Transcript Growing Categories – By Growth

Making the Most of Your Top-to-Top
Meeting Opportunities – Talking The Subjects of
Vital Interest to Retailers Today
March 18, 2003
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]
Today
 Key questions for manufacturers
 Key issues facing retailers:
• Trip loss
• Price competition
• The need to become consumer focused
 Beverage potential for helping supermarkets rebuild customer count and
transaction size
 Manufacturer mind-set and process changes required
BeverageRetailing2003.ppt
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Definitions
 Traditional Format Retailers
• Supermarkets
• Drug chains
• Discount stores
• Convenience stores
 Value Discount Retailers
• Super Centers
• Clubs
• Dollar Stores
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Consolidation has compressed the entire CPG marketplace to a
manageable configuration of approximately 30 accounts
Y2002 ($B)
Channel Vol
# Leading
Accounts/Channel
Share
2002
Channel %
Total HH
2002
Avg. Annual
Trip Freq.
Grocery
$525
5/42%
100%
73
Discount
165
3/100%
92%
22
Drug
150
5/92%
86%
15
Supercenters
100
4/92%
63%
21
Clubs
71
3/100%
52%
10
Convenience/Gas
38
7/100%
46%
14
Dollar Stores
17
4/85%
62%
12
$1,066
30/57%
100%
N/A
Source: Progressive Grocer, Drug Store News, AC Nielsen, Discount Store News and Hoyt & Company Records 2001 - 2002
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Given this configuration, one of the top priorities for every supplier in this
room has got to be making the most of top-to-top meeting opportunities if
and when one gets them:
 If your Buyer is your only point of contact in one of your top 10 accounts,
you know you are either disadvantaged or potentially at risk
 Problem is:
• There are currently approximately 1,500 suppliers to the CPG
community, all competing for access to the top
• Mega retailers do not have the time or people resources to regularly see
any but their largest/most important suppliers
• Even the Top five say they cannot afford to “partner” with more than 4
or 5 suppliers at any given point in time
 Despite this, there are many smaller suppliers who do gain access to the top,
either through their broker or distributor or because they know how to
penetrate an account.
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Questions are:
 What do say when you get there?
 What do you say to get you there?
 How do you align internally to make the most of the
opportunity?
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Answer:
You must be exceptional, particularly if you are not “mega”
 To do this, suppliers need to step out of their traditional roles
and invest the time and effort necessary to understand the core
issues facing their key retailers in the current environment
 For Traditional Format Retailers, these now go way beyond
Category Management, which used to be a reliable dooropener for most top-to-top meeting occasions
 Hoyt & Company believes that for any supplier willing to put
forth the effort, the present industry situation offers a unique
opportunity to add value that far exceeds the distribution value
of one’s brands
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So what are the core issues we are talking about?
 Trip loss and penetration loss in Traditional Format Retailers
 Structural inability of Traditional Format Retailers to compete on price
with Value Discounters
 The urgent need for (most) Traditional Format Retailers to become
consumer focused – defined as any or all of the following:
• Understanding what consumers expect of your channel or store in 2003
• Being willing to settle for a smaller piece of the pie – otherwise known
as reconfiguring all operations to target specific consumer segments
• Learning to differentiate on a non-price basis, establishing a positioning
and sticking to it
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Issue #1
Trip Loss
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Over the past seven years, all Traditional Format Channels except
C&G have experienced significant declines in household shopping
trips:
One trip = 105.5MM visits
Shopper Trips By Channel (1996 – 2002)
(Avg. # Trips/Household/Channel/Year)
Traditional Formats
Down 2 Billion
Trips in Seven
Years
Value Discount Formats
Total Trips
180
167
Source: AC Nielsen Homescan, 2003
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On top of Trip Loss, we have Penetration Loss, also exclusive to
Traditional Formats but this time including Convenience Stores
% Household Penetration By Channel: 2002 vs 1996
Point
Difference
1996
2002
100
100
0
Convenience/Gas
52
46
-6
Drug
90
86
-4
Traditional Discount
95
92
-3
Clubs
49
52
+3
Supercenters
(1998) 47
63
+16
Dollar Stores
39
62
+23
Grocery
Source: AC Nielsen Homescan, 20039
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If both Trip Loss and Penetration Loss are combined and factored,
the effect on Traditional Format Retailers has been devastating
# Trips X %HH Penetration, 1996 - 2002
Channel (# HH)
1996 (99.6MM)
2002 (105.5MM)
Difference
Grocery
9,462B
7,702B
(1,760B)
Traditional Discount
2,744B
2,135B
(609MM)
Drug
1,434B
1,361B
(73MM)
Convenience/Gas
673MM
679MM
+6MM
Clubs
379MM
549MM
+170MM
Dollar Stores
233MM
785MM
+552MM
Supercenters
(1998) 609MM
1,396B
+787MM
Total Trips
15,534
14,607
(927MM)
Source: AC Nielsen Homescan: # Trips X % HH Penetration = Total Trips
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Using Clubs vs Supermarkets as an example, the pattern
appears to have morphed into something like the following:
Annual Trip Frequencies & Transaction Size:
Clubs vs. Supermarkets
Avg.
Transaction
Size
100
90
$82.97
80
70
60
50
40
$32.94
30
20
10
0
Jan
Feb
Mar
Apr May
June July
Aug
Sept
Oct
Nov
Dec
Source: AC Nielsen Homescan, 2003 and 2001
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Issue #2
Structural Inability of Traditional Format Retailers To
Compete on Price with Value Discounters
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Wal-Mart’s Expansion into Food
 The most significant factor in food retailing since the advent of self service
in 1916:
• Invents nothing but perfects everything
• Does nothing different but tries to do everything better
• Disdains emotion but rewards pragmatism, commitment and discipline
 Between 1980 and 2001 Wal-Mart grew 35x’s faster than the market:
1980
2001
Multiple vs. 1980
Total US Retail Sales
$957B
$3,500B
3.6 X
Wal-Mart (US only)
$1.2B
$150B
125 X
Walmart vs. Total US
BeverageRetailing2003.ppt
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15
Wal-Mart’s Expansion into Food
 Wal-Mart is now the nation’s #1 food provider with 2002 food sales of
approximately $80B (vs. $50B for #2)
 Objective is 30% share of every business it enters
 Several weeks ago, USA Today reported one analyst’s forecast that
supermarkets’ share of the grocery business will drop to 34% by 2010 from
its current 53% with the bulk lost to Wal-Mart
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The Heart of the Wal-Mart Competitive Advantage – Low
Operating Costs
Wal-Mart vs. Leading Supermarket Financials: 2002 – 2003
Wal-Mart
Kroger
Albertson’s
Safeway
Sales
$81B
$53B
$36B
$32B
Operating Costs
16.6%
22.1%
24.1%
25.9%
Operating Profits
5.2%
4.9%
5.1%
5.2%
22.2%
27.0%
29.2%
31.1%
3.3%
2.2%
1.4%
(2.5%)
Gross Margins
Net Income
Source: Company SEC filings, Kroger & Albertson’s through 3 quarters, Wal-Mart & Safeway reflect full FY2002
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Pricing advantages translated into real-world retails
Channel Pricing Index on Selected Consumables
(Scottsdale, AZ, 8/7/2002)
Formula 409
Pine Sol
Pledge
Lysol Disinfecting Spray
Windex
Arrowhead Water
Tea Bags
Maxwell House Coffee
Sweet ‘n Low
Equal
Hershey’s Kisses
M&M’s
Bath Tissue – 36-48 Roll
Bath Tissue – 12-24 Roll
Napkins
Towels (roll)
Food
Supercenters
Clubs
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
61
92
68
66
59
92
49
71
92
72
66
65
54
73
60
77
53
58
57
54
37
65
45
N/A
43
48
67
54
41
57
39
73
Source: Hoyt & Company Store Checks w/o 8/7/2002.
Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.
BeverageRetailing2003.ppt
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Other Winning Formats – Club Stores
 2001 combined food sales of approximately $38.5B
SAM’s
Costco
BJ’s
Food & Bev
Sales
% Per Year
# Stores
$18.4
$17.7
$2.4
+5.2%
+8.2%
+11.5%
498
363
130
 Business Model: Membership fees contribute as much as 70% of operating
profits enabling cost + 10% retails
 Demographic Target: Small businesses and affluent consumers
 Positioning: High quality national brands and private labels at
10-30% discounts to average market prices
 Average Transaction Size: $80 - $85
 Penetration grew from 49 to 52% between 1996 and 2002; trip frequency
grew from 8 to 10
Source: FMI< 2002 - 2003
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Other Winning Formats – Dollar Stores
 $17B channel dominated by Dollar General, Family Dollar and Dollar Tree
Dollar General
Family Dollar
Dollar Tree
Top
100 Rank
Sales
% Prev Year
# Stores
% Per Year
39
53
90
$5.3B
$3.7B
$2.0B
+17.0
+17.0
+17.0
5,540
4,141
1,975
+10.8
+12.3
+14.2
 Business Model: Quality closeouts, liquidation merchandise priced at 30-40%
below market averages
 Demographic Target: $30 - $50K, retirees and those on fixed incomes
 Positioning: “A new market beneath the standard discount market”
 Average transaction size: $9.00 (with most items priced around an even $1.00)
 Penetration grew a whopping 39% to 62% between 1996 and
2002 while trip frequency doubled from 6 to 12
BeverageRetailing2003.ppt
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Value Retailers’ Success Ingredients – Common Characteristics
 Business models that differentiate by definition
 No deviation to react to the latest threat
 Focus on a specific consumer group
 Fluid merchandising that maximizes quick rotation & change –
quick in-and-out, frequent “surprises”
 Below-market acquisition costs, low operating expenses & belowmarket pricing consistency
 Leverage supplier dollars to keep prices low vs. enhance profitability
= consumer-driven vs. deal-driven merchandising
 Willingness to settle for part of the pie – none attempts to be all
things to all people all of the time
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Issue #3
Urgent Need For Traditional Format Retailers To
Become Consumer-Focused
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To understand modern consumer purchase decision drivers, a good
starting point is to look at mean household income growth trends
over the past 30 years
Mean Income Trends By Population Fifths, 1970-2001
(2001 Dollars – Per Household)
$140.0
$146.0
(+81%) Top 20%
$120.0
$100.0
$80.0
$80.6
(+50%)
$66.8
$60.0
58.2
$40.0 $44.5
35.9
$42.6
(+34%)
$25.5
(+28%)
$31.8
$20.0
$19.9
$0.0 $7. 3
1970
TOTAL US MEAN (+62%)
$10.1
(+38%)
2001
Source: US Census, Bureau of Labor Statistics, 2003. All data adjusted for inflation.
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Clearly, the U.S. population is gradually but progressively
splintering into a nation of “Haves” vs “Have nots”
2001 Distribution of Total U.S. Income By Population Fifths
Quintile
I
% Distribution of Income
20%
50.2%
40%
II
20%
23.0%
III
20%
14.6%
IV
20%
8.7%
40%
V
20%
Total U.S. Mean
3.5%
Mean Income
$146.0
73.2%
$66.8
Middle
Class
12.2%
$42.6
$25.5
$10.1
$58.2
Source: U.S. Census Bureau, 2003; Dept of Commerce
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This creates a problem for Traditional Format Retailers because
most of these folks are configured to capture the “Middle”
Assuming these trends continue, current forecasts are that within 20
years, there will be three very distinct groups of shoppers versus a
predominance of one group at present.
2000
BeverageRetailing2003.ppt
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25
Two retailers that have successfully aligned for these trends are Wal-Mart
and Target – both mass merchandisers – who have done an outstanding job
in positioning themselves against very different consumer segments:
Wal-Mart vs. Target Shopper Demographics Indexed to Total US
Categories
Wal-Mart Super Center
Target
Income
$30 - $49
$50 - $74
$75+
109
100
74
102
117
129
Education
High School
College
Post
104
81
77
102
125
120
Home Value
$0 - $99M
$100M+
140
75
85
137
Age
18 – 34
35 – 54
55+
108
96
98
112
108
87
Source: Hoyt & Company/Scarborough Research 2000
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Traditional Format differentiation success stories
 Whole Foods
 Trader Joes
 H.E. Butt
 Wegman’s
 Stew Leonard’s
 Walgreens
 A.J.’s Foods
 Ukrops
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The future for most Traditional Format Retailers:
Pick your ground and plant your flag
Aging Affluent
 Favor retailers who cater to taste/
lifestyles
 Variety more important than price
 Prefer smaller stores/personal service
 Not a “deal” shopper
 Courtesy and “experience” are key
Hours
0
40
Price Calibrators
 Completely disloyal
 Commodity vs. quality
 Cherry-picking an art
 Service, decor unimportant
 A continually moving target
Income
$146.0
$66.8
Time Calibrators
 One-stop shopping
 Fast service is everything
 Full variety is key
 Premium quality
 Blind to deals
$42.6
80
Hours
120
Up & Comers
 Value-channel stock-up shopper
 Use supermarkets for weekly variety
fill-in
$25.5
 Fast service
 Key P.L. shopper
 Growing families, growing income —
$10.1 soon to be affluent
Income
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Beverage Potential For Helping To Rebuild
Trip Loss And HH Penetration
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Despite devastating overall consumer defections, Supermarkets
remain the primary source of most beverage category volume
Category
Rank
Category
2001
Sales ($B)
% Total
SM Sales
% Share In
Supermarkets (2001)
4
Carb. Soft Drinks
$11.8
3.2%
72.5%
6
Milk
$10.9
3.0%
77.0%
14
Beer
$6.8
1.9%
54.7%
16
SS Juices/Drinks
$5.9
1.6%
67.3%
21
Ref. Juices/Drinks
$3.9
1.1%
83.3%
25
Wine
$3.6
1.0%
45.8%
$42.9B
11.8%
N/A
Totals
Source: Progressive Grocer/IRI 55th Annual CES, 9/15/2002
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The flip side of this is that 3 of these categories represent 3 of
Supermarkets’ Top 10 potential traffic builders
Leading Supermarket Categories Ranked In Order of Pulling Power
(HH Penetration X Purchase Frequency = Pulling Power)
Rank
1
2
3
4
5
6
7
8
9
10
Category
Baked Goods
Milk
Soft Drinks - Carbonated
Snacks
Paper Products
Candy
Juices/Drinks – SS
Meat & Seafood – Fresh
Produce
Packaged Meats
HH
Penetration
99.4
97.8
97.7
98.7
99.3
97.9
94.7
99.9
99.9
96.7
X
Purchase
Frequency
35.5
34.3
30.3
25.7
23.5
21.8
20.9
19.1
18.5
18.9
=
Pulling
Power
Index To
Norm
3529
3355
2960
2537
2334
2134
1979
1908
1848
1828
698
663
585
502
461
422
391
377
365
361
Source: Progressive Grocer/IRI 55th Annual CES, 9/15/2002
BeverageRetailing2003.ppt
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These same 3 categories also rank in Supermarkets’ Top 20
categories in terms of contribution to total dollar sales
Leading Supermarket Categories Ranked In Order of Dollar Power
(Dollar Power = HH Penetration X Purch. Freq. X Transaction Size)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Category
Meat & Seafood - Fresh
Produce
Soft Drinks - Carb
Tobacco/Accessories
Deli-service
Baked Goods - Fresh
Paper Products
Milk
Pet Food
Snacks
Prepared Foods - Frozen
Packaged Meats
Cereal
Candy
Cheese
Medications/Remedies
Juices/Drinks - SS
Vitamins
Beer
Detergents
BeverageRetailing2003.ppt
HH
Purchase
Pulling
Avg.
Dollar
Penetration X Frequency X Power X Trans. Size = Power
99.9
99.9
97.7
43.9
88.6
99.4
99.3
97.8
71.1
98.7
93.2
96.7
96.1
97.9
97.5
92.9
94.7
76.3
43.2
97.1
19.1
18.5
30.3
21.7
10.2
35.5
23.5
34.3
19.6
25.7
12.4
18.9
17.8
21.8
17.2
10.8
20.9
4.9
10.6
10.3
1908
1848
2960
953
904
3529
2334
3355
1394
2537
1156
1828
1711
2134
1677
1003
1979
374
458
1000
$26.13
$18.29
$5.03
$12.91
$13.12
$2.78
$4.03
$2.75
$6.41
$3.38
$7.40
$4.41
$4.14
$3.24
$3.97
$5.52
$2.71
$13.25
$10.63
$4.73
Dollar Power
Index to Norm
$49,850.23
$33,803.74
$14,881.66
$12,294.20
$11,853.35
$9,817.74
$9,392.79
$9,217.65
$8,927.32
$8,579.00
$8,546.44
$8,064.78
$7,086.41
$6,910.76
$6,649.50
$5,537.77
$5,368.54
$4,952.63
$4,866.91
$4,731.68
2
1
32
Now back to our original questions concerning top-to-top
meeting opportunities:
 What do say when you get there?
 What do you say to get you there?
 How do you align internally to make the most of these
opportunities?
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It is H&C’s belief that the Supplier Community has huge untapped
potential to help Traditional Format Retailers defend and grow in
the face of Value Discounter encroachment
 Those of you in this room have a unique advantage because of
beverages’ obviously crucial role as traffic builders.
 The other resource – unique to suppliers – is those aspects of
your Company’s brand marketing expertise that can help your
key retailers address their targeting or overall differentiation
objectives.
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So what is the framework in the present environment to optimize
your next top-to-top opportunity with Traditional Format Retailers?
 Develop an understanding of your key retailer’s overall business issues from
a top management viewpoint:
• Not brand
• Not category
• Core business-building issues only
 Organize to address these issues as if they were your own:
• Limit to subjects that enable you to leverage your normal areas of
expertise
• Bring the full weight of all (relevant) resources to bear on the issues –
sales, marketing, market research, etc.
 Confine the meeting to a dialogue focused exclusively on the retailer’s
issues:
• Resist the temptation to make it a platform for advancing brand (or
category) objectives
• Do NOT ask for anything in return at the conclusion of the meeting
BeverageRetailing2003.ppt
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Jacks or better to open by trade class Traditional Format Retailer Meeting Subjects
 Supermarkets
• “What makes a food store a food store in 2003?”
• Financial benefits of defaulting the entire center-of-the-store to a “convenience”
position
• Leveraging inherent assets: location, assortment and perishables expertise
 Drug Chains
• Recapturing young singles
• Capitalizing on senior segment growth opportunities
• Why soda fountains and sandwiches now make sense
 Convenience
• How to leverage the consumer’s obsession with “quick, easy and convenient”
• Broadening assortments to increase margins and transaction size
• Moving beyond the convenience store’s traditional consumer base
BeverageRetailing2003.ppt
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Moral of story
It’s not just price; it’s a combination of factors, carefully blended and
balanced to satisfy the needs and aspirations of a particular consumer
segment:
 “Build it and they will come” and “All things to all people” are histoire.
 Taking a stand and/or being willing to accept a smaller piece of the pie
appears to be the winning formula.
 Because of their brand marketing expertise, manufacturers are uniquely
equipped to help retailers sort this out.
 Being willing to do this and to move beyond the parochialism of specific
brands or categories is the essence of Co-Marketing.
BeverageRetailing2003.ppt
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Thank you, it has been an honor
We Appreciate The Time and Attention You Have
Given Us Today. Specifically, We Want to Thank
Bob Phillips and Beverage Aisle for Inviting Us
(for the Fifth Year in a Row) and Trust That This
Has Been Both Fun and Helpful.
www.hoytnet.com
8912 East Pinnacle Peak Road • Scottsdale, AZ 85255
Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected] • [email protected]