Transcript Slide 1

THE ART & SCIENCE OF
PRIVATE LABEL PRICING
W. FRANK DELL II, CMC
OCTOBER, 2003
AGENDA
INTRODUCTION
ISSUES & DIFFERENCES
PRICING APPROACH
DELLMART & COMPANY
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Objectives
Provide an understanding of Private
Label
Identify common pricing mistakes
Present a better approach
DELLMART & COMPANY
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The Starting Point
Product
1830 - Brooks Brothers
1890 - Kroger / A & P
Packaging
National
Brand
DELLMART & COMPANY
Private Label
4
Private Label - USA
Initiated by
– Necessity
– Pride
Lower priced
commodities
– Second tier quality
– Second tier packaging
Follow the Brand’s lead
DELLMART & COMPANY
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Sales by Channel
$50.0
$45.0
$40.0
$35.0
$30.0
Billions $25.0
$20.0
$15.0
$10.0
$5.0
$0.0
Drug
Supermarket
1998
1999
Mass Merchants exceed $7B
DELLMART & COMPANY
2000
2001
2002
Year
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Private Label Share
25.0%
20.0%
15.0%
Dollars
Units
10.0%
5.0%
0.0%
1995
1996
DELLMART & COMPANY
1997
1998
1999
2000
2001
2002
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Top Categories - Sales
CATEGORY
SALES
1. Milk
$6,500.0
2. Fresh Bread & Rolls
$2,300.0
3. Natural Cheese
$2,000.0
4. Fresh Eggs
$1,700.0
5. Ice Cream / Sherbet
$1,100.0
6. Carbonated Beverages
$ 848.5
7. Vegetables
$ 746.6
8. Fz Plain Vegetables
$ 702.0
9. Rfg Juice/Drinks
$ 633.3
10. Sugar
$ 628.0
DELLMART & COMPANY
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Top Items - Growth
ITEM
1. Non-Carbonated Water
2. Fz Orange Juice Concentrate
SHARE
7.2%
16.9%
3. Tomato Paste/Sauce/Puree
3.5%
4. Rfg Orange Juice
5.5%
5. White Granulated Sugar
6. Tomato Paste/Sauce/Puree
7. Rfg Butter
8. Cream Cheese & Spread
20.7%
1.9%
16.0%
1.1%
9. Evaporated/Condensed Milk
17.2%
10. Dry Macaroni & Cheese Mix
1.1%
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External Drivers
Channel Blurring
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Consolidation
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Internal Drivers
Gross Margin
DELLMART & COMPANY
Competitive Sameness
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Private Label Response
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AGENDA
INTRODUCTION
ISSUES & DIFFERENCES
PRICING APPROACH
DELLMART & COMPANY
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Retailer’s Goals
High
Low
• Gross Margin
• Quality Ratio
• Price Image
DELLMART & COMPANY
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CONSUMERS PERSPECTIVE
Recall up to 200
item prices
Frequently
purchased items
High consumables
Translates to 500 1,000 items creating
the retailer’s price
image
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Observation
Much of retail pricing seems
to be follow the leader
Not unlike a dog chasing its
tail
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Private Label Not Comparable
Differences
– Manufacturer
– Formula
– Size
– Positioning
– Packaging
Excludes commodities
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Low Prices Not The Answer
CATEGORY
Breadcrumbs
Carb. Beverage
Popcorn
Short. & Oils
DELLMART & COMPANY
SHARE
GM%
RETAIL
NB
90.6%
18.0%
$2.17
PL
9.4%
26.5%
$1.03
NB
92.4%
12.6%
$2.13
PL
7.6%
14.5%
$1.05
NB
84.7%
23.5%
$2.81
PL
15.3%
47.0%
$1.32
NB
78.2%
24.8%
$4.60
PL
21.8%
34.7%
$2.23
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Price Elasticity
10
9
8
7
6
Theory
Reality
5
4
3
2
1
0
$1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00
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Retail Price & Space Interrelated
8
7
6
5
Price
Space
4
3
2
1
0
2
3
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5
6
7
8
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Private Label Price Discount
CHAIN
DISCOUNT
Safeway
18%
Kroger (Ralphs)
22%
Ahold (Stop & Shop)
22%
Albertson’s (Jewell)
23%
Wal-Mart
25%
Delhaize (Hannaford)
27%
Safeway (Dominick’s)
28%
Price Chopper
30%
Source: Supermarket News
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Channel Pricing Strategies
Gross Margin
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
S Market
Center
Club
FB
FB
DELLMART & COMPANY
PL
SB
SB
SB
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AGENDA
INTRODUCTION
ISSUES & DIFFERENCES
PRICING APPROACH
DELLMART & COMPANY
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Not Just One Private Label
Commodity (sugar)
Alternative (soup)
Gourmet/Super-premium (cookie)
Natural/Organic (juice)
Unique (Trader Joe’s)
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Retail Strategy
Location
Selection
Serv ice
Display
Price
Decor
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Category Role
Destination - To be the primary
category provider and help define the
retailer as the store of choice by
delivering consistent, superior target
consumer value.
Routine - To be one of the preferred
category providers and help develop the
retailer as the store of choice by
delivering consistent, competitive target
consumer value.
DELLMART & COMPANY
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Category Role (Cont.)
Occasional/Seasonal - To be a major
category provider, help reinforce the
retailer as the store of choice by
delivering frequent, competitive target
consumer value.
Convenience - To be a category
provider and help reinforce the retailer
as the store of choice by delivering
good consumer target value.
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Category Strategy
Strategies
Characteristics
Traffic Building
- High share, frequently purchased,
high % of sales
Transaction Building - Higher Ring-up, impulse purchasing
Profit Contribution - Higher Gross Margin, turns
Cash Generating
- Higher turns, frequently purchased
Excitement Creating - Impulse, lifestyle oriented
Image Creating
- Frequently purchased, highly
promoted, impulse, unique
Turf Defending
- Used to draw customer base
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Pricing Philosophy
Hi Lo
EDLP
Velocity
– Faster selling priced lower than
slower
Size
– Larger sizes priced lower than
smaller
Flavor/Pattern
– Priced as group
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Understand The Category
Purchase frequency
Solo, multiple or joint purchase
Competition
– Inside store
– Outside store
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Product Factors
TYPE
QUALITY
PACKAGING
Commodity
=
=
Alternative
=
=
Gourmet
+
+
Organic
=
+
Unique
NA
+
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Set Item Objective
35.0%
30.0%
25.0%
20.0%
Current
Target
Category
15.0%
10.0%
5.0%
0.0%
DELLMART & COMPANY
Share
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Honest Assessment
Product quality
Product performance
Packaging
Retail space allocation
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Honest Value Determination
VALUE =
DELLMART & COMPANY
PRICE
QUALITY
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General Private Label Pricing
QUALITY
DISCOUNT
11
10%
10
15%
9
15%
8
17%
7
20%
6
Discontinue
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Commodity
$2.50
$2.00
$1.50
Lead-NB
PL-Low
PL-Target
NB
$1.00
$0.50
$0.00
DELLMART & COMPANY
Price
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Alternative
$2.50
$2.00
$1.50
Lead-NB
PL-Low
PL-Target
NB
$1.00
$0.50
$0.00
DELLMART & COMPANY
Price
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Gourmet
$2.00
$1.98
$1.96
$1.94
Lead-NB
PL-Low
PL-Target
NB
$1.92
$1.90
$1.88
$1.86
$1.84
DELLMART & COMPANY
Price
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Organic
$2.10
$2.05
$2.00
$1.95
Lead-NB
PL-Low
PL-Target
NB
$1.90
$1.85
$1.80
$1.75
$1.70
$1.65
DELLMART & COMPANY
Price
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Unique
$2.00
$1.95
$1.90
PL-Low
PL-Target
$1.85
$1.80
$1.75
$1.70
DELLMART & COMPANY
Price
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Summary
Art
Science
Strategy
Tactics
Design
Assessment
Share Objective
Retail Space
Price Point
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DELLMART & COMPANY
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W. Frank Dell II, CMC
President
DELLMART & Company
125 Hardesty Road
Stamford, CT 06903 USA
Tel: 203-968-8609
Fax: 203-968-8613
e-mail: [email protected]
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