projected Market Share
Other (Small
Grocery)
0.2%
-2.0%
Super
Warehouse
LimitedAssortment
2004
2005
2006
Source: Willard Bishop, 2007
44.1%
Traditional
Supermarket
Fresh Format
37.3%
1.3%
1.1%
1.7%
1.6%
2.0%
2.5%
0.8%
1.0%
Source: Willard Bishop, 2007
2006
2011(e)
 Sales were up 2.6% ($9.6 billion),
compared to a 2.0% decline in 2005.
 Despite resurgent sales, Traditional
Supermarkets will continue to lose share.
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Non-Traditional retailers’ sales growth is slowing
…While their long term market shares projected to grow.
9.7%
Sales Growth Rate
Current and Projected Market Share
14.5%
Supercenter
20.3%
6.9%
6.1%
7.4%
Club
8.2%
5.0%
Mass
4.6%
Drug
4.9%
4.8%
1.7%
Dollar
2004
2005
2006
Source: Willard Bishop, 2007
 Sales for Non-traditional retailers were up
6.1% ($16.7 billion) in 2006, compared to
6.9% growth ($17.7 billion) in 2005.
2.0%
2006
2011(e)
Source: Willard Bishop, 2007
 Supercenters continue to pace nontraditionals’ growth through 2011.
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Convenience Store sales continue to grow
Sales Growth Rate
Current and Projected Market Share
4.0%
13.8%
2.4%
With Gas
14.0%
2.4%
Without Gas
2005
2006
Source: Willard Bishop, 2007
 C-store sales increased 4% ($5.3
billion) in 2006, compared to 2.4%
($3.2 billion) in 2005
2.2%
2006
2011(e)
Source: Willard Bishop, 2007
 While C-store sales will increase over the
next five years, market share will remain
flat.
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Non-traditional formats will continue
to have the advantage in real sales growth rates
Expected Compound Annual Sales Growth Rate vs. Inflation: 2006-2011
(Grocery & Consumables)
10.7%
Supercenter
9.0%
Limited-Assortment
7.9%
Dollar
7.3%
Fresh Format
5.8%
Wholesale Club
3.9%
Convenience (with Gas)
3.0%
Drug
2.9%
Super Warehouse
Mass
2.1%
Military
2.0%
1.8%
Convenience (without Gas)
Traditional Supermarkets
Other (Small) Grocery
1.4%
Inflation Compound
Annual Rate: 2.9%
Source: Willard Bishop, 2007;
USDA, Economic Research Service
0.9%
Supercenter, Dollar, Wholesale Club, and Drug are non-traditional formats
positioned to grow at a rate that outpaces inflation.
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Traditional Supermarkets have been
challenged on two fronts
High
$$
Price
Image
Fresh
Format
Traditional
Supermarkets
$$
Supercenters
Low
Low
High
Quality Image
A “one-size-fits-all” approach left many Traditional Supermarkets in unsustainable
middle ground.
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Successful Traditional Supermarkets
have responded on both fronts…
…And strengthened their shopper value propositions against both price-oriented
and premium competitors.
High
Fresh
Format
$$
 Increased emphasis on “fresh”
 Credible natural and organic offerings
Price
Image
Traditional
Supermarkets
 Enhanced shopping experiences
$$
 New pricing strategies
Supercenters
 Increasing reliance on Private Label
 High impact promotions
Low
Low
High
Quality Image
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Grocers’ shopper value propositions
must be multi-dimensional
V = (Price x Quality x Variety x Service x Facility)
Price
Quality
Variety
Service
Facilities
=
=
=
=
=
Maintaining Parity
Fresh is the Word
Unique/Different Products/Services
People & Systems
Bright, Clean, Fun
Price is critical when other elements of a grocer’s value proposition are equal to or
at a disadvantage compared to competitors.
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Shelf price is only one dimension of price image…
Comparing Chain B Shopper Value vs.
Typical Supercenter
5 Price Image Dimensions
Merchandising
Price Communication
Shelf Pricing
Chain B
Disadvantage
Per Unit Pricing
Promo Pricing
Chain B
Advantage
While Supercenters may beat
Supermarket shelf pricing by 20% or
more, Traditional Supermarkets can
win on other dimensions of pricing.
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Wegmans manages price image
with “Hybrid EDLP”
 Mix of national brands and
strong private brands
 Directly competitive with
Hi/Lo merchandisers
 “You can do real well on
price there, and get great
fresh items and service”
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Hy-Vee manages price image in part
through private brands
Multiple price tiers
Specialty
food items
Co-branded “hit” items
They are able to differentiate and improve price image simultaneously.
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Ingles does a superior job with price communication
 Same-store sales growth exceeds 5%
 Well-entrenched Supercenter competition
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…And pricing is only one element of
the value equation
Comparing Chain B Shopper Value vs.
Typical Supercenter
Other Shopper Value Equation Elements
5 Price Image Dimensions
High
Importance
Medium
Importance
Rx
HBC
Bakery
Deli
Community Support
Facility Décor
Location
Meat
Produce
Customer Service
Cleanliness
Merchandising
Per Unit Pricing
Price Communication
Shelf Pricing
Chain B
Disadvantage
Promotional Pricing
Chain B
Advantage
Low
Importance
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Innovative Traditional Supermarkets are meeting
“Fresh Format” competition head-on
…In shopping environment
Safeway
Lifestyle store
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Innovative Traditional Supermarkets are meeting
“Fresh Format” competition head-on
…And, in Private Label, too.
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Kroger takes broad-based action to
enhance their shopper value proposition
 Known for their customer loyalty
programs
 40% of U.S. households have a
Kroger Plus card
 Customized offers
 Three-tier private label program
 Offer “Try it, Like it or Get National
Brand Free”
 They manufacture 55% of the private label
items they sell
 Committed to organics
 Extensive perishables assortment
 “Naturally Preferred” private label brand
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Publix differentiates on customer service
 Publix ranked number one in
American Consumer Satisfaction
Index* for supermarkets; Wal*Mart
ranks last.
 Motivated employees own 31% of
Publix.
 Same store sales +5.1%.
 New GreenWise markets to offer
product specialists in every
department.
*Published by University of Michigan
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Leading Convenience Retailers are refocusing
their merchandising efforts
Convenience Retailers like 7-Eleven and Wawa are taking a more strategic
approach to merchandising, by:
 Rethinking the inside of the store:
 Consumer purchasing behavior
 Promotional effectiveness
 Assortment
 Increasing focus on foodservice.
 Building perishable programs.
 Building private label programs.
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Thornton’s stands for fresh, high-quality food-to-go
 Leading C-store and gasoline chain in Midwest.
 Bringing fresh salads, sandwiches, fruit, and other high-quality items to the
“one-stop shopping” experience.
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What’s next? Web grocers are growing again
 2006 Internet grocery sales are estimated at $2-3 billion/year.
 Format advantages include:




Convenience.
Quality and low prices.
Personalized promotions.
Servicing the “long-tail” profitably.
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What’s next? Tesco’s move to the U.S.
will intensify competition
Tesco’s U.S. expansion:
 Identified under-served consumer segments
 Compete with Trader Joe’s, Whole Foods
and Safeway Lifestyle stores
 Emphasis on fresh, private-label, and valueadded products
 Targeting Hispanics
 Projected to spend $400 million over 5 years
 Large DC built for scale beyond announced
stores
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What’s next? New formats meet
shoppers’ lifestyle needs
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What’s next? Meal assembly centers attract
shoppers and branded good suppliers
There are over 850 meal assembly centers in the US, and sales are doubling
every year.
Sales reached $270 million in 2006.
Food manufacturers and distributors are entering into partnerships to
capitalize on this emerging format.
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Implications for Suppliers
 Traditional supermarkets can still be sources of growth.
 The best are meeting the value challenge.
 They are seeing healthy same-store sales increases.
 New opportunities for collaboration are emerging.
 Don’t overlook mid-tier and smaller traditional supermarkets.
 Emerging formats are opportunities as well.
 Successful collaboration will require suppliers to “raise their game.”
 Above and beyond category perspectives.
 Customer requirements impact internal organization and work flow.
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Implications for Retailers
 Traditional supermarkets must remain on offense.
 Many have responded well to “extreme value” challenges.
 New and emerging formats will pose additional challenges.
 Growing retailers can attract incremental supplier resources.
 Growing retailers help suppliers expand their shares.
 “Intellectual property” is cited as the most valuable resource.
 Enhancing shopper value propositions can drive innovation and growth.
 Within existing formats.
 Creation of new formats.
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Questions & Answers
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For over 30 years, Willard Bishop has been working with retail and foodservice
companies to solve business problems and identify opportunities to drive
profitable growth.
To discuss today’s topic in more depth, or to arrange for us to present this in
person, free of charge at your company, contact:
Jim Hertel, Managing Partner
[email protected]
847-756-3712
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