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Beverage Retailing Summit, 2002. Managing The Partnership To A Strategic Level. March 12, 2002 Amelia Island, Florida. www.hoytnet.com 8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected][email protected]

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managing the partnership to a strategic level
Beverage Retailing Summit, 2002

Managing The Partnership To A Strategic Level

March 12, 2002Amelia Island, Florida

www.hoytnet.com

8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected][email protected]

today
Today:
  • Core issues facing both manufacturers and retailers
  • The opportunity for both to put new meaning into the partnership model
  • Implementation – where to start:
    • For retailers
    • For manufacturers
problems vs opportunities
“Problems vs. Opportunities”
  • There is a convergence of factors in the marketplace today that calls for both manufacturers and retailers to change the way they go to market.
    • Those who view this as an “opportunity” and move to change NOW will survive and thrive
    • Those who view this as a “problem” and spend a lot of time “thinking about it” will get passed-by
  • This talk is to review these factors and offer suggestions to both manufacturers and retailers on how to capitalize on the opportunities.
core issues

Core Issues

Retailers

Manufacturers

outlet saturation
Today

120K Convenience Stores

32K Supermarkets

6K Mass Merchandisers

20K Drug Stores

1K Club Stores

6K Dollar Stores

McDonaldsBurger KingWendy’sJack-in-The-Box

45% of Food DollarsSpent Away From Home

1950’s

No Fast Food

No Mass Merchandisers

No Clubs

No Supercenters

Independents Dominated Drug

A&P Dominated Food

Most CPG-type Products Sold Through Supermarkets

Most Meals Prepared and Eaten at Home

Outlet Saturation
sku proliferation
SKU Proliferation
  • SKU Growth: 1945 - 1995

Source: Insight Out of Chaos, 2001

mass availability of same items in different channels
% Buyers InMass Availability Of Same Items In Different Channels
  • SuperCenters
  • Grocery
  • Mass
  • Clubs
  • Drug
  • C-Stores
  • Non-Choc. Candy
  • Chocolate Candy
  • Artificial Sweeteners
  • Ground Coffee
  • Dried Fruit Snacks
  • HH Cleaners
  • Toilet Tissue
  • Paper Towels
  • Liquid Soap
  • Soft Drinks
  • 79.4%
  • 83.6%
  • 80.2%
  • 90.2%
  • 83.2%
  • 78.6%
  • 86.4%
  • 77.8%
  • 55.4%
  • 97.5%
  • 62.0%
  • 58.0%
  • 21.8%
  • 30.0%
  • 22.8%
  • 42.9%
  • 50.3%
  • 25.1%
  • 45.0%
  • 44.7%
  • 18.0%
  • 16.6%
  • 8.1%
  • 11.3%
  • 7.2%
  • 12.1%
  • 16.5%
  • 6.6%
  • 11.6%
  • 16.9%
  • 12.6%
  • 10.4%
  • 11.9%
  • 15.5%
  • 12.7%
  • 11.4%
  • 10.4%
  • 10.0%
  • 10.3%
  • 9.2%
  • 43.5%
  • 5.1%
  • 5.2%
  • 7.7%
  • 4.2%
  • 14.7%
  • 19.8%
  • 9.5%
  • 9.9%
  • 24.1%
  • 9.5%
  • 1.5%
  • 0.4%
  • 1.0%
  • 0.8%
  • 0.8%
  • 1.6%
  • 0.6%
  • 0.2%
  • 20.4%

Source: Scarborough Research, 1999-2000

price based competition
Channel Pricing Index on Selected Consumables(Scottsdale, AZ, 8/7/2001)Price-Based Competition
  • Food
  • Drug
  • Super Center
  • Club
  • 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)
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 100
  • 117
  • 100
  • 100
  • 120
  • 70
  • 100
  • 80
  • 121
  • 86
  • 78
  • 94
  • 100
  • N/A
  • 108
  • 99
  • 114
  • 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 8/7/2001.
  • Largest sizes carried indexed to Food on a per unit (oz/sheet/count) basis.
category hijacking
Category Hijacking
  • Dry Grocery Sales Trends In Drug Chains vs. Food Stores

Food ‘95 to ‘99

Drug ‘95 to ‘99

Snacks - Health Bars & Sticks

Spaghetti - Canned

Water - Bottled

Cereal – Ready-to-Eat

Ravioli – Canned

Soup - Canned

Snacks – Potato Chips

Coffee - Ground

Soft Drinks - Carbonated

Dry Dinners - Pasta

Jelly

Dog Food - Dry Type

Cat Food - Dry Type

Granola & Yogurt Bars

387%

6%

77%

-8%

35%

13%

16%

-16%

30%

21%

-2%

24%

16%

-9%

681%

183%

160%

159%

128%

119%

68%

60%

59%

58%

50%

48%

41%

29%

Source: AC Nielsen

store disloyalty
Store Disloyalty
  • In 2000:
    • 100% of U.S. HH shopped Supermarkets 1.7x’s per week and spent an average of $32.00 per trip.
    • 94% of HH shopped Mass Merchandisers every other week and spent about $36.00 per trip.
    • 86% of HHs shopped a Drug chain a little more than 1x per month and spent an average of $18.00 per trip.
    • 52% shopped a Convenience store about 1x per month and spent about $8.00 per trip.
    • 49% shopped a Club about once every 6 weeks and spent $82.00 per trip.
    • 47% shopped a Dollar Store once every 5 weeks and spent about $10.00 per trip.
    • And now – the internet!
trip loss in core channels
Trip Loss In Core Channels
  • Shopper Trips By Channel (1996 – 2000)(Avg. # Trips/Channel/Year)

Total Trips

180

177

Source: AC Nielsen Homescan

for most food is now a low involvement purchase
For Most Food Is Now A “Low Involvement” Purchase…
  • Food As A % of Personal Consumption $

BLS, 2002

and a similar pattern applies to beverages
And A Similar Pattern Applies To Beverages
  • Beverage Categories as a % of Personal Consumption Spending

BLS, 2002

on top of this we have time pressured fickle consumers
Shopper’s Decision TimePercent of Total ShoppersOn Top Of This, We Have… Time-Pressured, Fickle Consumers
  • More than 15 seconds
  • 5 seconds or less
  • 6-15 seconds

Source: Price Knowledge and Search of Supermarket Shoppers – P Dickson and A. Sawyer

consumer dissatisfaction with the shopping experience
Consumer Dissatisfaction With The “Shopping Experience”
  • Is Shopping Fun? (10 = Highest)

2000 Ranking

1999

2000

  • Wholesale Clubs 7.17 (C-) 6.96 (D)
  • Mass Merchandisers 6.49 (D-) 6.83 (D)
  • Specialty Food Stores 6.90 (D) 6.76 (D)
  • Supermarkets 6.30 (D-) 6.46 (D-)
  • Chain Drug Stores 6.05 (D-) 6.08 (D-)
  • Fast Food Restaurants 6.02 (D-) 5.81 (F)
  • Convenience Stores 5.12 (F) 5.21 (F)

Source: Progressive Grocer: 67th and 68th Annual Report of the Grocery Industry, April, 2000 and 2001

sideways or inconsistent retailer margin performance
CPG Retailer Gross And Net Margin Performance: FY2000 vs. FY1990Sideways Or Inconsistent Retailer Margin Performance
  • Gross Margin
  • Net Profits
  • Retailers
  • 1990
  • 2000
  • % ∆
  • 1990
  • 2000
  • % ∆
  • Grocery
  • Drug
  • Wal-Mart
  • Target
  • Costco
  • Walgreens
  • Safeway
  • 25.4
  • 28.8
  • 22.8
  • 27.7
  • 11.0
  • 29.1
  • 26.7
  • 28.4
  • 24.3
  • 23.0
  • 31.5
  • 12.6
  • 28.2
  • 31.9
  • 12%
  • -16%
  • 1%
  • 14%
  • 15%
  • -3%
  • 19%
  • 1.3
  • 2.6
  • 4.0
  • 2.8
  • 1.6
  • 2.9
  • .3
  • 1.9
  • .6
  • 3.3
  • 3.4
  • 1.2
  • 3.6
  • 3.4
  • 48%
  • -76%
  • -18%
  • 21%
  • -25%
  • 24%
  • 280%

Source: Value Line, 1991 and 2001

media fragmentation reaching the consumer cost effectively
Media Fragmentation – Reaching The Consumer Cost Effectively
  • TV Timeline:
    • 1954 - TV Revenue @ $593MM surpasses radio revenue
    • 1960 – 90% of US homes have TV
    • 1972 – HBO debuts – first pay cable network
    • 1980 – CNN launches
    • 1986 – Fox Network debuts
    • 1988 – TNT debuts – TV’s 98% household penetration
  • Network Growth: 3 Network News Viewership (ABC, NBC, CBS)
    • 1971 = 3 networks 1980 = 75%
    • 2001 = 93 networks 2002 = 43%
  • Viewership:
    • 1983 – Last episode of M*A*S*H draws more than 125MM viewers
    • 1998 – Last episode of Seinfeld draws 76MM viewers
  • Cable/VCR Penetration – 2001:
    • Total TV households = 98M
    • Total cable TV households = 56MM
    • Household penetration of VCRs (1998) = 84.6%
through the roof trade promotion spending
% CPG Manufacturer A&P Spending Trends: 1978-2001Through-The-Roof Trade Promotion Spending
  • 1978
  • 1985
  • 1995
  • 2001
  • % vs ‘78
  • Trade Promotion
  • Consumer Promotion
  • Advertising
  • Totals
  • % A&P/Total Sales
  • % Trade/Total Sales
  • 33%
  • 27%
  • 40%
  • 100%
  • 13%
  • 5%
  • 38%
  • 27%
  • 35%
  • 100%
  • N/A
  • N/A
  • 51%
  • 24%
  • 25%
  • 100%
  • 22%
  • 13%
  • 61%
  • 15%
  • 24%
  • 100%
  • 27%
  • 16%
  • +85%
  • -44%
  • -41%
  • N/A
  • 107%
  • 220%

Source: Carol Wright, Accenture, Cannondale, Donnelly, 1980 - 2002

manufacturer dissatisfaction with results
Manufacturer Dissatisfaction With Results
  • Industry Issue Importance - 2001(% Rating Very/Extremely Important)

Pt. Change vs. Year Ago

Trade Promotion Inefficiency

-5

-6

+2

+3

New Products

-7

-4

Category Management

+16

+2

Frequent Shopper Cards

-11

-5

Technology

-13

-7

Consolidation

-7

-7

Private Label Growth

-10

+9

Activity Based Management

Source: Cannondale Associates, 2001

splintering population along ethnic lines
Projected Population Growth by Segment, 2000 - 2050Splintering Population Along Ethnic Lines
  • 2000
  • 2050
  • Pop. Segment
  • MM
  • %
  • MM
  • %
  • Index vs. 2000
  • White non-Hispanic
  • Hispanic
  • Black
  • Asian/So. Pacific
  • Other
  • Totals
  • 194
  • 32
  • 35
  • 11
  • 3
  • 257
  • 70.5
  • 11.6
  • 12.7
  • 4.0
  • 1.2
  • 100.0
  • 213
  • 98
  • 59
  • 38
  • 12
  • 420
  • 50.7
  • 23.3
  • 14.0
  • 9.0
  • 2.8
  • 100.0
  • 110
  • 306
  • 168
  • 345
  • 400
  • 152

Source: U.S.B.L.S., 2000. 2050 numbers are BLS estimates

splintering along economic lines
2000 Distribution of Total U.S. Income By Population FifthsSplintering Along Economic Lines

Quintile

Mean Income

% Distribution of Income

I

II

III

IV

V

20%

20%

20%

20%

20%

49.6%

23.0%

14.8%

8.9%

3.6%

$141.6K

$65.7K

$42.4K

$25.3K

$10.2K

72.6%

40%

Middle Class

12.5%

40%

Source: U.S. Census Bureau, 2000; Dept of Commerce

no relief in sight
Mean Income Trends By Population Fifths, 1967 - 2000(2000 Dollars - Per Household $K)No Relief In Sight

Top 20%

79.5%

Top 20%

44.4%

2nd 20%

36.3%

3rd 20%

29.7%

4th 20%

5th 20%

43.7%

Source: US Census, Bureau of Labor Statistics, 2000. All data adjusted for inflation.

emerging elderly
Emerging Elderly
  • Growth of 55+ Population Between 2000 and 2020(As a % of total pop.)
  • 30% of total pop.
  • 97.5MM
  • 22% of total pop.
  • 60.5MM
  • +61% vs. 2000
  • +18% vs. 2000

Source: U.S. Census Bureau

slide25
Net:
  • Consumers are becoming more “self-loyal” than store loyal or brand loyal
  • Driven by:
    • Price pressures
    • Time pressures
    • Ethnic or lifestyle preferences
    • General indifference to or even dissatisfaction with shopping experience
  • Exacerbated by “choice confusion” due to:
    • Outlet saturation
    • SKU proliferation
  • Food purchasing no longer a big deal
sorting it out
Sorting It Out…

The opportunity for both manufacturers and retailers to put new meaning into the “partnership” model

slide27
Consolidation Has Compressed The Entire CPG Marketplace To A Manageable Configuration of Approximately 30 Accounts

# Leading Accounts/Channel Share

Y2000Channel Vol ($M)

Channel %Total HH

Avg. AnnualTrip Freq.

Grocery

Discount

Drug

Club

Supercenter

Convenience/Gas

Dollar Stores

$494

$157

$131

$60

$31

$30

$12

$915

5/42%

3/65%

4/66%

3/100%

4/92%

7/100%

4/85%

30/57%

100%

94%

86%

49%

47%

52%

47%

100%

87

25

15

10

15

14

10

N/A

Source: Progressive Grocer, Drug Store News, AC Nielsen, Discount Store News and Hoyt & Company Records 2001 - 2002

suppliers have responded by creating their own world of giants
Suppliers Have Responded By Creating Their Own World of Giants:
  • Over the past three years:
    • Unilever bought Best Foods
    • Philip Morris bought Nabisco
    • General Mills bought Pillsbury
    • Nestle bought Ralston Purina
    • Kellogg’s bought Keebler
    • ConAgra bought International Home Foods
    • Pepsi bought Quaker
    • P&G bought Clairol
    • Coke bought Odwalla
    • Cadbury bought Snapple
    • Smucker’s bought Jif and Crisco
    • Danone bought McKesson
slide29
Moreover, Technology Has Made It Possible For Both Manufacturers and Retailers To Target Heavy Shoppers
  • Heavy Channel Shopper Importance

Source: AC Nielsen

slide30
The Key To Making This Work For Both Parties Is The Willingness To Break Down Traditional Thought Barriers
  • Retailers – Differentiate on a basis other than price and build store equity as “brands”
  • Manufacturers – Acknowledge retailers’ strategic potential in helping build brand equity via retailer-developed consumer communications vehicles and promotion devices
  • Focus resources to help achieve individual strategic objectives:
    • Retailers – store equity
    • Manufactures – brand equity
  • Some have begun but the majority has yet to catch on
traditional retailer mind set changes required
Traditional Retailer Mind-Set Changes Required
  • “Build it and they will come”
  • Deal-driven versus consumer-driven buying mentality
  • Push as many costs of doing business as possible onto the supplier community:
    • Category management analyses and recommendations
    • Promotion ideation and execution
  • “Get more/spend less” risk adverse approach
  • Financial objectives first, customers second:
    • Limiting selection because it does not meet category management criteria
traditional manufacturer mind set changes required
Traditional Manufacturer Mind-Set Changes Required
  • Direct-to-consumer advertising and promotion is the only way to build brand equity:
    • Now 40% of A&P versus 60% trade
    • Trade spend is now over 16% of net sales
  • Shotgun versus rifle
  • Brand-centric/geographic versus account-centric structure and process
  • “Our teams are already empowered”
why sales teams are not empowered most not all
Why Sales Teams Are Not Empowered (Most, Not All):
  • ManufacturerTrade Promotion/Customer Development
  • Brand Groups$
  • Manufacturer Account Team
  • Mega Retailer

1

2

3

4

No Contact

taking the partnership to a strategic level the key areas of focus for the next 10 years
Taking The Partnership To A Strategic Level – The Key Areas of Focus For The Next 10 Years
  • Retailer
  • Manufacturer
  • Objectives
  • Strategy
  • Implementation
  • Build store equity
  • Build share
  • Increase profitability
  • Build store “brand equity” via non-price based differentiation leveraged off core strengths
  • Tap key supplier marketing expertise
  • Build brand equity
  • Build share
  • Increase profitability
  • Build brand equity via BOTH direct-to-consumer and trade-to-consumer advertising and promotion vehicles
  • Make Brand Managers “TradeSmart”
  • Make KAMs “Consumer Smart”
  • Cross-pollinate at the point of sale
implementation

Implementation

What is “equity” from a retailer’s POV?

How do I “empower” my account teams without blowing-up my organization?

equity
Equity:
  • The reason why shoppers will drive 100 miles RT from NYC to Norwalk every week to shop at Stew Leonard's
  • The reason why consumers will pay a 10-15% premium for a Coke or an Evian versus NBE private label
  • Sets one retailer apart from another on a basis other than price:
    • Once one builds equity in a store, price then becomes secondary
  • Is total corporate driven, not category driven
  • Can be continually leveraged in different ways to attract and hold new consumers while retaining current customers
  • Provides a strategic framework for all advertising and promotion activities
  • Your signature – your core reason for being
building equity
Building Equity:
  • Define core strengths
  • Roll-up into a strategy that forces your competitors to react to you
  • Communicate via a three word position statement:
    • “Quality for value”
    • “The Time Savers”
    • “The Solution Providers”
    • “Fresher, Better, Faster”
  • Never deviate/react to competition – persistence and consistency through the dark days is everything
  • Focus entire organization on implementation:
    • Align standards with strategy
    • Change incentives
    • Reward execution excellence loudly and frequently
empowering account teams
Empowering Account Teams
  • Train brand management and agency executives to become “TradeSmart”:
    • Top 10 accounts (20/80)
    • ROI/equity potential of retailers’ communication vehicles and promotion devices
    • 1X per year personal account calls to get direct input
  • Add a new budget line to annual brand plan
    • “Co-Marketing” – Refers to “through-trade-to-consumer” equity-building advertising and promotion activities
    • Fund commensurate with potential return – do NOT siphon from current trade promotion allocations
  • Train KAMs/Team Leaders to become “ConsumerSmart”:
    • Also want these people to be able to identify equity opportunities and convince account to convert/invest trade promotion funds commensurate with opportunities
is this real
Co-Marketing As A % of Total Advertising & Promotion Spending, 1997 - 2001Is This Real?

Advertising

Direct to consumer dollars

ConsumerPromotion

Through Trade-to-Consumer $

Co-Marketing

In-store promotion activities - feature, display, TPR

Trade Promotion

Total Customer $ 53% 56% 60% 60% 61%

Source: Cannondale Associates, 2001 Trade Spending and Merchandising Industry Study

change is tough but the bright side is the progress we have made over the last 100 years
Change Is Tough But The Bright Side Is The Progress We Have Made Over The Last 100 Years:
  • In 1900:
    • Life expectancy was 47
    • Only 14% of homes had bathtubs
    • Only 8% had a telephone
    • There were only 8,000 cars and 144 miles of paved roads
    • Maximum speed limit was 10 mph
    • Average wage was 22¢ per hour and the average worker made between $200 and $400 per year
    • 95% of all births occurred at home
    • Sugar cost 4¢/lb, eggs were 14¢/dozen and coffee 15¢/lb
    • Marijuana, heroin and morphine were all available over the counter in corner drug stores
thank you
Thank You…
  • If you want to help your Brand Managers become “TradeSmart” and your Sales Managers to become “ConsumerSmart”, please contact us or visit our website and we will tell you how to do this (and much more!) in 3 days at a cost that everyone can afford.

www.hoytnet.com

8912 E. Pinnacle Peak Rd. #650 • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: [email protected][email protected]

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